Max Albone

Professor Lori Bedell

CAS 138T

1 April 2015

Social Security Dilemma

What Is Social Security?

There is no denying that the United States and its citizens have a responsibility to provide

those who are unable to work with a certain level of income to maintain a normal lifestyle, free

from poverty. With the exception of very few, all legal citizens of the United States will receive

social security in the form of a monthly check at some point in their lifetime. Furthermore,

almost all workersabout 96% help to fund social security through a payroll tax, which is a

6.2% tax on all income of workers under $117,000.1 The taxes collected are, then, immediately

paid to the beneficiaries of the program. When the amount of revenue collected from taxes

exceeds the amount needed to pay benefits, the surplus is put into the Social Security Trust Fund,

which invests the funds into United States Treasury securities that accumulate interest. The

balance of the trust fund, about $2.8 trillion, is the amount owed to Social Security by the United

States Treasury. 2

The program helps provide a much needed service to the elderly and disabled.

Furthermore, Social Security does an excellent job at ensuring financial security for those, who

cannot work. From 2007 to 2010, the time period containing the Great Recession, the average

income of people in every age group dropped except for those 65 and older, for whom the

average income grew by 5.5 percent.3 This may seem unfair; however, it is exactly the sort of

financial stability that those, who cannot work, need in the time of a financial crisis.
Furthermore, the system does an effective job at providing financial stability for even the poor.

Social Security helps to alleviate financial pressure by providing retired workers with a monthly

check that is roughly proportionate to what they paid into Social Security. However, the program

also protects retired workers from the fluctuation of the market by forgiving periods of low

income or unemployment and further protects the poorer retired workers by providing them with

a larger overall portion of the revenue than the rich.4 This equitable method of redistributing

funds along with the protection of funds from inflation makes Social Security an extremely

effective anti-poverty program.

Why Does Something Need to Be Done About Social Security?

While it is obvious that the outcomes of Social Security effectively provides a excellent

safety net for retirees, the process by which the program accomplishes its goals endanger the

programs very existence. The process by which the current workforce offers a portion of its

income to the elderly in exchange for the same treatment upon their retirement works only as

long as the amount of money paid into Social Security by the workforce exceeds the amount of

money necessary to provide retired workers with their benefits. When the amount of revenue

generated by Social Security falls short of the amount of money necessary to provide benefits to

the retired population, the only solution is to use money from the trust fund reserves to pay the

beneficiaries of Social Security.5,6 Furthermore, Social Security is unique in that it, along with

Hospital Insurance Trust Fund and Medicare, can only provide benefits using the resources

available to it through the trust fund. In other words, unlike almost any other government

program, Social Security cannot run a budget deficit.7 Therefore, if Social Security depletes the

trust fund by continually using it to cover the difference between payroll taxes collected and
benefit payments, the program will not be able to provide all retired workers with benefits or will

have to pay all retired workers only a portion of their benefits.

This is exactly the problem that Social Security in the United States is faced with today.

Historically the United States Social Security program has run a surplus; however, beginning in

2010, the program has needed to begin taking money out of the trust fund. From 2014 to 2018,

the Social Security Trustees estimate that the average deficit will amount to about $77 billion,

only a small portion of the amount available in the trust fund, before rising dramatically.8 While,

since 2010, the interest on the assets kept in the trust fund have exceeded the amount of the

deficit, by 2019 it will be necessary to use trust funds to offset the deficit.9 Furthermore, as the

baby boom generation has begun to retire, the number of workers per retiree has gone down.

This will only increase the gap between the revenue generated from payroll taxes and the amount

necessary to pay benefits to retirees. Furthermore, as technology advances, the life expectancy of

the elderly continues to increase. Increasing life expectancy will make it necessary for people to

collect benefits for a longer period of time and further deplete the trust fund.10

Social Security is expected to continue to provide full benefits until 2033, when it is

projected that the trust fund will become exhausted. At this point without the assistance of the

trust fund to cover the deficit, revenue generate by payroll taxes is expected to cover only about

76 percent of the deserved benefits.11 The graph below demonstrates that, while in the past the

payroll tax was enough to cover the benefits of all beneficiaries, the Trust Fund is expected to

run out. The increasingly pessimistic projections also indicate that the problem has only become

more severe in recent years.

12
 Without adequate resources to cover benefits of retired or disabled workers, the more

than 50 million people who collect social security would experience an uncertain future or

become unable to provide for themselves financially. 13

What Should Be Done About This Problem?

