guide to the debate that will affect your family for generations
to come, but that you have likely been avoiding like the plague
been hearing the back-and-forth: Bush saying Social Security
is in “crisis” and we need to be allowed to invest our money
ourselves. The AARP saying the Bushies are trying to knock
down a house to fix a clogged pipe. And on and on. The truth,
as usual, is complicated.
us help. If your eyes glaze over at the thought of trying
to sift through competing rhetoric, charts and jargon, follow
along with our quick, plain-English explanation of what all
the fuss is about, plus some stories of people who rely on
Social Security today.
Though the fight over Social Security may have been edged
off the front pages for the time being, it will certainly
rise again. And you might want to know what it’s all about—after
all, you don’t plan to work your whole life, do you?
does Social Security work, anyway?
payroll tax is applied to most workers’ earnings, up to $90,000.
(It’s currently 12.4 percent, paid half by the employer, half
by the employee.)
That money is used to pay guaranteed monthly benefits to current
retirees, surviving spouses and children, and the disabled.
Younger workers pay for these benefits when current workers
For retirement, the amount you get every month is based on
an average of your 35 highest-earning work years, adjusted
for how much average wages have been rising since you started
working. (The disability and survivor formulas are more complicated.)
The amount you get every month will be enough to replace somewhere
around 60 to 70 percent of your average working income, and
will increase with cost-of-living adjustments every year.
Increasing Social Security benefits have been responsible
for dropping the historically high poverty rate among the
elderly from more than 35 percent in 1960 (and much higher
in 1939) to around 10 percent in 1995—about the same rate
of poverty as for working adults. (National Bureau of Economic
Social Security in crisis?
what you mean by crisis. Here’s what the Social Security Administration’s
accountants predict, if nothing changes:
Because of increasing life expectancy and lower birth rates,
by 2017 the system will take in less than it pays out.
By 2042, the trust funds will run out and the system will
still be taking in less than it has promised to pay out, so
benefit levels will have to be reduced so the taxes coming
in can cover them.
So . . . it is not about to immediately become “bankrupt,”
as the Bush administration keeps claiming. In fact, some people
point out that using the trust-fund surplus that has been
accumulated from the baby boomers to pay for their retirement
is not a failure; it’s how the system is supposed to work.
The question is: Will the system right itself when the next
generation is ready to retire? Some claim it will as long
as the economy keeps growing. The SSA thinks it won’t, except
perhaps under an unlikely “best-case scenario.”
“Social Security reform” equal cutting benefits?
lots of people have gotten this idea, no one, not even the
Bush administration, is proposing cutting benefits for people
currently receiving Social Security, or who retire before
However, one plan that Bush has said he supports is called
“progressive price indexing.” For rich folk (over $90K per
year), this plan would set their initial benefit levels based
on the rise in prices, not the rise in wages. For poor folk
(up to $20K per year), it would leave the current rise-in-wages
formula in place. For everyone else it would use a midpoint
between the two, based on a sliding scale.
So for some, including much of the middle class, price indexing
is definitely a cut in benefits compared to what the system
is promising now (unless, of course, prices rise faster than
wages over your lifetime. They usually don’t). What it wouldn’t
be is a cut in benefits compared to what people are getting
But since most people figure out how much they want to retire
with based on their income, not on general prices, some like
the AARP argue that moving from using wages to using prices
to set benefits turns Social Security into a welfare program
rather than a social insurance program.
personal accounts save social security?
Even Bush has finally admitted that allowing people
to divert some of their payroll tax into personal accounts
won’t do a darn thing to help Social Security in the long
Not to mention that in the short run some $2 trillion would
have to be borrowed to make up for all the taxes not coming
in to pay current recipients. That’s a boatload of debt—nearly
as much as the Social Security reform boosters are try to
save over 75 years by reducing benefits.
This is probably why privatization is now considered dead
what the hell do we do about it?
are tons of ways to change Social Security to make the numbers
work out better for the very long haul. Not surprisingly,
they all boil down to “take in more money” or “pay out less
Still, Bush’s commission to look into Social Security reform
took as one of its starting principles that it couldn’t
consider taking in more money from taxes. No wonder they came
up with reducing benefits!
Here are the major categories of ideas that have been floated:
Raise payroll taxes, eventually building in a periodic increase
based on increasing life expectancy.
Raise the cap on how much income is subject to payroll taxes.
Add a new tax on wages over a certain amount
Use a permanent estate tax to supplement the payroll tax
Invest the trust funds for higher returns
Reduce the cost-of-living adjustment
Adopt progressive indexing (see Does “Social Security Reform”
equal cutting benefits?)
Reduce growth of benefit levels across the board
There are so far no formal plans supported by either side
of the aisle—and according to Factcheck.org researchers, most
of the packages that are being proposed by various legislators
and economists are not actually enough to make the system
solvent in the long term.
