The following excerpts are from an article in the March\April
1996 issue of "Consumers Digest". The opinions of the author,
John F. Wasik, may or may not reflect those of the SIP Committee.
What to do about the rising costs of Social Security and other large entitlement
programs such as Medicare, Medicaid and social welfare?
The definitions in the entitlement debate are muddled. Social Security
is always lumped together with welfare programs like Medicaid and Aid to
Families with Dependent Children. Social Security, however, was designed
to be - and still remains - a social insurance program. That is, if you
pay payroll taxes and work in the system for at least 10 years, you qualify.
Welfare, on the other hand, is paid out to those who meet income and asset
qualifications (generally about $3,000 in assets per coupe) based on federal
poverty-level standards. The funding for this program comes out of income-tax
revenues and represents a relatively small part of the federal budget.
Few will argue that federal spending isn't out of control and adding to
the nation's economic woes. When the government spends more than it takes
in through taxes - creating a $203 billion deficit in 1994 - it must borrow
to cover the difference. Then it must pay interest on the debt. That raises
the cost of money for everyone in the form of higher costs of doing business,
higher mortgage rates and reduced corporate profits (usually meaning fewer
jobs created). That's why large programs like Social Security have become
cost-cutting targets. Ironically, though, these programs pay for themselves
through payroll taxes and reduce the deficit because they are currently
running a surplus.
But Social Security and its companion program Medicare (both paid for through
payroll taxes) have never been more necessary - thanks to corporate layoffs
and benefits cutbacks, rising health care costs and the low national savings
rate (about 4 percent).
When corporate benefits shrink, more people must depend on private savings
- usually insufficient given the high cost of living and low savings rate
- or public programs like Social Security. Here's a snapshot of the gap
Social Security fills:
* Sixty percent of retirees have no pension other than Social Security
and no private retirement plan. "Defined benefit" (guaranteed
pension) plans are steadily being replaced by "defined contribution"
plans like 401(k)s.
* Middle-class workers (earning between $25,000 and $40,000) expect to
get about 57 percent of their total retirement income (including post-retirement
earnings) from Social Security.
* The biggest losers in any Social Security cutback scheme are the poor,
disabled and women. Women, for example, comprise nearly three out of four
of the nation's elderly poor and are half as likely to receive a private
pension as men. Moreover, one in four women over age 65 relies upon Social
Security for 90 percent of their income.
* Poor people and minorities have a statistically shorter lifespan. So
a cut in benefits (such as extending the "normal" retirement
age) would hurt them more.
* As of 1992, some 6.5 million children were living in households receiving
Social Security benefits, and the figure is higher today. A million of
these children would have fallen below the poverty line without the program.
Crisis? What Crisis?
Defenders and critics alike agree that the most pressing concern for Social
Security revolves around the system's ability to finance itself into the
next century. What you may not have hear, though, is that it's hardly a
crisis.
The basic "problem" is that in 15 years, some 77 million Baby
Boomers will begin to lead a huge retirement wave (assuming they all retire
at age 65, which is unlikely). In 2013, they will remove more money from
the system than is being taken in through FICA taxes. That means that the
system's trust funds will begin to be drawn down (but will not be deplete
for another 17 years or so).
An additional factor is rising life expectancy. As people live longer,
they tend to collect Social Security longer. And with fewer workers entering
the system to pay for future retirees - the ratio will be a scant two workers
for each retiree by the mid-2000s - you have what insurance cost experts
call "an actuarial imbalance."
According to the Social Security Advisory Counsel, empowered by Congress
to suggest ideas to save the system, here's what will happen early in the
new century:
* Although the trust fund has been accumulating a surplus since the Social
Security Act was amended in 1983, by 2013 the trust fund will begin to
tap into the interest. When the surplus is gone, Social Security will become
a true "pay-as-you-go" system with current workers directly paying
for current retirees.
* There's absolutely no problem with the system paying for current or future
retirees for the next 30 years.
* When the trust fund is expected to be deplete - estimated to occur by
year 2030 - the government will either have to raise taxes, cut benefits
or try a combination of other measures. Washington has plenty of time to
decide what to do and isn't locked into a tax hike or benefits cuts.
* Medicare, funded through payroll taxes and supported by a separate trust
fund, is projected to go broke by 2002.
Who Gets Hurt?
To most people, Social Security means a retirement check.
But to millions, Social Security is the only thing between survival and
desperation, especially for large groups of elderly women and minorities.
Both the U.S. Census Bureau and SS Administration figures underscore the
importance of even modest benefits - benefits that would be imperiled under
most privatization or benefit-cutback schemes. Here's why:
* Some 75 percent of the elderly poor (per federal poverty levels) are
women. Elderly women in the U.S. are among the poorest groups in the industrialized
world.
* The poverty rate for women aged 75 or older in the U.S. is 20 percent
for white women, 20 percent for widows, 20 percent for divorced women and
37 percent for African-American women.
* Median income for white women over age 65 is $8,778, compared with $15,
682 for the same age group of white men. The same-age African- American
and Hispanic women, the income levels are $6,582 and $6,097, respectively.
Is Social Security Fair To Everyone?
Of all of the questions concerning this complex system, this
one has a simple answer: No. The system is redistributional, meaning that
those who make more money get lower real returns, and those who make less
get better returns. This "progressive" formula assumes that those
making less money should get more because they need it more. And since
the system evolved to lessen the burden of poverty among the elderly, naturally
the elderly will benefit more than younger workers or children.
Right now, Congress still regards Social Security as "their third
rail of American politics - touch it and you die." At least that was
the motto until several conservative groups couched their Social Security
proposals in the banner of "generational equity" or "entitlement
reform." Nonetheless, it's unlikely that Congress or the White House
will tackle the issue during this election year. Next year, however, is
a different story. The interests aligned to dismantle Social Security are
marshaling dollars and votes to sell their agenda in a novel and more politically
inflammatory package to the upper-middle class and younger Americans.
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