Who Should Pay For Social Security
NEAL CONAN, host:
This is TALK OF THE NATION. I'm Neal Conan in Washington.
When the new Congress convenes on Wednesday, Republican leaders vow to tackle the federal deficit. And many say that no serious cut in spending is possible without important changes to Social Security. Raise the retirement age, lift the cap on annual contributions, decrease payouts to the wealthy - unfair for those about to retire, maybe, but anything less is unfair to their grandchildren.
Progressives argue that it is not only deeply unfair but totally unnecessary. The trust fund is projected to be in surplus for decades, they say. They also add that Social Security is a hugely popular program that dates back to the New Deal.
What do you think is fair on Social Security? Our phone number is 800-989-8255. Email us, email@example.com. You can also join the conversation on our website. That's at npr.org; click on TALK OF THE NATION.
Later in the program, the story of a legendary Broadway flop, on the Opinion Page this week. But first, fairness and changes to Social Security. We begin with Robert Samuelson, a columnist for Newsweek and the Washington Post, where his piece last week was titled "On Medicare and Social Security, Be Unfair to the Boomers." He joins us here in Studio 3A. Thanks very much for coming in.
Mr. ROBERT J. SAMUELSON (Op-Ed Columnist, The Washington Post): Nice to be with you, Neal.
CONAN: And happy New Year.
Mr. SAMUELSON: Same to you.
CONAN: Medicare, another issue for another day. Why unfair on Social Security?
Mr. SAMUELSON: Well, I want to put Social Security and Medicare together because when you look at Social Security and Medicare and Medicaid, a large proportion of Medicaid also goes to people over 65. That is the largest chunk in the budget; it's 40 percent of the federal budget.
I was born in late 1945, so I'm right on the edge of the baby boom. As the baby boom retires, the number of people who are elderly - by common definition, 65 and over - is basically going to double. The proportion of the population that is in that category, 65 and over, will go from 13 percent to 20 percent -reflecting a somewhat greater population.
And the pressure of projected spending on Social Security, Medicare and Medicaid will require one of three things. Either we're going to have much, much higher taxes to cover this spending; or we are going to have unsustainably large deficits as far as the eye can see, which at some point will probably result in a financial crisis; or we are going to have to cut the other things the government does - public services - drastically to accommodate the projected spending on older people.
CONAN: You say, lump them in together. Some would say, wait a minute. Social Security is funded in a very different way. It's a fund. You and I have been paying into it for decades and the government, as a sacred covenant, owes us this money for our retirement.
Mr. SAMUELSON: Well, that's the politics of it, and that's the perception of it.
CONAN: That's the way it has been told to us since Franklin Delano Roosevelt...
Mr. SAMUELSON: That is the way that it has been sold to the American people. But as a practical matter, the Social Security taxes paid today go out tomorrow in Social Security benefits for existing beneficiaries. This is essentially a welfare program. No money - very little money has been saved for your retirement or my retirement.
There is not an account somewhere in Social Security - a trust fund that says this is the Social Security savings of Robert J. Samuelson. He has been working since he was 23, and all this money has been saved to pay his retirement. This is essentially a welfare program. And the beneficiaries are people over 65, and the main contributors are people under 65.
And so the question we need to ask ourselves is whether or not this program, as it is now constituted, is in the national interest. I am not suggesting that we ought to get rid of Social Security. It's an important - I would say a vital part of our social fabric. But we need to redefine to accommodate and reflect social and economic conditions that exist today, and not the conditions that existed in 1935.
CONAN: Redefine it so it should be optional...
Mr. SAMUELSON: No.
CONAN: If I'm not going to get anything out of it, why have I been paying all those taxes all my life?
Mr. SAMUELSON: Well, I wouldn't say it should be optional, but I would say that people who are relatively healthy - and many people who hit the age of 65 or 66 are relatively healthy - should not be getting the benefits. We should raise the eligibility ages gradually. We should reduce the benefits for people who are wealthier. And this should go back to something closer to what it was when we originally created it, and that is a safety net program to prevent destitution in old age.
