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Politicians and the media frequently warn that Social Security is headed for bankruptcy. Not true. The Social Security program is not a cause of the federal government's current deficit and debt concerns. In fact, the program has been running surpluses since 1984 (Gregory 2010). The federal General Fund experienced an annual surplus of $86 billion in 2000, meaning that taxpayers contributed more in all federal taxes than was spent in all federal programs and operations. However, that surplus fell year by year after 2000 because of tax cuts, funding for wars, and other government spending to a deficit of $1.55 trillion in 2009 (Congressional Budget Office 2010a).

By contrast, the Social Security program has amassed a trust fund reserve now amounting to $2.5 trillion (Board of Trustees 2009; Congressional Budget Office 2010a). In addition, the trust fund has been lending funds to the government that it would otherwise have had to borrow from national and international public markets. Moreover, Social Security trust fund reserves are expected to increase to $3.2 trillion by 2015 and to $3.8 trillion by 2020 (Congressional Budget Office 2010b) unless the decrease in contributions due to unemployment continues to erode the reserves required to meet the growing surge of individuals who are reaching retirement age or are becoming disabled. Because the law requires 75-year solvency for the Social Security trust funds, and since numbers can be used to project future circumstances in different ways, no one can ascertain with any certainty what will happen over a 75-year period of time.

To summarize the important fiscal realities today, the Social Security reserve is being built primarily with:

1. FICA taxes paid at the rate of 6.2 percent of earnings by lower- and middle-income workers up to a maximum wage level of $106,800, plus matching FICA tax payments by employers at 6.2 percent of earnings. These contributions currently total 12.4 percent.

2. Interest paid on FICA taxes borrowed from the Social Security trust fund over the past 25 years to help finance the rest of government (Sloan 2009).

The long-term costs and paid-out benefits of the Social Security program are projected to rise with the increasing number of retirees from the baby boom generation during the coming years. This means that, in order to preserve the long-term viability of Social Security, certain actions must be taken by Congress. Suggested changes have included (a) increasing the maximum wage level on which FICA taxes are now paid; (b) increasing the age at which workers are eligible to receive retirement benefits from age 67 to (say) age 70; and (c) means-test the benefits so that only the poor receive benefits.

Arguments against these three proposed fixes are these: (a) at 12.4 percent, increasing the maximum wages to (say) $170,000 would be a large tax increase on an already ailing middle class; (b) increasing the age at which Social Security benefits may be obtained could be wrong-headed for anyone engaged in an occupation that involves physical activity; and (c) means-testing the benefits would be a terrible mistake that would violate the social compact that everyone pays Social Security taxes and everyone receives their benefits (Sloan 2009).

In the past decade, Republicans, along with a few Democrats, have campaigned for a radical restructuring of Social Security--namely, permitting workers to divert part of their payroll taxes from Social Security into personal retirement accounts, which could be invested in the stock market. The earnings on these accounts would replace a portion of Social Security benefits. This push to privatize has been a major conflict over Social Security.

Supporters of privatization argue that Social Security must be overhauled because its rate of return is dismal. In response, experts point out that comparing the rate of return on Social Security with that of an investment portfolio is "comparing apples and oranges" (Diamond n.d.). Social Security is not a portfolio, they say; it is insurance, which provides benefits in the event that a particular problem (e.g., disability) or condition (e.g., retirement) occurs. The opponents of privatization maintain that claiming Social Security's return is dismal is as meaningless as claiming that the return you get on your fire insurance premiums is dismal.

The heart of the battle over privatization may be more about profits for the financial markets and financial businesses than about individual freedom and collective responsibility. These values have an honored place in U.S. tradition and easily tap into the emotions of U.S. voters. One side sees a society in which individuals are responsible for their lives and are free to make their own financial decisions (Suellentrop 2005). On the other side, a deeply held value embodied in Social Security is that real freedom requires a nation to protect the well-being of its members against harm. Risks of unemployment, disability, changes in the general economy, and in the practices of businesses (e.g., outsourcing employment) are to be shared and insured against to the extent possible.

