WHY WE HAVE SOCIAL SECURITY INSURANCE

Social Security was put in place by President Franklin Roosevelt in the 1930s in response to massive personal financial losses resulting from the Great Depression. As banks collapsed, older people lost their financial assets and any hope of security for their future, a problem magnified by the fact that there were few jobs available for them or their children. In the eight decades since its founding, Social Security has become an immensely successful and popular program. The program currently has a surplus of $2.8 trillion, has never failed to make a payment, and in a 2013 survey, 77% of Americans said it was critical to preserve Social Security.

WHAT IS SOCIAL SECURITY INSURANCE?

SSI is a form of retirement insurance that provides steady income for American workers (or their families) when they retire, become disabled, or die prematurely. It is a “pay as you go” system in which workers contribute to a portion of their earnings (currently 6.2%) to a national fund with the expectation that, once they reach retirement age, they will receive monthly retirement income for the rest of their life. Employers match these contributions and the resulting fund is invested in government bonds, earning interest over time.

Some describe “pay as you go” as a Ponzi scheme in order to support arguments against Social Security. “Pay as you go” works at the scale of the Federal government because, as a country, we can always count on an economy, a workforce and new entrants into the pool of people paying for Social Security through payroll tax, matched by their employers. This structure ensures stability and “gives back” to the individual at the end of life. Ponzi schemes, on the other hand, often fail because they cannot attract new entrants to the scheme.

THE FACTS

We need Social Security more than ever because, in truth, little has changed since the Great Depression. Today, over half of American workers between the ages of 55-64 have no personal retirement savings. Thirty-three million Americans rely on SSI for over half of their income and over 16 million receive at least ninety percent of their income via SSI. That is how important SSI is to the citizens of our country. Be it your grandmother, grandfather, or others, the odds are almost 100% someone you know relies on Social Security. We need Social Security not only because of the moral obligation to protect the most vulnerable members of our population, but because millions of destitute seniors, and millions more living in poverty, would place immense strain on the U.S. economy. But with so many Americans living paycheck to paycheck, saving for retirement can easily take a backseat to more immediate concerns. Social Security addresses this issue in a way that is both fair and affordable – supporting seniors and reducing the burden that younger workers might have to support their aging parents

Saving for retirement is a huge issue for individuals and has major implications for policies, especially Social Security and other entitlements. There are a number of reasons contributing to the lack of stable retirement plans and the difficulty faced by individuals trying to save enough to support themselves, send their children to school and contribute to supporting older people in their families. This topic will be expanded soon.

It is highly likely that tax reform will be a target of this administration, focused on lowering taxes. For all of us, the time has come for us to fully understand the structure of taxes in the US, what we “buy” with our taxes and decide how we want to proceed. With regard to social security, the question that most of us will have to grapple with is “Should I support paying more payroll tax now, and assure that there will be a stable retirement for me and my family . . .  or do I reject small tax increases in favor of money in my pocket today?”

Taxes are not the only way to support and ensure that our senior population has enough resources to live on during the final years when they cannot work and support themselves. Support for the myriad of direct government services, usually state and local, is one way. Support for the few Federal government efforts, often associated with providing food — Meals on Wheels is the most well-recognized program — is another. An additional way to help seniors is to support general local, community resources that are shared by all. Parks, libraries, museums, free classes are all of immense value to seniors and often become vehicles for the seniors to give back to their communities.

THE THREAT

Contrary to what you might hear, Social Security is not going bankrupt. Yes, the retiring of the Baby Boomers generation coupled with the longer lifespans of senior citizens is beginning to put strain on the system. Current estimates project that the Social Security will exhaust its trust fund[1] by 2037, at which point the amount of money received each year would only be enough to pay around 75% of expected benefits. Some politicians would lead you to believe that the only answer to “the 2030 problem” is a dramatic reduction in SSI of benefits – putting the entire burden for solving the problem on retirees, present and future. But there are much easier solutions to this problem, if we act now. [1] The Social Security trust is an independently managed fund where excess SSI tax revenue is invested in government bonds, allowing the money to earn interest and providing enabling the government to cover shortfalls elsewhere in the government without relying on private banks or foreign governments. This has led to the misconception that the government is “raiding” social security to pay other bills, a complete fallacy. Read more here.

THE WAY FORWARD

There are other options available. One option is to eliminate the earnings threshold on which Social Security tax is paid. Currently workers pay SSI taxes on only the first $118,000 they earn each year, and pay no tax SSI on the remainder of their income. If SSI taxes were also applied to all income, the SSI fund will easily be able to pay all benefits through at least 2075.[1] The rise of income inequality in America makes this solution both appropriate and necessary. As the graph below shows, the national percentage of earnings that escape the Social Security tax has grown rapidly in recent years. Increasing the payroll tax on those earning over $125,000/year would not only be fair, it would ensure that the Social Security System could remain funded through at least 2075, without any further tax increases.

[1] The Social Security trust is an independently managed fund where excess SSI tax revenue is invested in government bonds, allowing the money to earn interest and providing enabling the government to cover shortfalls elsewhere in the government without relying on private banks or foreign governments. This has led to the misconception that the government is “raiding” social security to pay other bills, a complete fallacy. Read more here. [1] http://www.pbs.org/newshour/making-sense/what-impact-would-eliminating/

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Common Ground
We don’t need to search any further for common ground in our country. We have it.
We all want the same things – a safe, prosperous, free, democratic nation with opportunity for all. At the same time, we will all be harmed if our democracy, our free press, our Constitution and our core American values are threatened. We will all certainly be harmed if reckless behavior triggers any number of potential armed conflicts.

None of us know how this will all play out so let's make a deal. Let’s get up to speed on the issues, establish some facts, take action and watch what happens together . . .