So I don't want to cut back on the benefits for people who fundamentally are relying exclusively or heavily on Social Security, but I do want to cut back on the benefits for those people who will just use it as one stream of income. And I want to raise the eligibility age to reflect the fact that longevity, and life expectancy, has increased dramatically since this program and Medicare were created.
CONAN: And raise the retirement age to how high, how soon?
Mr. SAMUELSON: Well, I think this is a debatable point, and we should debate it. I would raise it to about 70 by 2030, and I would continue to raise the eligibility age now. But that would be my target. But other people, you know, might say 68 or 69; some might even say 71 or 72. And this is something we should debate. We ought to discuss the practicality of it, and we ought to also discuss what the impact of making those changes would be on the overall budget.
CONAN: Let's see if we get some callers in on the conversation. We're talking about what's fair with Social Security - 800-989-8255. Email firstname.lastname@example.org. And let's begin with Buzz(ph), and Buzz is with us from Aspen, Colorado.
BUZZ (Caller): Hey. Hi, guys. Listen, I'm 66. I'll be 67 next week, actually and...
CONAN: Well, happy birthday.
BUZZ: Thank you.
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BUZZ: I don't celebrate birthdays anymore. But anyhow, things are radically different from 1935. I'm working right now. I intend to work as long as I can work. I think it's absolutely imperative to save Social Security, to elevate the retiring age. I don't think - I just heard something about the retirement age being 70 in 20 years or something. To hell with that. Let's do it right now.
And by the way, I worked for a guy who, if he were to liquidate, would be worth $60 million - or something around that. You know what? He's eligible for Social Security, and I bet you anything he cashes in on it.
CONAN: Well, Buzz, why shouldn't he? He's paid into it his whole life.
BUZZ: Because he's worth $60 million.
CONAN: He still paid into the fund. Doesn't he deserve to collect?
BUZZ: You know something, it's like taxes. It's like taxes. Why should the rich - the super rich - not have to pay their relative shares?
CONAN: All right, Buzz. Thanks very much for the call. And again, we wish you a nice day whether you recognize your birthday or not.
BUZZ: Well, it's a sunny, pretty day, so thank you.
CONAN: Thanks very much for the call. And Buzz, I take it, is not planning to run for political office. Social Security has been described as the third rail of American politics.
You write about the rage of millions of retirees and near-retirees - and I'm not sure that the word rage is an overstatement.
Mr. SAMUELSON: Yeah, I mean, the fact that we have not been willing to talk about these issues with any sense of candor or, I would say, economic realism, has led people to have what I consider to be unrealistic and, to some extent, antisocial expectations.
I agree with the caller that his boss, and probably many others, don't really need Social Security - or at least they don't need the amount of Social Security that they're going receive - and they could well afford to pay more for their Medicare.
What we are doing by leaving these programs completely intact is, we are punishing the young, and we are essentially diverting spending away from the nation's future toward the nation's past. And I would say that a country that is obsessed or devoted with spending on the past, and not the future, is really not thinking straight.
And I think what you would find, if you did a kind of poll of this - and I think what some of the polls do find - is that people simultaneously don't want us to cut Social Security, don't want us to increase the eligibility age for either Social Security or Medicare, dont really want us to increase the fees or the premiums for the well-off elderly for Medicare. And at the same time, those same people are vehemently against the deficit, believe that we are punishing our children and - but you can't have both at the same time.
You have to make a choice between whether or not we want to have some balancing of our obligations to the old, with some balancing of our obligations to the young. And people think that we can do everything without making any hard choices.
CONAN: Here's an email from Roberto(ph). Funny how though mismanaged budget -through mismanaged budgets, Congress is now taking a shot at our so-called entitlement programs.
We are entitled to receive the benefits in full. We were legally bound to pay into the programs at risk of jail time, through the IRS. So now we have to expect that the money that was used for this and that, wars - Afghanistan, Iraq -Pakistan, Haiti, unpopular mention, etc., is now too short to pay.