 A number of changes could be made to mitigate the risk of the Social Security Trust

being depleted by 2033. For example, one obvious change would be to increase the payroll tax

that is used to pay the benefits of disabled or retired workers. If the payroll tax were raised by

just 1 percent by the year 2036, it would eliminate more than half of the deficit run by social

security.14 It could be argued that raising taxes is difficult and politicians are often reluctant to do

so. However, in a survey conducted by Mathew Greenwald and the National Academy of Social

Insurance, about 69 percent of Americans stated that they would be willing to raise their own

payroll taxes by 1 percent.15 Therefore, evidence suggests that it would not be entirely

controversial for a politician, worried about his constituents or even reelection, to vote in favor

of a proposal to raise payroll taxes.

 Another step that could be taken to alleviate the issue of the depletion of the Social

Security trust fund would be to eliminate the income cap on the payroll tax. As was previously

stated, high income earners are not taxed on any amount that they earn above $117,000. This

means that only 82.5 percent of all earnings are taxed by Social Security.16 However, if the cap

were slowly eliminated by the year 2022, it would reduce the deficit by 71 percent.17 It is very

unlikely, though, that Congress would be able to pass a proposal that would completely eliminate

a tax cap on the rich without offering them anything in return. Taking this into account, if the cap

was increased to cover 90 percent of all earnings and benefits were increased for high earners in

return, the deficit would be reduced by 20 percent by 2033.18 Another survey conducted by the

National Academy of Social Insurance showed that 68 percent of Americans supported a plan to

eliminate the cap.19

One step that has already been taken to help assuage pressure put on social security by

the prospect of exhausting its trust fund is raising the retirement age. Action was taken in 1983 to

gradually raise the retirement age from 65 to 67, but the age will not be fully raised to 67 until

the year 2027.20 The reason for such a slow increase is the work of political maneuvering to

avoid provoking the AARP, one of the most powerful lobbying groups in the United States. The

AARP spent $241,342,064 on lobbying from 1998 to 2014 and is extremely effective at acting

on behalf of retired workers.21 The very gradual increase assures that the benefits of many people

will remain the same. By increasing the retirement age gradually and over a long period of time,

politicians can avoid angering their older constituents and reform social security without being

frustrated by actions of powerful lobbying on behalf of retired workers. If politicians could

employ the same tactics to raise the retirement age to 75 by the year 2050, then the Social
Security deficit could be reduced by 25 percent by reducing the amount of money necessary to

provide benefits to the retired population.22

Consequences of Action vs. Inaction

If these steps are taken to reform Social Security, they could reduce the increasing deficit,

which threatens to deplete the trust fund by the year 2033. When the deficit is reduced, the trust

fund can remain an asset for many years after. Then, retired or disabled workers could continue

to receive the same financial security that retired workers have historically enjoyed. As

previously mentioned, Social Security does an excellent job of providing a steady and stable

source of income, resistant to economic downturn, for senior citizens and disabled workers. The

program also is one of the most effective anti-poverty programs in the United States. Therefore,

it is imperative to take steps to ensure its continued success.

The consequences of a failure to act on this issue could be very serious. Without reforms

that create a way to continue to fund social security, retired workers could be forced to provide

themselves with their own form of private social security. Without a system in place to reallocate

resources to the poor, it would be unlikely that low income workers would be able to save

enough money to provide an adequate life for themselves and their families after retirement.

Furthermore, without a program in place that guarantees a decent standard of living, those who

lack the financial savvy to competently manage their accounts could be left without enough

money on which to live in their old age. This implies that not only could poorer workers be put at

an increased risk, but also the middle class could potentially be subjected to poverty in old age.

Furthermore, given the steadily rising life expectancy, retirees, who live into very old age, would

be at a notable risk of depleting their personal savings as it is impossible to predict how much to

save without knowing how old they will live to be. Workers would also be at an increased risk of
suffering from economic downturn after their retirement without a constant stream of income

that is protected from inflation.23

How Can Change Be Brought About

Since Social Security is a government run program, any action to reform the program

must be taken by Congress. However, despite the urgency of this issue and several proposed

plans for reform, very little action has been taken by Congress to change Social Security since

1983. Reforming Social Security is a very delicate political issue because most seniors enjoy

their current benefits and have no interest in reforming a program that provides them with a

comfortable income.