One plan, proposed by Peter R. Orszag and Peter A. Diamond
of the Brookings Institution, would succeed in being
a permanent fix, at least according to both the SSA and the
Congressional Budget Office. It looks like this: a new 3-percent
payroll tax on wages above what is currently subject to Social
Security tax. An increase in the amount of wages subject to
the regular Social Security tax. A gradual increase in the
regular Social Security payroll tax, hitting 15 percent in
2075. A gradual reduction in the growth of promised benefits,
down 2 percent by 2025 and 23 percent by 2105.
Better or worse than progressive indexing? You be the judge.
we really be trying for a permanent fix?
Security is a long-term program, so it makes sense to be looking
at long-term solutions. And it sure would be nice to (a) not
have to keep trying to pass tax increases and (b) have it
going smoothly enough that no future cowboy has an excuse
to try to privatize it.
On the other hand, economics is a notoriously imprecise science.
Demographics less so, but they are still not exactly set in
stone. The predictions about how social security will fare
rely on predictions about birth rates, immigration, inflation,
wage growth, interest rates, unemployment rates, and life
expectancies. There is already serious debate about them.
Therefore, some, like former Social Security commissioner
Robert Ball, say that trying to craft a permanent fix now
is a silly and ultimately impossible goal. They advocate more
modest measures that should get us through the next 75 years
or so, with smaller changes along the way as necessary.
I’m starting to get the picture, but I want to read more.
Where do I go?
Security Administration: www.ssa.gov
New Yorkers United to Protect Social Security: www.inthis
President’s Commission to Strengthen Social Security: www.csss.gov
The Orszag and Diamond plan: www.brookings.edu/comm/ policybriefs/pb126.htm
of Social Security
Security policy is dull and abstract, but the people it supports
are very real
Opey is currently in a wheelchair due to a broken hip, so
she has to wait for an elevator to bring her up to the main
level of the Senior Center on Delaware Avenue in Albany. Or
the delay may actually be from saying hello to everyone she
passes. After all, Opey, who is 85 years old, has been attending
the senior center for 24 years.
Opey remembers first getting her Social Security number and
memorizing it when she left high school to begin working.
She started work at 30 cents an hour as a clerk at Montgomery
Ward’s department store in Menands. “How do you like those
potatoes?” she chuckles. “I know people here who made less.
(In today’s dollars, 30 cents is $3.86, below minimum wage
and well below the poverty level. This is why people support
using wage growth rather than inflation to calculate benefit
levels.) She went on to work at the Fort Orange Chemical Supply
and a local store. “I worked there until I got married,” remembers
Opey. “I was married for 50 years and 4 months.”
Her husband, an accountant (“smart as a whip” says Opey),
was 10 years older than her, and tried to save up enough to
keep her comfortable if he passed away first, which he did.
She recently was engaged to be married again (a picture of
the couple hangs in the Senior Center), but her fiancé died
during surgery. He also left her a substantial sum. Nonetheless,
Opey says, Social Security is still her main source of income.
She’s not sure how much; her niece handles the paperwork,
and the grocery shopping and anything else she may need.
Opey is aware that her situation is much different from what
her parents experienced. “In the Great Depression we had nothing,”
she recalls. “My mother had such a time making ends meet.
My dad worked in the West Albany shops—North Central railroads.
He was always out of work, on strike or laid off. My mom had
to scrub floors to put food on the table. My dad never got
to retire, he passed away. Things were so different then;
there was nothing coming in, no Social Security or anything
coming in. My mom worked at the Watervliet Arsenal during
the war. Then she finally sold her house.”
Sarah Lee Trotter is also grateful for Social Security keeping
her afloat. Like Opey, she worked until she married and raised
children, though she also went back to work as a teacher for
a while when her kids got older. She worked as a typist for
a couple of state agencies and a packing company in Kingston,
and then finally at the Mental Health Association, where she
stayed for seven years. “I started as a clerk-typist, then
a receptionist, an accountant, then supervisor over the maintenance,”
recalls Trotter. “They gave me several dinners.”
Unlike Opey, Trotter has no survivor benefits in her Social
Though she tried to save, at 68, the mother of four and grandmother
of 11 has used up her savings—the last she had was $400, which
she gave her daughter for college. She gets $514 a month from
Social Security and $216 in spousal support payments.
Even with Medicaid, Medicare and public-housing support, Trotter’s
budget is very tight. She pays her bills at the beginning
of every month, and then budgets how much she can spend on
food, clothing, and other necessities. She generally alternates
months, saving up for an item of clothing one month or a special
food item the next. “I have to skip, one month I’ll take a
little out and save,” she says. “I thank God that I get as
much as I do.”
Trotter spends her days keeping busy with volunteering at
the senior center, evangelizing and playing piano with her
church, and knitting for friends (this week she’s at work
on a baby cap). She says she’s heard on the news that the
government was going to shrink Social Security, “going to
cut it down and make it less.”
think [Republicans and Democrats] should get together and
understand what both parties are saying and both parties are
doing,” she says. “I don’t think Bush is doing very much.”