Nice, that's a breach of contract. An agreement was struck. Now, the government wants to renege on the terms. Can I get a refund?
Mr. SAMUELSON: Well, that is the popular image of Social Security and Medicare, but the truth is that these are, as I said earlier...
CONAN: You say popular, but I get a letter every year, telling me I've paid in this much and that I'm going to get that much if...
Mr. SAMUELSON: Well, and the Social Security Administration, in fact, promotes its own program and creates the resistance to change.
There is a Supreme Court decision - I think it was 1959, but it was either the late '50s or early '60s - Flemming versus Nestor, which decided - the issue in that case is whether or not the government did, in fact, have a contract with Social Security beneficiaries.
Mr. Nestor was a beneficiary who was claiming that his benefits had been cut off. And the court decided no, there is no contract. If Congress, tomorrow morning - I'm not saying this is going to happen; I don't think it should happen - but if tomorrow morning, the Congress eliminated the Social Security program, I don't think anybody would have recourse in court.
CONAN: I would advise them if they did that, to invest in pitchforks and torch futures.
Mr. SAMUELSON: This is true. But the point I'm making is that legally, there is no contract. This is not like some pensions, where the money has been put aside for you - or is supposed to legally be put aside for you, and paid to you when you reach a certain age.
This is - just like food stamps, another - some other welfare programs, it's a transfer from people who are paying taxes to people who are receiving benefits, and most of the transfer occurs during the year the taxes are paid.
CONAN: We're talking about fairness and changes to Social Security. Should there be a raise in the retirement age? Should the cap be raised and people pay - wealthier people pay more, people who earn more money every year pay more? Should there be some reduced payment to those who are wealthier; 800-989-8255. Email us, email@example.com. Robert Samuelson is with us. His book is "The Great Inflation and Its Aftermath: The Past and Future of American Affluence."
In a few minutes, we'll be joined by Robert Kuttner, co-editor of The American Prospect. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION, from NPR News.
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CONAN: This is TALK OF THE NATION. I'm Neal Conan in Washington. We're discussing Social Security today, and what's fair. The fund was targeted by the president's deficit-reduction commission last year. The new Congress - many are expected to argue the only way to make a significant cut in the budget is to revamp Social Security, among other programs.
What do you think is fair on Social Security; 800-989-8255. Email us, firstname.lastname@example.org. You can also join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION. And let's get Michael(ph) on the line, Michael with us from Boston.
MICHAEL (Caller): What were fair, given the root of the matter, would that workers reap more of the gains in productivity that have been there over the past few decades rather than their owners and bosses.
Yes, there are many fewer workers per retiree than there were, but productivity has gone up by a couple of orders of magnitude since then. If this were reflected in our wages, then the taxes on those wages, with a higher cap, would be able to fund the system. But instead, most of the gains have been leached off us.
CONAN: You're talking about the...
MICHAEL: I'm not a Bolshi, as much as I may sound like one right now, but honestly, there's a reason why so little of the country owns so much of it.
CONAN: You're talking about stagnant wages, which have been adjusted for inflation, which has been very low these last few years - very stagnant for quite some time, though it's important to point out, Michael, I think the calculation is the Social Security system is paid, under present operations, for the next 27 years. But anyway, Robert Samuelson?
Mr. SAMUELSON: Well, I agree with the listener. It would be better if wages had gone up more over the last two or three decades than they have gone up, and a disproportionate amount of the productivity gains seem to have been captured by very-upper-income households.
On the other hand, if you're just looking at the tax consequences of that, unless these people shelter their tax, their income - and some of them, obviously, do - the tax rate on their income is actually higher than the tax rate on lower-income, middle-income people so that a greater share of that money is flowing to the government than would if it had been earned by people in the middle and the lower part of the income spectrum.
So I'm not sure that that is a solution to the problem. The basic problem is that we have - the government has made promises greater than it is willing to tax people to pay. And for many decades, that gap has been rather small.
But going forward, because of the uncontrolled nature of health-care costs under Medicare and Medicaid, and because of the baby boom and essentially the doubling of the over-65 population, that gap is going to widen.