The bottom line is that many older workers who felt reasonably well positioned for retirement a few years ago now need Social Security more than ever. Middle-aged individuals who may have time to recover savings and home equity are needed more than ever to contribute to the future viability of the program. Employers' matching contributions are also required more than ever to sustain the Social Security system. Each of these social groups must also demonstrate to the nation's young adults that they will have a realistic plan for future benefits (Sloan 2009).

This is no time to overlook, dismiss, or ignore the continued performance of the nation's Social Security program, the social compact that helped to lift generations of older adults out of poverty and helped to close the nation's poorhouses. Failing to understand the real economics of the Social Security program can bring back the poorhouse for individuals who suffer through financial ruin that is not their fault--sudden unemployment, loss of pensions or savings or home. Doing nothing is not an answer either.

Worse, believing that "Social Security will not be there for me when I grow older," an opinion heard more and more frequently these days from younger Americans, might guarantee the untimely demise of this invaluable program, since one's voice to save it will not have been heard.

References:

Altman, Nancy J., The Battle for Social Security: From FDR's Vision to Bush's Gamble. Hoboken, NJ: John Wiley, 2005.

Benavie, Arthur, Social Security under the Gun: What Every Informed Citizen Needs to Know about Pension Reform. New York: Palgrave Macmillan, 2006.

Board of Trustees, Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. Washington, DC: Social Security Administration, 2009. www. ssa.gov/OACT/TR/2009/index.html

Carr, Deborah, "Golden Years? Poverty among Older Americans." Contexts (Winter 2010). www. context.org

Congressional Budget Office, Budget and Economic Outlook: Historical Budget Data. Washington, DC: The Office, January 2010a.

Congressional Budget Office, Combined OASDI Trust Funds March 2010 Baseline. Washington, DC: The Office, March 2010b.

DeWitt, Larry, Daniel Beland, and Edward D. Berkowitz, Social Security: A Documentary History. Washington, DC: CQ Press, 2008.

Diamond, Peter A., ed., Issues in Privatizing Social Security: Report of an Expert Panel of the National Academy of Social Insurance. Cambridge: MIT Press, n.d.

Gregory, Janice M., Testimony before the National Commission on Fiscal Responsibility and Reform on June 30, 2010. Washington, DC: National Academy of Social Insurance, 2010.

Gunderson, Dan, and Chris Julin, "Poor Conditions at Poorhouses." Minnesota Public Radio, July 29, 2002. news. minnesota.publicradio.org/features/200207/29_gundersond_poorfarm-m/

Landis, Andy, Social Security: The Inside Story. Menlo Park, CA: Crisp Publications, 1997. Livingstone, Steven Greene, Social Security: A Reference Handbook. Santa Barbara, CA: ABCCLIO, 2008.

Myers, Robert J., "The Social Security Program of the United States." In Encyclopedia of Retirement and Finance, ed. Lois A. Vitt. Westport, CT: Greenwood Press, 2003.

Rogne, Leah, et al., eds., Social Insurance and Social Justice: Social Security, Medicare, and the Campaign against Entitlements. New York: Springer, 2009.

Sloan, Allan, "A Flimsy Trust: Why Social Security Needs Some Major Repairs." Washington Post (August 2, 2009).  www. washingtonpost.com/wp-dyn/content/article/2009/07/31/AR2009073104214_pf.html

Smiley, Gene, "The Great Depression." In The Concise Encyclopedia of Economics, 2d ed., ed. David Henderson. Indianapolis: Liberty Fund, 2010.

Suellentrop, Chris, "George W. Bush. Philosopher King." Slate ( January 17, 2005). www. slate.com

Vitt, Lois A., "Evaluation and Measurement of Learner Outcomes in Financial Education." 2010. www. nefe.org/LinkClick.aspx?fileticket=vI8maDOre9A%3D&tabid=934

Weinstein, Deborah, The Recession Generation: Preventing Long-term Damage from Child Poverty and Young Adult Joblessness. Washington, DC: Coalition on Human Needs, 2010.

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