Response to the 2015 Social Security Trustees’ annual report

This year marks the 80th anniversary of Social Security, one of our nation’s most important programs. Social Security ensures working people and their families reliable income to meet their basic needs – in retirement or if the worker dies or becomes disabled.

In 2014, Social Security provided basic income to 59 million Americans – and not just to seniors. Two-thirds of recipients are retirees, 15% disabled workers, and 19% family members of deceased, disabled or retired workers – including more than 4 million children. Altogether 30% of U.S. households rely on Social Security for part of their income.Grandparents and baby

Every year, the Social Security Trustees project the program’s finances 75 years into the future to allow for long-term planning. The recently released 2015 report confirms Social Security can easily continue to provide benefits for U.S. workers and their families through the 21st century.

The data also show that Social Security could do an even better job of protecting economic security of working families now and in the decades ahead with a few modest reforms.

How Social Security Works

Social Security is financed through payroll premiums. Workers and employers each pay 6.2% of earnings into the system. In exchange, workers are guaranteed lifetime income in retirement or in the event of a serious disability, and for their children and other dependents if they die. In contrast to 401(k) and similar private retirement plans, benefits are adjusted for family size, increase with inflation, and won’t run out. Benefits are also calculated so that people in lower wage careers such as childcare or retail receive a higher percentage of their working income (but still a lesser dollar amount) than people in high-salary occupations. Earnings above $118,500 are exempt from payroll premiums – a figure that is adjusted annually.

With the current premium and benefit formulas, according to the Trustees’ report, Social Security will be able to pay full promised benefits through 2034. In the decades after that, with no other changes, payroll premiums would cover only three-fourths of estimated benefits.

Making a Good Thing Better

Social Security finances would be strengthened now and into the future by “scrapping the cap.” In 1983, 90% of earnings were subject to payroll premiums.[1] The percentage of earnings now covered is around 82%.[2] According to the Urban Institute, the taxable maximum would have been $216,900 in 2013, if 90% of earnings were subject to the tax.[3]

Eliminating the cap on taxable earnings altogether would reassure younger workers that Social Security will still be flourishing when they retire. It would also allow some modest improvements for current recipients.

Before the reforms of the 1980s that set up Social Security to meet the added expenses of the baby boom generation, children who received benefits due to a parent’s death would get continued income through college. Now benefits cease for most at age 18. Reinstating the college benefit would cost the system little, but greatly increase opportunity for kids who have suffered a major loss.

We could also modernize the benefit formula to better reflect today’s economy and family structures. For example, we could change the retirement benefit formula to be based on 30 rather than the current 35 years of work history. Now, anyone who works fewer than 35 years automatically has lower benefits. Since women more often take time out of the workforce to care for young children and other family members, they are most likely to suffer reduced benefits – exacerbating the effects of the gender wage gap on their retirement income. As a result, elderly widows and single women often live at or near the poverty level. Others would also benefit from this change, including the generation that came of age during the Great Recession when jobs were scarce, and men of color who have been caught up in a racially biased criminal justice system.

[1] Urban Institute online at http://www.urban.org/retirement_policy/sstaxableminimum.cfm

[2] Baker, Dean. CEPR’s Dean Baker: Wage Growth Continues to be the Key to Social Security Solvency, July 22, 2015. http://www.cepr.net/press-center/press-releases/ss-statement-2015-07-22

[3] Urban Institute online at http://www.urban.org/retirement_policy/sstaxableminimum.cfm 

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