And so we really have a political choice to make as to whether or not we want to pay for that - close that widening gap by raising taxes on the young, which will probably slow down the economy, and I think would discourage people from having families; or we want to cut other public services; or we want to run what would probably be unsustainable deficits.
And this is - it's a fundamental choice we have to make. And so far, we have avoided making it.
CONAN: Let's get Maryann(ph) on the line, with us from Newbury Port, also in Massachusetts.
MARYANN (Caller): Hi. I'm just struck by the apparent lack of understanding of people's actual working lives. And I'm talking about folks who are, you know, involved in physical labor and the expectation that they continue that hard physical labor into their 70s.
I also would like to understand - get an understanding of who they think are going to be hiring these older workers. We have people who are now referred to as 99ers, many of them in their 50s, who can't find jobs because of age discrimination.
CONAN: Ninety-niners for the 99 weeks of unemployment insurance available. It's just gone up. But Robert Samuelson - let's get a response to your point, please.
Mr. SAMUELSON: Well, I agree again with the caller, that there are some people who won't be able to continue working, and there is a disability program for those people.
But in general over the last five decades, six decades since the end of World War II, more and more of the workforce have jobs that are not physically demanding. They're office jobs.
CONAN: Yeah, but what about the others?
Mr. SAMUELSON: Well, you cannot make policy based on a small minority of people or even a modest - you've got to make policy based on the most good for most people.
And as I say, there are - there is a disability program for people who are genuinely disabled, and they can get Social Security under that before they get their retirement benefits.
And I also agree with the caller that this is probably the worst time, conceivably, to talk about these problems. We should have dealt with these problems in the '80s or the early '90s, and we have evaded it. So we have now put off the problems, and so they are coming to a head when the economic conditions in the country are abysmal.
And they're abysmal for the young, they're abysmal for the middle age, and they're abysmal for the old. But that doesn't mean that we can evade these issues.
CONAN: Robert Samuelson, thanks very much for your time today. Robert Samuelson, a columnist for Newsweek and the Washington Post, and he joined us here in Studio 3A.
With a different take, Robert Kuttner joins us. He is the co-editor of the American Prospect, a senior fellow at Demos, and he's with us today from member station WBUR in Boston. And Bob, happy New Year, nice to have you back on the program.
Mr. ROBERT KUTTNER (Co-editor, The American Prospect; Senior Fellow, Demos): And to you, Neal, always a pleasure.
CONAN: And what do you think is fair for Social Security, given the demographic situation that we were just hearing from Robert Samuelson. Are some adjustments fair at this point?
Mr. KUTTNER: Well, thanks for having me on. I have a completely different view.
For starters, the supposed crisis in Social Security finances is grossly exaggerated by people who, for whatever reason, want to cut the program. Here's the real number: The 75-year gap in Social Security - between what it is projected to take in, and what it needs to pay out under present obligations - is seven-tenths of 1 percent of GDP.
That means that if you hold taxes on people earning over $250,000 at the pre-Bush tax-cut level, the entire gap disappears. That's how relatively small it is.
And if you think that wealthy people ought to bear some small sacrifice, it's much better to have slightly higher taxes on them during their working life than it is to means-test Social Security.
So for starters, Social Security's allegedly perilous condition is much exaggerated. Secondly, let's talk about real working people. Forty-five percent of the elderly would be poor without Social Security. Fifty-five percent of the elderly rely on Social Security for a majority of their income. For 25 percent of the elderly, Social Security is more than 90 percent of their income.
So it's one thing for a newspaper columnist to talk about, you know, retiring at 70 or 72. I mean, Robert Samuelson and I are fortunate enough that they'll probably carry us out because we love our work. But for most people in their late 60s, retirement is something to look forward to. And as one of your callers said, it is very difficult to get a job, particularly in a recession, if you are in your late 60s.
There is nothing wrong with Social Security that can't be fixed with very small adjustments, and it's a wonderful life-saver of a program.
