Social security isn’t doomed, but benefits could use a boost.
Congress passed Social Security into law 90 years ago thanks to Franklin Roosevelt and especially his secretary of labor, Frances Perkins. Since then, hundreds of millions of Americans, retirees, survivors, and children, have received the financial lifeline of Social Security. With this year’s anniversary, you might expect that we would truly celebrate this universal program, upon which a large majority of retirees rely for over half of their monthly income.
Instead, politicians and mainstream media institutions insist that Social Security’s Trust Fund will run out of cash eight years from now.
This “sky is falling” rhetoric about Social Security’s downfall is nothing new. What the media fails to explain is that the Social Security Administration calculates three different forecasts, one moderate, one conservative, and one in the middle. The one in the middle is what gets the press attention. But all forecasts are just that – forecasts, developed from different scenarios for employment, wage growth, population growth, the contributions of immigrants and overall economic trends.
As a result, these annual forecasts vary. In 1997, the trust fund was predicted to run out in 2029. In 2004, it was going to be gone in 2042. In 2024 the prediction was 2035.
How do we insure Social Security’s fiscal health? Sustaining low unemployment and ensuring that workers’ wages increase with overall productivity are the two best ways to extend the life of the trust fund. That should be the focus for policymakers, especially with a hostile president who is literally throwing people out of jobs and undermining the ability of workers to realize wage gains.
However, the financial mavens and their lackeys in Congress want people to believe that Social Security won’t be there for them. And yet, it has been and it will be. As it stands, 74 million Americans, one fifth of our population, receive a steady monthly check from Social Security, averaging $2,000 for retired workers. In Washington state, 1.5 million residents receive Social Security benefits.
Even if the forecast is correct, and the Trust Fund is depleted, the payroll and income tax revenue will still finance four fifths of mandated benefits, and these partially funded benefits will still be equal to full benefits received in 2024, thanks to a projected (conservative) 2% annual growth rate in our economy.
The need for increased benefits
What the media focus on Social Security obscures is how we could increase benefits. We need to do this now. Future retirees will not be able to sustain themselves on dwindling pensions and pitiful 401(k) savings plan withdrawals. Half of workers don’t participate in retirement savings, and only one quarter of low income workers are in a retirement plan, according to the Pension Rights Center. Social Security provides only 37% of pre-retirement income.
Seattle is one of the most expensive cities in the U.S., with the average one-bedroom apartment renting for $1,973 per month. That pretty much wipes out the average Social Security payment. On top of that, according to MIT’s Living Wage Calculator, a single adult spends roughly $4,975 per year on food, $9,502 on transportation, and $2,689 on healthcare in Seattle. Try keeping up with that, after your Social Security goes completely to rent!
It is no wonder that one in four Seattle seniors are working past the age of 65. For future retirees, the financial forecast is even worse, with 37% of private sector workers aged 55-64 with no access to a retirement plan.
Deciding to move out of Seattle to the suburbs won’t help much. Median rent in Auburn is $1,550 a month. Average rent in Burien is $1,890.
So… let’s build up our Social Security. The first thing to do is to scrap the cap – that is, make the payroll tax apply to all earned income. Right now, it only taxes employees and employers up to $176,000 in wages and salaries. Anything above that is a free ride from FICA (Federal Insurance Contributions Act) tax. That is a savings of 12.4% for the already affluent, while leaving one-sixth of total salaries totally insulated from FICA taxes.
With this new revenue, Social Security could restore the student benefits taken away in 1981, decrease the number of years (now 35) for calculating full benefits — essentially recognizing time out of work for caring for children, and replace 100% (instead of 90%) of each worker’s first $1,000 of earned income. That’s just a start. Back in 2012, Senator Maria Cantwell drafted legislation for these improvements. But they went nowhere.
Congress, whether controlled by Republicans or Democrats, has had 40 years to make these and other increases and has failed to do so. We can expect no help from the current administration.
A state-level fix
What can we do? The states can take the lead. They have done this before. Before Social Security was voted into law, 17 states had established old age pension laws. Washington state voters passed two initiatives, in 1940 and 1948, for Senior Citizens Grants which paid out the monthly equivalent of $808 to residents over the age of 65.
How can the states do this now? They can institute state supplemental Social Security programs, funded solely through payroll taxes above the Social Security payroll tax cap of $176,000. While the federal government is becoming an enabler of crony capitalism, the states, at least some of them, can create true retirement security for its residents and finance this with equitable taxation of the already affluent and their corporate employers.
In Washington state, this approach could result in an annual extra payment of $1,500 to each and every Social Security recipient. Washington and every other state which applies the payroll tax on all income earned above $176,000 will have the resources and tools to build an economy enabling workers and their family members to prosper, and in this way create a thriving political economy for all.
John Burbank (Guest Contributor)
John Burbank founded the Seattle-based Economic Opportunity Institute in 1998 and led it until his retirement in 2020.
