Washington, D.C.– CEPR Co-Director Dean Baker issued the following statement on the 75th anniversary of Social Security:
“As we are celebrating Social Security’s 75th anniversary, many of the most powerful political figures in Washington are making plans to reduce the benefits provided by the program. This drive reflects little understanding of either the program’s financial health or the economic situation facing near-retirees.
“The new Social Security Trustees Report showed that the program can pay all benefits long into the future, with no changes whatsoever. If nothing were ever done, the program could pay full benefits until the year 2037, and could still pay 75 percent of scheduled benefits for many decades after this date.
“It would take relatively modest changes to extend the projected period of full funding long past 2037. For example, raising the wage cap to cover 90 percent of wage income, the original target set by the Greenspan commission, would cover 25 percent of the deficit projected over the program’s 75-year planning horizon.
“Polls have also shown that most people would prefer to pay higher Social Security taxes rather than see a cut in Social Security benefits. A modest increase in the payroll tax, for example a 0.05 percentage point annual rise in both the employer and employee side of the payroll tax over the years 2021 to 2040, coupled with the increase in the cap, would be sufficient to fully fund the program through its 75-year planning horizon.
“The new Trustees Report projected considerably more rapid wage growth than the 2009 report. Based on the new projections and even with a 2 percentage point tax increase, workers in 2040 would have considerably higher after-tax wages than would have been the case in 2009 projections without a tax increase. The new projections show that workers would earn an after tax wage in 2040 that is more than 40 percent higher than current wages if the payroll tax was increased 2 full percentage points.
“For some reason it has become fashionable to say that Social Security should not be considered apart from the rest of the budget. This is a break from 75 years of practice and effectively amounts to a lie to the country’s workers, who have been told that they are paying a designated Social Security tax. The reason for the designated tax is precisely because the finances of the program always were considered apart from the rest of the budget. Ignoring current law and 75 years of past practice with regard to the Social Security program would be like arguing that interest on the government debt should not be considered apart from the rest of the budget. There are good reasons that both Social Security and interest payments on the national debt are not considered in the same way as other areas of government spending.
“The drive to cut Social Security benefits for near-retirees ignores the financial situation of these workers. The vast majority of near-retirees do not have traditional defined benefit pensions. Most accumulated little in 401(k) type accounts or personal savings even before the recession. Much of what they did accumulate, they lost in the stock market collapse of 2008-2009.
“For the vast majority of near-retirees, their major asset was the equity in their home. Much or all of this equity was destroyed with the collapse of the housing bubble. As a result, the huge cohort of baby boomers that is approaching retirement will be more dependent on Social Security than their predecessors. The median household in the age cohorts from 55 to 64 has just $170,000 in total wealth,
including equity in their home. Since this is roughly equal to the price of the median home, this means that they could fully pay off a mortgage and then would have nothing other than their Social Security to support them in retirement.
“The median household in the age cohorts from 45 to 54 has $80,000 in total wealth, roughly half of the value of the median home. With the labor market projected to be weak for most of the years they have remaining in the work force, it is unlikely that they will be able to accumulate substantial additional savings before they retire.
“Finally, the notion that workers should make up for lower benefits by working later into their lives ignores the actual job conditions faced by older workers. Almost half (45.3 percent) of older workers have either physically demanding jobs or have difficult work conditions. For workers with high school degrees, this number is almost 60 percent. More than three quarters of the workers without high school degrees either work at jobs that are either physically demanding or have dangerous work conditions.
“In short, proposals to cut Social Security in the near future effectively take away benefits for which workers have already paid through their taxes. This amounts to a second hit on this group of workers. The same people whose incompetent management of the economy cost many of these workers their jobs and much of their life savings, are now trying to take away the Social Security benefits they will need to survive in retirement. These workers have every right to be furious at the people designing these policies.”