July 08, 2011
The business-backed group Third Way has been making a big point of going after Social Security lately. Today it had a column telling us that Social Security is in crisis, even though the most recent projections from the Social Security trustees show that the program can pay full scheduled benefits with no changes whatsoever for a quarter century. Even after that point, the program would always be able to pay a higher benefit than what current retirees receive.
Third Way’s crisis argument hinges on the fact that the program is paying out more in benefits than it collects in taxes. In other words, it is relying on interest from the $2.6 trillion trust fund that it has built up over the last quarter century. To term this a crisis would be like saying that Bill Gates had a crisis because he dipped into his $50 billion in assets to build some new play houses for his kids. The trust fund was built up for the explicit purpose of supporting the program. It makes no sense to say that using it is a crisis.
It is also worth noting that even if we waited until 2036 and the program actually faced a shortfall, the amount of additional revenue needed to sustain the program’s full benefits past this shortfall would be trivial compared to costs like the increase in military spending associated with the wars in Afghanistan and Iraq.
Third Way also is being somewhat deceptive in describing its proposed Social Security cuts as progressive. The cuts would hurt all beneficiaries, although the largest cuts would be for people like nurses and firefighters who might have averaged $60,000 to $70,000 in wages over their working lifetime.
While these cuts might technically be progressive for the program (they will reduce Bill Gates benefits by a larger proportion than the benefits of minimum wage worker), they will certainly have a larger impact on the living standards of low and middle income retirees than wealthy retirees. (They will reduce the retirement income of a low wage worker by a far larger proportion than the retirement income of Bill Gates.)
The focus of the cuts on middle income workers is progressive in the same way that a tax increase of 5 percentage points on workers earning less than $30,000 and 10 percent on income over $30,000 (and capped at $250,000) can be called progressive. On average, higher income workers would be seeing a bigger tax increase than lower income workers, but the people hit hardest do not fit anyone’s definition of wealthy.
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