It’s getting to be Social Security time. As the 2016 elections get closer, conservatives agitate to cut back benefits and liberals agitate to raise them.
Both sides are likely to increase in volume when Social Security’s delayed annual trustees’ report finally appears later this year. And when people realize that in 2014, Social Security ran a $73 billion cash deficit — that gets to be serious money — even though its trust fund got bigger.
So today, I’m launching what I hope will become a series of Social Security truth-teller articles. By that, I mean columns or articles that will explain what’s actually going on with our biggest and most important social program — as opposed to the conventional wisdom or what conservatives or liberals have to say.
We’ll start today with the idea shared by a truly odd couple — New Jersey Gov. Chris Christie (R) on the right, and Sen. Elizabeth Warren (D-Mass) and other liberals on the left.
Why tie Christie and the liberals together? Because they all think that “the rich” are somehow benefiting unfairly when it comes to Social Security’s retirement benefits.
And, in my fact-supported opinion, they’re both wrong.
Christie proposes to deal with “the rich” by reducing benefits for Social Security retirees who have $80,000 of non-Social Security income and eliminating them entirely for people with $200,000 of such income. Liberals want to increase benefits and safeguard the system in large part by eliminating or greatly raising the wage cap (currently $118,500) on which the 12.4 percent Social Security tax is collected.
But when you look at the relationship between what higher-income people pay in Social Security taxes and the benefits they get, you see that what the “max tax” payers get from Social Security is actually worth considerably less than the value of the taxes that they pay into the system.
I know this because six years ago I asked Social Security’s actuaries to place a value on the benefits my wife and I stood to get in retirement compared with the value of the Social Security taxes that she and I and our employers had paid over the years. (I assume, as most analysts do, that the employers’ Social Security tax payments ultimately come out of their employees’ pockets.)
My wife and I offered a classic case because I had paid max tax for the 35-year period on which recipients’ Social Security benefits are based.
Guess what: Social Security’s actuaries calculated that our benefits were worth only about 75 percent of the value of our contributions. (For details, see wapo.st/sloanSS.)
What’s more, because my wife and I pay income tax on 85 percent of our Social Security benefits — money that gets credited to the Social Security trust fund — our benefits are effectively reduced by an additional 20 percent or so. That means that our benefits are worth only about half of what we put in.
The fact that I continued working — and paying maximum Social Security taxes — for five more years reduced our benefits even further relative to our contributions.
So, you see, people who earn the maximum wage covered by Social Security — a more accurate term than “the rich” — are subsidizing Social Security rather than getting a fat deal.
As one of those people, I think that’s perfectly fine. Social Security, after all, is an intergenerational transfer payment designed to make sure that people who have worked all their lives, paid taxes and played by the rules don’t have to spend their golden years living on street corners and eating cat food.
I have absolutely no problem with wanting to have max-tax types like me pay more income tax on my Social Security benefit, or to slow down the rate of growth of my benefit or to increase the covered wage — any of which would help to put Social Security cash income and cash outlays into some sort of balance.
But eliminating a promised benefit for which I’ve paid taxes for more than 50 years, as Christie wants to do, if I happen to have done well? To add 12.4 percent in Social Security tax to top earners’ marginal rate, as some liberals want to do by eliminating the salary cap?
Either of those turns Social Security from an earned benefit that is subtly means-tested into welfare. And we all know what tends to happen to welfare in this country.