I am tired of the divisive rhetoric about Social Security and whether our country can afford to keep this commitment to our senior citizens.
Social Security is not an entitlement program, not a "ponzi scheme" and not welfare, as some allege.
It is a totally funded "pay-as-you-go" type plan like other qualified benefit retirement and insurance plans offered in the private sector.
We all fund the Social Security Trust Fund via payroll deductions during our working lives.
The government does not fund Social Security; we do!
The payroll deduction for Social Security (or FICA) is 7.65 percent from employees and another 7.65 percent from employers up to the annual maximum of $106,800 in earnings (or 15.3 percent).
The 7.65 percent is broken into two parts: 6.2 percent is the Social Security Tax and 1.45 percent is the Medicare Tax. (Currently, because of the Tax Relief Act of 2010, employees are paying a 4.2 percent Social Security Tax, referred to as a "Payroll Tax Holiday," just for 2011.)
Here are some facts everyone needs to understand:
1. In 2009, Social Security paid out $686 billion in benefits, while the Social Security Trust Fund took in $807 billion. Over 156 million employees paid into the Trust Fund while 53 million received benefits (a ratio of 2.94 workers per beneficiary). Changing demographics (longer life expectancy, an aging population and fewer workers) will reduce this ratio in coming years.
2. The Social Security Trust Fund currently has $2.6 trillion, up from $2.5 trillion in 2010. By 2015, the Trust Fund is expected to reach $3.25 trillion.
3. In essence Congress has repeatedly taken excess Social Security contributions from the Trust Fund and converted these monies into U.S.-backed securities and treasury bonds. Congress then uses the proceeds from the sale of these securities for other purposes like two unfunded wars (Iraq and Afghanistan), an unfunded Medicare prescription drug plan, the unfunded "No Child Left Behind" education plan, etc., thus impacting our national debt.
4. When the Social Security Trust Fund needs funds for recipients in the future, it will have to sell (or let mature) these U.S.-backed securities. Failure by Congress to authorize the redemption of these securities would be catastrophic. Those who keep up the "drumbeat" that Social Security is bankrupt or broken are wrong. Using these funds for general operating purposes by Congress for other than what they were intended, is the real problem.
5. Even with the current funding structure, Social Security will be funded through 2037. Thereafter, payroll taxes will cover 78 percent of the scheduled payout amounts, declining to 75 percent by 2084.
Where do we go from here with Social Security? Given our national debt level and the reality that all options for raising revenues and cutting debt should be considered, here are ways to strengthen and protect Social Security:
• Let the "annual maximum" from which Social Security taxes are deducted be raised from its current $106,800. This would be a very effective way to come to consensus on reform. I would recommend that the annual maximum cap be increased incrementally to $250,000 between now and 2037.
• Raising the early and full retirement ages for which benefits are paid is another way to reduce payouts from the Trust Fund. However, this is probably the worst way to reform Social Security. This actually reduces benefits to many people who live only on their Social Security checks. Also, many people work in very strenuous professions where working longer just isn’t physically possible. Additionally, it is very difficult for people over 67 years old to get meaningful employment.
• Establish a "means test" for benefits eligibility. No one earning more than $250,000 from all sources of income would be eligible for a Social Security payout. The correct amount would be based on actuarial calculations.
• Ever since we reformed our country’s "welfare programs," there has been a growing concern that more and more claims for SSI Disability benefits have been depleting our Social Security Trust Fund. This problem needs to be resolved.
One or more of the above suggested Social Security reforms could be adopted as a responsible way to proceed. The least responsible way to proceed would to set up privatized personal accounts to handle Social Security funds. This would subject seniors to real and serious financial risk, and hardship, if our security were tied to the rise and fall of financial markets and Wall Street bankers.
While the private sector can do a lot of good things, allowing Wall Street to take "windfall" profits for managing the Social Security Trust Fund would not be one of them. In summary, Social Security (and Medicare) are programs that have strengthened our nation not weakened it, as our junior senator from Florida recently alleged.
Hemping is retired as a human resources executive and now consults on benefits planning. He is considering a run for the District 1 Collier County Commission seat now held by Donna Fiala.