When I was growing up, Social Security was called the "third rail in American politics" because it threatened to kill the career of a politician who dared touch it.
Not anymore what it seems.
Senators are seriously considering trying to cut or eviscerate social security under the guise of the coronavirus pandemic. This is an attack on several fronts. It includes proposals to suspend or even abolish the wage tax on which Social Security depends, and to hold a secret – yes, yes – conference on Capitol Hill to find ways to "save" Social Security. Republican Senate Majority Leader Mitch McConnell wants this secret conference to be a condition of agreeing another economic bailout. He is already on the file and is calling for social security benefits to be "adjusted". The suspension of wage tax as a "crisis measure" does not help people with unemployment. But it will apparently make it even more necessary to cut the benefits later. Oops!
It will come as no surprise that this attempt to violate obligations to American savers and future retirees appears to be called the "Trust Act". And my British friends always say that we Americans "have no sense of irony".
This forthcoming election could determine the fate of social security. The president has vowed to cut payroll taxes if he is re-elected.
Just one thing.
There is no such thing as a “crisis” in social security. It's completely made up. There is no such thing as a financial “crisis”. There is no such thing as an economic “crisis”. The only "crisis" in social security is the crisis of people who believe that there is a social security crisis.
Whenever someone takes advantage of the program or limits its benefits, it is by choice, not necessity. And they are opting for an absolutely important program that will keep millions out of poverty and that has worked successfully for 80 years.
Read: This eye-opening experience makes me rethink how social security fits into my retirement plan
Is there a problem with funding? Yes of course there is. But it can be easily repaired without any draconian measures. The most obvious thing to do is to lift the cap on taxable wages so that people pay the tax on everything they earn. But there are many others. Others involve actually investing social security trust funds in stocks, like almost every other retirement plan on the planet.
Social Security Administration trustees said in their latest report that the so-called "trust fund" will be depleted by 2035. The technical term for this is "insolvent". But it's a word that is purposely played around to scare people. It doesn't mean "bankrupt" in any normal meaning of the word. This only means that the trust fund, which is an internal accounting technique for the federal budget, no longer has an accounting surplus. The money has to depend on the money that comes in.
The Social Security Agency says the "unfunded obligations" will equal 3% of taxable wages. Trillion dollars. The Congress Research Service explains that starting in 2035, benefits will have to be cut by 21% with no changes to balance the books. Yikes
But when politicians or political journalists write about these things, they seem to be trying to dazzle us all with science. Sometimes they seem to find the largest possible, or most abstruse, or most complicated data. (For example, budget and tax changes are generally discussed in 10-year numbers because they sound so big.)
So let's cut through all of the scary social security numbers and just focus on these two points.
The first is that the average Social Security benefit is only $ 1,514 per month. It's chicken feed. People have to live out their golden years on it. A 21% reduction would mean the price would drop to $ 1,200 per month. That's the average.
Imagine the humanitarian crisis in this country if this happens.
And here is the second gem that you can find on page 16 of the latest trust fund report. The alleged financing gap, the so-called crisis, does not account for more than "1.0 percent of GDP (compared to 0.9 percent in the previous year's report)" in the 75-year evaluation period.
1%. That is the "crisis".
For the 2017 tax cut we were able to find 1% of GDP left over. We can borrow several percentage points of GDP each year to run budget deficits each year.
What is the share of 1 percent of GDP in the federal government?
According to the White House, federal taxes were only 16.3% of GDP last year.
The average under Ronald Reagan? About a full point higher. We could fix this simply by going back to Reagan-era tax rates.
The average for Bill Clinton's second term was a full 3 percentage points higher than today. And the economy was booming and the stock market was soaring.
According to Statista, we just found 13% of GDP this year to fund the pandemic and lockdown. And apparently we can print that money without causing inflation or budget panic. But on the contrary. Long-term interest rates have collapsed.
The only crisis facing social security is that more and more people under 65 are convinced that the program needs to be gutted so that they should not plan it. And that creates the basis for the cuts. It's a perfect circular argument.
But: 15 hundred dollars a month. And 1% of GDP. Things to remember the next time someone tries to tell you that there is a social security "crisis" going on.