CONAN: And - however, the other figure that he talked about, the deficit and the message sent in November's election, that's a little hard to argue, either. And you know, you can argue Social Security is different, a covenant with the American people, but you've got to cut federal spending somewhere.
Mr. KUTTNER: Well, but as you said, Neal, Social Security is fine for the next 27 years. So today's deficit has nothing to do with Social Security. And, you know, the idea that the retirement of the baby boomers is somehow a surprise, amazingly enough, people who could do a little bit of arithmetic have been predicting this for decades.
And that's why we raised taxes by several trillion dollars - beginning in 1983 - on baby boomers, who were then working people, who are now starting to retire. And your caller was right, that a lot of this has been pre-funded.
No, there's not a big fund that covers all of it. Some of the payout of Social Security is paid by the pay-in by current taxpayers. But in the case of baby boomers, a lot of it was pre-funded.
So are you going to say to people: All right, we've been collecting higher taxes from you since 1983 on the premise that you're going to start retiring in 2011. But now because we hit a recession, and because we cut taxes on the affluent, we're not going to pay you what you were expected you were going to be paid. That's not fair, either.
CONAN: Let's get some callers in. Let's go next to Meg(ph), and Meg's with us from Raleigh in North Carolina.
MEG (Caller): Yes, greetings, happy New Year.
CONAN: Happy new year.
MEG: I'm not quite sure I agree with your most recent host - or guest, excuse me. But I just - I mean, I'm 38 years old and if I could, I'd opt right out of Social Security. I don't foresee that it's going to be able to pay my benefits when I get older.
I feel like the U.S. government is not here to create social programs for the U.S., for citizens of the U.S., to enable behavior that doesn't really help them, oftentimes, in the end.
Now, I know you might be sitting there rolling your eyes like, well, how is Medicare or Medicaid not helpful? And yes, it is helpful. And if it is needed, truly needed by those so that we do not have people that are, you know, ill and they can't help themselves, that's one thing.
But you know, we have these social programs that - I don't see that they're much help at all.
CONAN: So Social Security if - so if you're 38, you would stop paying in and...
MEG: No. I mean, they can take it right now. They can take everything that I put in. But when I retire - should I retire, because I love what I do; I work currently in research at UNC. I love what I do. I hope I can continue working. But I also hope that I am able to invest and provide for myself, and provide for my own retirement and by my own means, and not have to rely on the government. That's what the government should encourage folks to do.
CONAN: Robert Kuttner?
Mr. KUTTNER: Well...
Mr. KUTTNER: ...I hope you're right. I do hope you put aside money for your retirement, and I hope the money that you invest bears lots of returns. But the wonderful thing about Social Security - let me see if I can sell you on what's unique about Social Security. You can't outlive it, you know? If you put aside money in a 401(k) plan or just in an ordinary investment, you are making a bet that you are going to live to a certain age and then, at that point, maybe your money runs out.
The unique thing about Social Security, compared to a private investment, is that you can't outlive it. It will go on sending you a monthly check as long as you live. And on top of that, it also has survivorship benefits. If you're a breadwinner and you die an untimely death, the average Social Security benefit for your children is the equivalent of a $433,000 life insurance policy. It's more efficiently administered than any private investment plan.
So by all means, Social Security was never intended as the sole retirement savings vehicle. By all means, let's have better pensions. Let's have better 401(k)s. Let's put aside our own nest eggs. But the rock bottom base, on which other retirement is built on top of, is Social Security. And that needs to remain so. And most people may not be as fortunate as you are.
MEG: I mean, I can only hope. I mean, I just sort of more agree with Robert Samuelson - is that his name?
CONAN: That was the guy on before, yeah.
MEG: Right. I just feel like, you know, the programs were initiated during the New Deal, when that was really needed at that time. It's now 2010. I mean, you know, maybe we should look at our programs and fine-tune and go through, and really start making some deep cuts. I mean, maybe they should encourage or promote, you know, having drug-testing for these people receiving Medicare or Medicaid. I mean, I - so often jobs - you have to take a drug test to get in the door. Why aren't we doing that?
