One of the more common refrains in the media in regards to Social Security is that it is on a collision course with disaster. The latest trustee report paints a better picture, but still shows a shortfall on revenue, that is the taxes collected. This of course brings out the right-wing efforts to privatize Social Security, like the movement to privatize retirements prior, shifting pension plans into 401k’s worked so well.
This naked money grab by corporations attempting to shore up their stock value creates a powerful lobbying effort which attempts to muddle the causes of the Social Security shortfall.
This is not the first time that Social Security had a predicted shortfall. In the 1970′s and early 1980′s, the projections were that the aging Baby Boomer population would outpace Social Security, causing a shortfall. President Reagan ordered the formation of the Greenspan Commission to address the problem. Yes, it is named after its chairman, Alan Greenspan. What they recommended was a combination of a new benefits accounting method and changes to the methods of tax collection paired with a tax collection on benefits themselves. In addition, the Social Security Trust Fund was migrated from its previous open managed method, where it could be in both non-marketable as well as marketable securities, allowing it to grow with interest over the long-term, to being only able to use specially issued non-marketable US Treasury notes.
Based on these steps, Social Security was to be solvent forever. Then what happened?
The calculations made for this were based on several assumptions. First, that the protections from the Great Depression to separate commercial from investment banking were to stay in place. Second, that income distribution would remain stable. Third, that income growth would match the previous 40 years in comparison with GDP growth.
Of course, none of these things happened.
The elimination of the barriers between commercial and investment banking returned the United States to the boom and bust cycles common in the 1800′s and early parts of the 20th Century. Income distribution went on its head, resulting in the total of income which could be taxed for Social Security going from 90% to 83%, a huge shortfall. And income growth for the majority of Americans stagnated. Once adjusted for inflation, most Americans make the same, or less, than they did in the 1980′s for the same positions. In a Forbes article where they interview Josh Bivens, the acting Research & Policy Director at the Economic Policy Institute, he is quoted as saying “Sixty percent of the current shortfall would be eliminated by a reversal of two adverse economic trends that have emerged since 1983: sluggish growth in average (real) wages and erosion of the tax base due to rapid growth in the inequality of earnings.”
With the number of workers which pay a full salary into Social Security stable at 94% according to the Congressional Budget Office but with the total of income which can be taxed by Social Security dropping to only 83%, it is plain to see why there is a Social Security problem. It is not a funding problem, it is an income gap problem. By the continuing war by the rich upon the middle class and poor, with the median income stagnant or even decreasing against GDP growth as well as inflation, such a crisis is the inevitable consequence of poorly planned and short-sighted policies implemented by those in Congress who answer to the super-wealthy and not to their constituents.