The Push for Social Security Cuts Ignores the Reality of the Program's Finances and Conditions of Near-Retirees

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."