Should Social Security Be Untouchable?

Today’s release of the trustees’ report on Social Security and Medicare showed that, for the second year in a row, the Social Security system is collecting less in revenue than it pays out in benefits. This means that the system is becoming increasingly dependent on the rest of the federal budget for the resources needed to pay benefits. Put differently, maintaining our commitments to seniors over the next decade will likely add to an already swollen national debt. This raises the question of whether seniors should be asked to contribute more to getting our fiscal house in order.

I hear three reasons for exempting Social Security from the process. First, these benefits are “earned” – already paid for by payroll tax contributions. Second, seniors are a vulnerable group who can ill afford to see their limited incomes reduced in any way, and third, the government has “raided” the Social Security trust fund to pay for its operating expenses and now owes seniors the money it borrowed from the trust fund.

These arguments are at least partly true although often exaggerated. For a typical two-earner couple retiring in 2010, taxes paid into the system over their working lives exceed the benefits they will receive by $42,000 ($581,000 in taxes paid minus $539,000 in expected benefits) according to Eugene Steuerle and Stephanie Rennane of the Urban Institute. For a one-earner couple, however, the reverse is the case; they receive a windfall of $145,000 ($435,000 in expected benefits minus $290,000 in taxes paid).

The argument that seniors are a particularly vulnerable group is also partly true. Many would be poor if not for their Social Security checks and many more have incomes that are adequate but very modest. In 2008, for example, the typical family income of those over the age of 65 was $35,000 a year. At the same time, 20 percent had annual incomes over $75,000. In a period when government programs are being sharply cut with devastating effects on working-age families with modest incomes, asking more affluent seniors to contribute something to the belt-tightening effort would not be unreasonable.

Finally, it is the case that for many years Social Security payroll taxes exceeded the benefits being paid to beneficiaries and that the surpluses were used to fund the rest of government. A moral and legal obligation to “pay back” these loans made by the trust fund to the rest of government thus exists. But this obligation couldn’t come at a worse time. It is like telling someone who has just lost his job that he must make good on his credit card debts accrued over a long period of time. No question that the money is owed. But the hardship it imposes on the rest of his family may be severe.

My conclusion is that the Social Security system should not be treated as sacrosanct. Instead, moving the system toward long-term solvency by gradually raising the retirement age, slowing the growth of benefits for the more affluent, and raising payroll taxes needs to be part of the solution to our fiscal woes. The needs of the elderly are substantial but their political power far outweighs their legitimate claims on national resources.