Youths are significantly less politically active than the older population. Retired people

are by far the most politically active demographic. Therefore, they are much more influential on

policy than are youths. This makes it difficult to reform social security because retired workers

obviously would be in favor of neither cutting benefits nor raising the retirement age. This also

gives policy makers very limited options in what they can do to change the current state of Social

Security. It is, therefore, crucial for a younger audience to become more politically aware and

begin to take action to gain influence on policy. Young people vote at much lower rates than do

the elderly. The graph below not only demonstrates the very low rates at which young people

vote and the very high rates at which the elderly vote, but also the decreasing rate at which

young people vote and the increasing rate at which the elderly vote.
24

Policy makers, then, are less concerned with the attitudes of the younger population.

However, if younger age groups voted with higher frequency or became involved in other ways,

they could more effectively exert their influence and work to reform social security. The
indifference of the youths of America towards politics could prove to have major consequences

for the future of Social Security. It is imperative for the younger population to show concern and

take responsibility for the future of the country to push reform on this important issue higher up

on the political agenda.

Endnotes
1. Kessler, Glenn. "Social Security: A Guide to Critical Questions." Washington Post. The
Washington Post, n.d. Web. 8 Jan. 2014.
2. Ibid
3. Kurtzleben, Dannielle. "5 Ways To Reform Social Security." US News. U.S.News &
World Report, 15 Sept. 2011. Web. 10 Apr. 2015.
4. Starr, Paul. "Why We Need Social Security." Princeton University. The American
Prospect, Feb. 2005. Web. 10 Apr. 2015.
5. Kessler, Glenn. "Social Security: A Guide to Critical Questions." Washington Post. The
Washington Post, n.d. Web. 8 Jan. 2014.
6. Goss, Stephen C. "The Future Financial Status of the Social Security Program." The
Future Financial Status of the Social Security Program. U.S. Social Security Administration, 3
Nov. 2010. Web. 10 Apr. 2015.
7. Ibid
8. Lew, Jacob J., Thomas E. Perez, Sylvia M. Burwell, Carolyn W. Colvin, Charles P.
Blahous, III, and Robert D. Reischauer. "Social Security." Trustees Report Summary. Office of
Social Security, 28 July 2014. Web. 10 Apr. 2015.
9. Ibid
10. Kessler, Glenn. "Social Security: A Guide to Critical Questions." Washington Post. The
Washington Post, n.d. Web. 8 Jan. 2014.
11. Goss, Stephen C. "The Future Financial Status of the Social Security Program." The
Future Financial Status of the Social Security Program. U.S. Social Security Administration, 3
Nov. 2010. Web. 10 Apr. 2015.
12. De Rugy, Veronique. Social Security Trust Fund Exhausting Faster Than Expected.
Digital image. BillMoyers.com. Mercatus Center at George Mason University, 16 Aug. 2013.
Web. 10 Apr. 2015.
13. Kessler, Glenn. "Social Security: A Guide to Critical Questions." Washington Post. The
Washington Post, n.d. Web. 8 Jan. 2014.
14. Klein, Rebecca. "5 Ways To Fix Social Security." The Huffington Post.
TheHuffingtonPost.com, 8 Feb. 2013. Web. 10 Apr. 2015.
15. Ibid
16. Hamilton, Martha M. "How You Would Fix Social Security: Tax Higher Earnings."
Washington Post. The Washington Post, 27 Oct. 2014. Web. 10 Apr. 2015.
17. Klein, Rebecca. "5 Ways To Fix Social Security." The Huffington Post.
TheHuffingtonPost.com, 8 Feb. 2013. Web. 10 Apr. 2015.
18. Hamilton, Martha M. "How You Would Fix Social Security: Tax Higher Earnings."
Washington Post. The Washington Post, 27 Oct. 2014. Web. 10 Apr. 2015.
19. Klein, Rebecca. "5 Ways To Fix Social Security." The Huffington Post.
TheHuffingtonPost.com, 8 Feb. 2013. Web. 10 Apr. 2015.
20. Hamilton, Martha M. "How You Would Fix Social Security: Raise the Retirement Age."
Washington Post. The Washington Post, 28 Oct. 2014. Web. 10 Apr. 2015.
21. "Lobbying." Opensecrets RSS. Center For Responsive Politics, n.d. Web. 10 Apr. 2015.
22. Klein, Rebecca. "5 Ways To Fix Social Security." The Huffington Post.
TheHuffingtonPost.com, 8 Feb. 2013. Web. 10 Apr. 2015.
23. Starr, Paul. "Why We Need Social Security." Princeton University. The American
Prospect, Feb. 2005. Web. 10 Apr. 2015.
24. File, Thom. 2013. Young-Adult Voting: An Analysis of Presidential Elections, 1964
2012. Current Population Survey Reports, P20- 572. U.S. Census Bureau, Washington, DC.