Tuesday, December 21, 2010

Social Security Is Not Broken . . . Yet

“Let them gather all the food of these good years that are coming, and lay up grain under the authority of Pharaoh for food in the cities, and let them keep it. That food shall be a reserve for the land against the seven years of famine that are to befall the land of Egypt, so that the land may not perish through the famine.”
Genesis 41:35-36

Joseph was one of the first advocates of delayed gratification. The economic plan he presented to Pharaoh called for increased taxes in prosperous years in order to prepare for the inevitable lean years that would follow.

Our national program for the lean years is called Social Security.

Although Social Security has been an enormous success by every measurement and has been the most effective anti-poverty program in American history, and has dramatically reduced poverty among our elderly, it seems to be constantly under attack.

And that worries me.

There is a widespread belief that Social Security is broken. In fact, some polls show that a majority of Americans believe that Social Security will not be able to pay them a benefit when they retire. And one poll shows that 51% of Americans believe that scientists will clone dinosaurs before Congress fixes Social Security.

But Social Security is not broken and it is not broke. If we do nothing about Social Security, the program will be able to pay all promised benefits for the next 27 years. If we do nothing between now and 2037, then at that point the program would have to reduce benefits by 25%. But even in that worst case scenario, the benefits paid in 2037 would still be higher than the benefits paid today after adjusting for inflation.

The old adage says, “If it ain’t broke, don’t fix it.” (Although sometimes it’s a good idea to fix something before it breaks. As for example, in the case of the timing belts on old Toyotas, which worked flawlessly right up until the moment when they failed catastrophically and destroyed the engine.)

In the case of Social Security the plan seems to be to break it first, and then fix it. Which reminds me of the recent incident in North Providence where some guys (not kids, older men) agreed to trash a woman’s house in order to help her collect insurance money. It did not go as well as they had hoped and they will all probably spend some time as guests of the state. But my guess is that the bipartisan group in Congress won’t go to jail for trashing Social Security.

The plan sounds benign. As part of the massive tax cut deal there will be a significant reduction in “payroll taxes,” which means Social Security. In other words, we will intentionally underfund it, at least for a year. The cuts will benefit all working Americans, from the wealthiest to the poorest, and that’s a good thing.

But it means more stress on the Social Security system. And that stress will further undermine public confidence. In a recent opinion piece in the Providence Journal, Mark Weisbrot wrote about what he sees well orchestrated campaign against Social Security and he argues that “if you are going to take something away from people, the first step is to convince them that it wasn’t really there in the first place.”

In order to fix Social Security, two basic solutions have been proposed. The National Commission on Fiscal Responsibility has suggested raising the retirement age by two years to adjust to our increased longevity. And some have argued for a “means” test, since there are many senior who don’t “need” Social Security. This line of argument is based on the idea that Social Security should be a safety net, rather than a retirement program.

Both ideas sound good at first. But both ideas worry me.

The problem with increasing the retirement age (see the November 26 blog on Social Security and the Fifth Commandment) is that it might work okay for those of us with desk jobs, but for those who do physical labor it is not realistic.

The argument in favor of a needs test typically ends with the rhetorical question, “Does Warren Buffet really need Social Security?” Of course not, goes the argument, so let’s direct those resources where they can do the most good.

My fear is that if we institute a means test we will change Social Security from a retirement plan into a welfare program. And if it is a welfare program, then those who do not benefit from it will soon resent paying for it. Part of what makes Social Security successful is that everyone pays into it and everyone gets something out of it. People don’t receive Social Security checks because they are poor; they receive those checks because they worked and contributed to the program. There is a dignity in that process which is important. And it should be protected, even if it makes life harder in the short term.

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