By Lynn Kellogg
Few federal initiatives have had such broad sweeping success as Social Security. Medicare and Medicaid come close, but Social Security stands alone in its universality, pay-in, earned right status, and nationwide success.
The idea of Social Security goes back to the Civil War era. The first U.S. federal pension plan was created for Civil War veterans. Its success prompted other organizations of the time to consider creating a broader program of financial support for people after their working life ended.
Signed into law in 1935, the first structure provided a one-time, lump-sum payment. It was modified to monthly payments in 1940 with the first ever payment going to Ida Fuller. She received a check for $22.54, an inflation-adjusted equivalent to $518.58 today.
Currently, 69 million recipients count on that monthly check. For 40 percent of retirees, it’s the only source of income they have. About a quarter of that population has net worth, including a home or car, of less than $50,000. For those with higher net worth but no other income, a regular check is an earned godsend for balancing expenses.
There’s been much in the news about Social Security now paying out more than it’s taking in with predictions that benefits will have to be cut by 22% in 2032 if nothing is done. This is solvable and it’s helpful to know we’ve been here before.
AARP put out a great historical account and dispelled some common myths about Social Security.
In the mid-1970s, economic woes limited tax revenues and the system started paying out more than it took in. By 1983, “the trust funds were within months of hitting zero – a more acute crisis than we face today.”
Conservative President Ronald Reagan and liberal House Speaker “Tip” O’Neil came together to craft a solution. Their combination of raising the payroll tax for some workers, having higher bracket taxpayers pay income tax on their Social Security benefits, and raising the age of eligibility kept the system solvent for 50 years.
While we need to act to assure future solvency, there are a couple myths worth dispelling. The first is that it won’t be there when current workers retire. The second is that Congress has raided the Trust Fund. Both are false.
Social Security has never missed a payment; tax revenues provide ongoing funding regardless of the Trust Fund, whose current value of $2.56 trillion is being drawn down every year. Congress has not raided it.
There are cautions and realities to note. First is talk of privatization. Surplus Trust Funds are held in secure U.S Treasury Bonds. Investors, seeing money to be had, point out the greater gains of trading on the open market. The downfalls in risk of loss and the cost of doing business have prevented this direction; likely a wise choice.
Another reality is a changed worker:retiree ratio with the comparatively smaller number of workers paying in than in generations past. Once the Baby Boomers hit older age, the infamous population pyramid showing few older people on top and many more in younger generations, changed to a population column with similar numbers of people in all age groups except the very old.
Compounding the numbers of people paying in are policies seeking to deport tax paying immigrants. In the Reagan era, immigrants were welcomed as tax paying workers. Now, law abiding workers who either gave up on our lengthy legalization process, or whose protected legal status while awaiting processing was removed, are labelled illegal and deported or detained, further shrinking our tax base and workforce.
Those realities aside, solutions can be found. Personally, I never understood when my income grew to a point when I started to feel financially comfortable, I no longer needed to pay Social Security taxes on my higher salary. Wait, what? Only lower levels of pay are taxed? Makes no sense.
Bi-partisan support for an independent commission to craft solutions going forward appears to be gaining ground in Congress – thank goodness.
Lynn Kellogg is former CEO of Region IV Area Agency on Aging in Southwest Michigan. Questions on age or independence services? Call the Info-Line for Aging & Disability at 800-654-2810 or visit areaagencyonaging.org. The Generations column appears each weekend in The Herald-Palladium.