Who is Henry Paulson? President Bush recently appointed him as secretary of the U.S. Treasury. Before that, he operated in the heart of Wall Street, making millions of dollars playing with other people’s investments as chairman and chief executive officer of Goldman Sachs. So it should be no surprise that Paulson released a seemingly studious report on a supposed $13 trillion shortfall in Social Security. The problem is that the financial reality of Social Security is much different than the spin Paulson has wrapped in the seemingly authoritative and neutral language of a policy brief from the Treasury.
Paulson, along with Chicken Little, would have us believe that the sky is falling. But here are some facts about Social Security. Right now it is holding up the federal budget. Every year since 1983 Social Security has generated a surplus. Last year it generated a surplus of $185 billion. This year it is projected to generate a surplus of $186 billion. In 2016 it is projected to generate a surplus of $269 billion.
These big Social Security surpluses were designed by former Federal Reserve Chairman Alan Greenspan to offset the increased expenditures for Social Security when the baby boomers retire. The question is, will the accumulated surpluses be enough to meet the promised Social Security benefits. The answer to that question moves around a lot. Even the Social Security trustees, dominated by Bush appointees, continue to push back the date when the Social Security trust fund is depleted. In 1996, it was forecasted to be depleted in 2029. This year, the prediction is 12 years later, in 2041.
But these predictions are based on dismal forecasts for economic growth, job growth, immigration and wage growth. In fact, if the U.S. economy continues to grow at the same rate it did during the last century, then Social Security will be able to fully fund promised benefits throughout the 21st century. So much for the multi-trillion-dollar deficit.
But let’s assume the bleak forecast that the trust fund will be depleted by 2041 is correct. What happens then? If the government decided just to pay what is available from incoming Social Security taxes, benefits would amount to 73 percent of the promised level. Retirees may not get the Social Security benefits that the current formula would indicate (that would be an increase of more than $6,000). But for the typical worker retiring that year, his Social Security benefit will still be at least $1,000 more than the typical retiree today. That’s because of employment and wage growth and productivity increases between now and 2041. So even with the dismal predictions of the Bush privateers, and no action to raise revenue for Social Security, the program remains financially sound, and benefits in real dollars increase.
Of course, there are good ways to finance a more robust Social Security that would deliver more income to retired Americans. Right now any earned income over $97,500 is exempt from Social Security taxes. That means that the top 5 percent of wage and salary earners have a tax holiday after they earn over $97,500. For those making $500,000, after January and February of each year, they get an even bigger paycheck than the rest of us.
One way to bring more money into Social Security is to apply the tax to all wages and salaries, just like we do for Medicare taxes. Then we could really talk about Social Security reform, with benefit increases for lower-income retirees, increasing elderly survivors’ benefits, and pushing back down the standard retirement age from age 67 to age 65, where it was during the 20th century. We are, after all, the most productive country in the world.
Rather than talk about how to cut benefits and penalize workers and retirees, we should be figuring out how to make their lives more economically secure. Instead of increasing the fear, loneliness and frailty that come with old age, we should enable those Americans who have already put in their time to continue to enjoy the American ethos of life, liberty and the pursuit of happiness.
Our solid Social Security system can do that. Don’t let the financial wizards and the political spin-doctors of the White House tell you otherwise.
John Burbank, executive director of the Economic Opportunity Institute (www.eoionline.org ), writes every other Wednesday. Write to him in care of the institute at 1900 Northlake Way, Suite 237, Seattle, WA 98103. His e-mail address is email@example.com.