By Luis A. Miguel
An outstanding fiscal dilemma confronts our country. There is no doubt that the economy presently envelopes the American political mind more than any other concern. We find ourselves struggling with and averting one form of economic crisis (if but partially) only to collide with further challenges of equally daunting complexity.
The current debate over budget deficits, national debt, and their effect upon our markets impels us to examine the sustainability of our current fiscal policy. Social security is on a prolonged but steady road to exhaustion. Like the rest of the social welfare programs that have come to constitute such a significant portion of our government infrastructure—and play such an influential role in our economic vitality—it must be evaluated. But we cannot adequately assess our entitlement system without a very distinct understanding of its purpose in our society.
Let’s begin with the facts on the ground. Social Security has had success. The Social Security and Medicare Boards of Trustees’ April 2012 report indicates that in 2011 there were 55.4 million beneficiaries who received $725.1 billion in Old Age, Survivors, and Disability Insurance. Social Security currently provides primary sustenance income for most of the elderly. Among the elderly, 53% of married couples and 74% of unmarried individuals receive 50% or more of their income from Social Security. The percentage of elderly Americans for whom Social Security constitutes over 90% of income is 23% of married couples and 46% of unmarried persons.
US Census data shows that in 2011, Social Security payments kept 14.5 million senior citizens above the poverty line. All this has been accomplished through a system in which current workers pay for the benefits of current retirees while simultaneously establishing credit for their own retirement. Surplus revenues from the Federal Insurance Contributions Act (FICA) are used to purchase US Treasury securities. The accrued interest from these assets expands the size of the Social Security Trust Fund.
As smooth as this process has worked, with program surpluses year after year, the Pay-as-You-Go system is not sustainable. Beginning in 2010, Social Security’s expenditures exceeded non-interest income for the first time since 1983. The retirement of the “baby boom” generation, the persistently lower national birth rate, and rising life expectancy mean that this trend will continue over the next 75-year projection period. The ever-growing number of retirees will have fewer and fewer workers to cover the cost of benefits. The resulting deficit in cash-flow will have to be compensated for by the redemption of the Social Security Trust Fund’s assets in the US Treasury. Social Security will get by on interest earnings until these reserves are depleted around 2033, after which it will depend entirely upon payroll tax revenue to meet its benefit obligations at only 75% the current amount.
Federal Reserve Chairman Ben Bernanke identified at least three ways of reducing the problem: raising taxes, cutting benefits, or pulling the funds from other parts of the federal budget. Raising taxes would be detrimental to most Americans; by 2035, Social Security costs are estimated to rise to 17% of a worker’s taxable earnings. A tax of that size would be a heavy burden to most, especially the poor. Cutting benefits would also be unwise. The destitute whose livelihood depends on OASDI cannot afford to have benefit payments slip under the current annual average of $13,000.00.
If any kind of cut or limit is to be implemented, it should not be on the amount available to beneficiaries, but in eligibility for benefits. Caps may have to be placed to exclude from benefit collection those retirees with significant savings, securities, or other means capable of providing them with a viable income. Any further needs outside their own reach would be provided for by a stipend along the lines of Supplemental Security Income. Such a reorganization of Social Security would have to rest on a public conception of the program as a social welfare measure meant to provide supplement and relief, as opposed to a general retirement plan to which all are entitled. A payroll tax would still have to be levied with the express purpose of funding this social safety net. However, it would be commonly understood as a civic duty, like other taxes are, as opposed to an accruing credit system for one’s own retirement.
As beneficial as such Social Security modification may be, it would not suffice to meet the needs of our continuously growing elderly population unless it were accompanied by a comprehensive reform of our financial institutions with the aim of affording financial independence to a greater percentage of Americans. The realization of such reform should be among the highest priorities of policymakers today.
Luis Antonio Miguel was born in Los Angeles, California. He spent his youth between the San Fernando Valley, North Georgia, and South Florida. He lived for two years in Baja California, Mexico while he served a mission for the Church of of Jesus Christ of Latter-day Saints. He currently works as a freelance writer, producing web content for businesses and scribbling on topics relating to politics, philosophy, and society.