The other day in class, I made two—what I thought were very straightforward—assertions about Social Security:
1. Social Security is solvent, and will be for at least 20 years (without any changes whatsoever).
2. Raising the taxable earnings base, without any other changes, would eliminate the projected deficit.
Simple, right? Except none of the students believed me. They all thought Social Security was doomed—and, while they expect to pay into Social Security, they don’t expect to receive any Social Security benefits when they retired.
So, let me share with you the information I gave to them:
On the first, a useful source is the Social Security Trustees latest annual report (available here). The bottom line: in the absence of any policy changes, the combined Social Security trust funds will be exhausted in 2033. However, after that date, Social Security could still pay three-fourths of scheduled benefits using its tax income even if policymakers took no steps to shore up the program.
On the second, Janemarie Mulvey has written a useful report for the Congressional Research Service [pdf]. Given the fact that earnings on which Social Security taxes are paid are currently capped (at $110,100 this year, encompassing more than 90 percent of workers but less than 90 percent of total incomes), Mulvey estimates the effects of three different options: (1) cover 90 percent of earnings and pay higher benefits, (2) cover all earnings and pay higher benefits, and (3) cover all earnings and pay no additional benefits. The first two options would reduce the projected deficit, and the third would eliminate it and actually produce a surplus.*
That’s it. Social Security is 100 percent solvent, and will be through at least 2033. And all it will take is raising the earnings cap and the projected deficit can be eliminated.
So, what’s the problem? First, the Social Security scare campaign has worked, and many people (including my students) believe the program needs to be drastically “reformed”—that is, that benefits need to be cut in order to keep the program going. Second, those who would end up paying more for Social Security seem to be determined to keep that from happening.
Let me explain: the employers’ share of Social Security is a federally mandated distribution of the surplus they appropriate from their workers. If the earnings base is expanded, and they have to pay more in Social Security taxes, corporations will need to decrease other distributions from their surplus and/or find some way of generating more surplus. It’s easier just to keep the existing cap on earnings and continue to pay the existing 6.2 percent on earnings under the cap. Also, employees who earn more than the existing cap, and who likely get their own cut of the surplus, would have to pay higher Social Security taxes. Together, corporations and high-earning employees have every interest in creating an “entitlement” scare instead of contributing more to the Social Security fund.
Unfortunately, my students are victims of that scare campaign and seem resigned to doing without Social Security benefits—instead of fighting to make sure, with a change in the earnings base, the program remains solvent for them and for future generations.
*Over time, the Social Security earnings cap has covered a pretty consistent percentage of workers but a falling percentage of earnings. That’s because salaries for top earners, in recent decades, have grown much faster than the pay of workers below the cap.