(The opinions expressed here are those of the author, a columnist for Reuters.)
By Mark Miller
CHICAGO, Feb 14 (Reuters) - Social Security is one of those topics that spark a lot of questions. The system has some complexities, but people are curious for a simple reason: Social Security is our universal retirement program. Nearly all of us pay into it and have a stake in its future. And right now, we all have reasons to be concerned.
This week, I had the opportunity to field questions about Social Security on C-SPAN’s Washington Journal. The questions were common-sense and reflected legitimate concerns - and some misunderstandings. The conversation is timely now because Social Security faces a shortfall in revenue needed to pay scheduled benefits. If Congress fails to act, retirement benefits will be cut by a disastrous 25 percent in 2034 - just 15 years from now.
U.S. Representative John Larson, a Connecticut Democrat, has proposed reform legislation that would repair that problem and fund a modest expansion of benefits. (reut.rs/2HJwldz). And this week, U.S. Senator Bernie Sanders re-introduced his Social Security expansion proposal.
You can listen to the C-SPAN discussion here (cs.pn/2BxHnx4). Below are some of the more interesting questions from callers, with expanded versions of my answers.
Bob in Michigan wondered why Social Security is not structured more like a private, interest-bearing saving account. “This is the greatest extortion of all time - you pay into it, they take your money for 35 years and your employer also has to match that,” he said. “If I was able to take that money and put it in a bank account, and collect interest for 40 years, I would have a very substantial amount of money, and I could retire simply off that.”
Bob added this painful fact: his brother died last year at 61, and “never collected a dime” in benefits, and neither will his family.
“If he was able to save (all the tax contributions he made to Social Security), he would have it for my sister-in-law and two sons. I calculated it at over $1.5 million that the government stole from him.”
The question goes to the heart of what Social Security is: an insurance program designed to insure against the risk of lost income from retiring, and also insure against disability or premature death. It is true that the program will have relative winners and losers due to the uncertainty of our own longevity. But Social Security does pay benefits to surviving widows and family members. (bit.ly/2TL4qM3) Survivors of a deceased spouse can collect that person's full retirement benefit at her own full retirement age (66), a reduced benefit as early as 60 or at any age if they are taking care of a child younger than age 16 or who is disabled and receiving disability benefits.
Lynette from Utah is about to turn 67 and waiting to claim benefits in order to get the delayed retirement credits that are available up to age 70 - a smart move on her part. (bit.ly/2RVJakV). But with all the talk about benefits being slashed in 2034, she worried that cuts might come sooner. “I’ve calculated that if it happened as early as 2027, I’m better off starting to draw this summer,” she said. “What is your prediction on an early slashing" of benefits?
No cuts are expected before 2034 - and I consider the odds of reaching that date without a solution very remote. What legislator wants to explain a 25 percent cut in benefits to constituents? The only real questions are when we will get the 2034 cliff taken care of, and how.
Tony from Indiana wondered why the payroll taxes that fund Social Security are collected only on the first $132,900 in wages. “Obviously, if it was raised to a quarter million it would be beneficial” to Social Security’s finances. Others are thinking along the same lines as this caller - the Larson bill would add a new tier of payroll tax starting at $400,000 of ordinary income.
The wage cap is adjusted annually to reflect wage growth in the economy, but it has not kept up with income inequality, which has pushed a greater share of wages out of the taxable base. So capturing more income from high wage-earners makes sense, but any changes should be made carefully to keep taxes and benefits in relative balance.
Social Security is designed as a benefit for low- and middle-class workers - no one is getting rich from their benefits, and the tax structure is designed to reflect this. The average monthly benefit this year is $1,461, and the maximum benefit for a worker claiming at full retirement age is $2,861.
Robert from Georgia asked about Social Security’s roots in the 1930s as part of President Franklin D. Roosevelt’s New Deal. “Was the idea that we could give people some discretionary funds to use to consume things with, and as a little bit of a safety net for the whole society as opposed to individual insurance?”
Indeed, Social Security has its roots in the New Deal. The program marked the first American foray into social insurance - programs we support together to cast a wide protective net. As such, it reflects the best American instincts and values, and from where I’m sitting, is one of our proudest public policy achievements.
The moment is coming when we will make changes to keep Social Security strong for generations to come, and that will be a proud achievement, too.
Reporting and writing by Mark Miller in Chicago Editing by Matthew Lewis