Friends,
The trustees of the Social Security fund said Tuesday that the fund will be depleted by late 2032, a year earlier than the trustees’ projection last year of 2033. If nothing is done, benefits will automatically be cut six years from now.
The common understanding is that Social Security’s shortfall is due to the huge postwar baby boom, now retiring, and to America’s increasing life expectancy. The usual recommended fix is to reduce Social Security benefits or raise the age of eligibility. As Speaker of the House Mike Johnson warned Monday, “entitlement programs” like Social Security “have to be adjusted and fixed.” He said Republicans will introduce a plan to do that. Brace yourselves.
I used to be a Social Security trustee, and I call BS.
The baby boom can’t be blamed for Social Security’s shortfall. The Greenspan Commission, which in 1983 recommended the reforms that Congress then made — raising Social Security payroll taxes and also raising the eligibility age for collecting Social Security benefits — knew all about the baby boom and figured it into its calculations. (Early boomers like me can now start collecting full benefits at age 66; late boomers born after 1960 have to wait until they’re 67 to collect full benefits.)
Americans’ increasing life expectancy isn’t at fault, either. While wealthier Americans are living longer, that’s not the case for lower-income Americans. The Urban Institute estimates that life expectancy in the top 20 percent of income-earners is 91 years for people born in the 1990s, four years more than people born in the 1950s. Yet the life expectancy in the lowest 20 percent of income-earners is fewer than 80 years.
So what’s the real cause of the Social Security shortfall? What did Greenspan’s Commission fail to predict? Widening inequality.
Remember, the Social Security payroll tax applies only to earnings up to a certain cap. This year, that cap is $184,500. Earnings at or below this amount are taxed at 12.4 percent. The cap rises every year according to a formula roughly matching inflation.
Back in 1983, the cap was set so the Social Security payroll tax would hit 90 percent of total income in America. That 90 percent figure was built into the Greenspan Commission’s fixes. The Greenspan Commission assumed that, as the cap rose with inflation, the Social Security payroll tax would continue to hit 90 percent of total income.
Today, though, the Social Security payroll tax hits only about 83 percent of total income in America. It went from 90 percent to 83 percent because a steadily larger portion of the nation’s total income has gone to the top.
In 1983, the richest 1 percent of Americans got 11.6 percent of total income. Today, the top 1 percent takes in more than 20 percent.
This year, someone earning $1 million in wages stopped paying any Social Security payroll tax at the beginning of March. Jeff Bezos probably stopped a few minutes past midnight on January 1. Elon Musk, a few seconds after midnight on January 1. (In point of fact, Bezos, Musk, and other robber barons of this Second Gilded Age get all the cash they need by borrowing against their fortunes, rather than bother with pesky wages, so they probably pay a pittance in Social Security taxes.)
Logically, then, to get back to 90 percent, the ceiling on income subject to the Social Security payroll tax has to be raised.
If all income in excess of $400,000 were subject to the Social Security payroll tax, Social Security’s solvency would be guaranteed forever. We could also expand Social Security benefits.
So there’s no reason even to consider reducing Social Security benefits or raising the age of eligibility. The logical and necessary response is simply to raise the cap, Mike Johnson and other Republican shills for the oligarchs to the contrary notwithstanding.
Additional background:
Social Security is America’s most effective anti-poverty program. Last year, it lifted 23.5 million Americans out of poverty, including 16.5 million seniors. Before its creation, about half of our nation’s seniors were living in poverty. Today their poverty rate is just 10.3 percent. Without Social Security, nearly 4 in 10 seniors would have had incomes below the official poverty line.
Hollowing out of private pensions makes Social Security all the more important. One in 5 Americans 50 and older have zero retirement savings. Meanwhile, the average Social Security benefit at the start of last year was $1,975 a month ($23,700 annually).
Social Security is also the federal government’s biggest children’s benefit program through its disability and survivors’ benefits. In 2024, 1.7 million children received Social Security benefits, and the vast majority are eligible to receive survivors’ benefits if a parent were to pass away. Additionally, millions more children are part of a household where all or part of the household income comes from Social Security. Social Security is estimated to lift close to 1 million children out of poverty each year.
Other fixes that have been introduced in Congress:
1. The Social Security Expansion Act
Senators Bernie Sanders and Elizabeth Warren have introduced this plan for several Congresses. (It is cosponsored by Budget Committee Members Merkley, Whitehouse, Van Hollen, and Padilla.)
The bill imposes Social Security taxes on wages above $250,000 and applies the same 12.4 percent rate to capital gains and business income. That would boost benefits for almost all retirees by $200 per month, using a more generous measure of inflation to calculate the cost-of-living increase, and setting a minimum benefit at 125 percent of poverty. When estimated in 2023, it achieved 75-year Social Security solvency solely by increasing taxes on incomes above $250,000.
2. Medicare and Social Security Fair Share Act
Sen. Whitehouse and Rep. Boyle introduced this bill starting in the last Congress. Budget Committee Member Van Hollen is a co-sponsor. It adopts the tax increases of the Sanders bill, adjusted to start at $400,000. The bill has no benefit increases, so it significantly overshoots solvency, and there would be extra revenue. The bill achieves 75-year solvency for both Social Security and the Medicare Hospital Insurance trust fund.
Robert Reich is an emeritus professor of public policy at Berkeley and former secretary of labor. His writings can be found at https://robertreich.substack.com/. His new memoir, Coming Up Short, can be found wherever you buy books. You can also support local bookstores nationally by ordering the book at bookshop.org
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