Today’s media are full of conflicting claims about Social Security — whether it remains an affordable program or whether it adds to the nation’s growing deficit. Some assert that the program is fiscally sound and can keep paying full benefits until well into the 2030s, notwithstanding the current recession. Others insist that Social Security is, or will be, a major contributor to the federal deficit, and that, in the name of fiscal responsibility, Americans will have to delay retirement and accept smaller benefits.
Can both sides be right?
It is true that the Social Security trust fund has been accumulating a surplus since the early 1980s, anticipating the large baby boom cohort that began retiring in 2008. As a result, the fund now has a positive balance of $2.6 trillion, according to the system’s trustees, and can continue to pay full benefits until at least 2037. As more baby boomers enter retirement, the system will begin expending more than it takes in from the smaller succeeding generations of workers. At that point, retirees’ benefits will be financed by the sale of special treasury bonds form the trust fund’s assets and which were purchased with the money workers contributed to the system through the FICA payroll tax.
This is what worries some commentators. Even though Social Security maintains separate accounting, and its current surplus is worth an impressive $2.6 trillion, can the Treasury afford to meet its obligations to retired workers given that the rest of the federal budget is running large annual deficits and accumulating a worrisome long-term debt? Many feel it cannot, but the matter remains far from settled.
Ultimately, the answer to that question is political and in a democracy such matters are meant to be resolved by citizens. Whether the nation will reduce its obligations to workers and their dependents — not to mention curtail funding to Medicare and Medicaid, also part of the deficit-reduction formula — deciding questions as momentous as these should include a discussion of how the deficits came to be as large as they are and whether preferable alternatives exist to address them. Unfortunately, scant public discussion of those critical questions is taking place.
Policy experts point to several leading contributors to our deficit woes, including expenditures for the unfunded wars in Iraq and Afghanistan (“unfunded” meaning that taxes were not raised to pay for them); health care costs that remain uncontrolled, thus distorting the budgets for Medicare and Medicaid; and huge federal outlays used to stabilize the banking system and the economy generally in the early crisis days of the Great Recession.
More significant has been the cumulative effect, over recent decades, of declining tax revenues from the wealthiest individuals and corporations. In addition to the 2001 and 2003 “temporary” upper-income tax cuts, which are still in effect, are other forms of tax-favoring, such as reduced inheritance and capital gains taxes. At the same time, corporate income taxes are at their lowest levels since the 1940s. The net result is to make the United States one of the lowest-taxed nations of the developed world, according to a study by Demos, well below most of Western and Eastern Europe.
Accompanying these trends has been a steep rise in inequality, so that in 2007, for example, the Center on Budget and Policy Priorities reports that 23.5 percent of the nation’s income went to the top 1 percent of households, the largest share since 1928. Another consequence is the ever-tightening squeeze on publicly funded programs at every level of government, notwithstanding our nation’s status as one of the world’s wealthiest.
By one estimate, over half of retirement-age Mainers would live in poverty if it were not for Social Security, one indicator of what is at stake. Talk of increased taxation has attained taboo status in Washington, but rising inequality and the dependence of citizens on Social Security and other essential programs make this conversation long overdue.
Elizabeth Johns is a Ph.D. candidate in gerontology at the University of Massachusetts Boston and a resident of Orono.