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Social Security faces new threat

Long-term financing of program, federal deficit are two separate issues

The Columbian
Published: March 6, 2011, 12:00am

At a recent meeting I attended. we were asked how many people have been impacted by the Social Security System. To my surprise, every hand went up. Several people were receiving Social Security retirement benefits, one individual was on Social Security disability, two individuals had received survivor benefits, and two had received educational dependent benefits. What was clear was that Social Security touches our daily lives in profound ways.

Since 1935, Social Security has been the key feature of our social safety net, providing income security for generations of Americans. In Washington state, more than 1 million people living in 25 percent of households receive Social Security benefits. The average benefit is $ 1,134 a month. While not a rich benefit, it helps keep a roof over many heads and lifts many more out of poverty.

Yet once again, Social Security is under attack. At the turn of the century, former President George W. Bush took a couple of runs at privatizing Social Security. This proved wildly unpopular. You would think that this idea would have long passed its expiration date after Wall Street crashed our economy and the value of the average household’s savings, but it persists. But the real threats to Social Security lie in confusing how to finance Social Security into the future with the federal deficit.

Social Security is a cross-generational promise to provide income support for U.S. workers and dependents. It has its own dedicated funding source: payroll contributions from workers and employers. The Social Security trust fund currently has $ 2.6 trillion, which can, in combination with ongoing payroll taxes, cover the entire costs of beneficiaries until 2037. Beyond 2037, there is a financing problem. With beneficiaries in 2037 receiving more than they do now, payroll taxes will cover only about three-quarters of benefits owed.

Two possible fixes

There are two ways to fix this financing problem — either cut benefits or eliminate the income cap on Social Security taxes. I prefer the latter solution. Most workers are subject to the Social Security tax on their entire income. But workers earning more than $108,600 a year (the income cap) do not pay the tax on income earned above this cap. If all income is subject to Social Security payroll taxes, we would eliminate the upcoming financing problem and have resources to fix benefit inadequacies that fall to workers who have moved in and out of the work force to raise children or who have been stuck in low-wage employment.

But there are those who would like us to believe Social Security is part of the federal deficit problem and, therefore, cuts to Social Security benefits must be made to help trim the federal deficit. The bipartisan “National Commission on Fiscal Responsibility and Reform” appointed by President Obama this past fall made this argument and suggested various cuts including raising the retirement age from 67 to 69 and lowering the cost-of-living adjustment. While the Commission did not reach consensus, these proposals are picking up steam and two recent events are fueling them.

While Social Security has never contributed one penny to the federal deficit, the December agreement between Congress and the President to lower by 2 percent the employee portion of the Social Security payroll tax creates a connection. Either the Social Security trust fund will be reimbursed by the federal government through our general taxes, thereby contributing to the federal deficit, or the 2037 Social Security financing problem has just become worse.

The 2011 Congressional House Republican budget proposes to cut $1.7 billion from the Social Security Administration for the rest of this year. If passed, this would create a backlog of some 500,000 unprocessed claims. Manufacturing such a crisis leads to calls for change – just not positive changes.

The federal deficit was caused by a combination of financing two wars simultaneously, lowering taxes significantly, particularly for the well-off, a tax system awash in corporate tax loopholes, and the greatest economic crisis since the 1930’s. We can best deal with the federal deficit by ending these two wars, right-sizing tax codes, and focusing on our most important deficit — the jobs deficit.

Let’s strengthen our Social Security system, not balance the federal deficit on the backs of our seniors, disabled, and survivors.

Jeff Johnson is president of the Washington State Labor Council, (http://www.wslc.org.)

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