CONAN: Meg, thanks very much for the call. Appreciate it...
MEG: Thanks. Have a good one.
CONAN: ...good one. We're talking about the fairness - what's fair for Social Security down the road. You're listening to TALK OF THE NATION from NPR News.
And here's an email from Tim(ph). As a boomer several years from retirement, I wholeheartedly agree with your guest. It's time to get realistic about what we can afford, and be honest about how to pay for it.
I think that was sent while Robert Samuelson was with us. Honest about how to pay for it - is this not a tax, effectively, like any other tax?
Mr. KUTTNER: Well, sure, it's a tax. It's supported by payroll taxes in the same way that deductions that support 401(k) plans come out of your income. And Social Security recently has done a lot better than 401(k) plans because 401(k) plans took a big hit when the stock market fell. So we need a diversified retirement system, and Social Security is one pillar among several.
But the argument that Social Security is about to go bankrupt, or Social Security has anything to do with the current deficit or the current dire straits that the economy are in, that's just wrong. That's just factually incorrect. And what we really have is a philosophical or an ideological debate about whether you like social insurance, or whether you don't. I happen to think social insurance is a good thing. But if you don't like it, argue it on the philosophy, argue it on the merits. Don't argue it with scare stories.
CONAN: Let's go next to Paul(ph). Paul with us from King of Prussia in Pennsylvania.
PAUL (Caller): Yes. Thanks for taking my call, Neal. And thank you, Mr. Kuttner, for injecting some common sense and facts into the discussion. I wanted to present my own, rather simple solution for the funding gap and also, perhaps, to broaden the parameters of the discussion.
I'm quoting here from figure 12 of the president's deficit commission report concerning how the shortfall can be funded over the next 75 years. One item: Gradually increase taxable amount of maximum to cover 90 percent of earnings by the year 2050. That would cover 35 percent of the proposed shortfall. The second one would be something called application of the so-called chain COLA, which would cover 26 percent of the estimated shortfall.
CONAN: I'm not sure I understand that second one. I know - Paul, I think the first one you're talking - there's a cap right now. You only pay Social Security taxes on the first, I think, $106,000 of income.
PAUL: Yes. And I believe Simpson-Bowles have recommended to gradually raise that cap, I believe, to $180,000 over the next, basically, 40 years.
CONAN: And Robert Kuttner, isn't that another way to say the rich should pay a fairer share?
Mr. KUTTNER: Very much so. And again, if you simply kept the pre-George W. Bush tax code for people making...
CONAN: But they didn't, so not for the next two years.
Mr. KUTTNER: ...upwards - well, but you know, they didn't. This Congress didn't, but that still could be done. The chain COLA is jargon for playing with the cost of living index adjustment, and that would be a disguised cut in the same way that raising the retirement age would be a disguised cut. So it's a small gap. There are three ways to fill the gap. You can cut benefits. You can raise taxes, or you can increase wages.
And you know, the only reason that Social Security got into a little bit of trouble after 1983 is that the '70s was a terrible period for wages. Wages fell way behind productivity growth. They fell way behind inflation. And as a result, Social Security was not taking in as much income as the Social Security trustees back in the '60s had anticipated because they assumed that Social Security would - payroll taxes, rather, would be based on wages, and that wages would continue growing with productivity - as they had done during the '40s, '50s and '60s. But starting in the '70s, productivity and wages diverged. If we could just get wage growth again, all of the so-called Social Security gap would disappear.
CONAN: Robert Kuttner, thanks very much for being with us. And...
Mr. KUTTNER: Thank you, Neal.
CONAN: ...we're going to have to - I hope we'll have you back because you also make an argument that is very bad politics - but, as again, another issue for another day - the very bad politics for Democrats to cut, or talk about cutting, Social Security. So thanks very much. Robert Kuttner, co-editor and co-founder of the American Prospect, a senior fellow at Demos, a public policy research and advocacy organization, with us today from member station WBUR in Boston.
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