Reports of Social Security's demise have been grossly exaggerated, says expert
Social Security has been pushed to the front burner not only because it is projected to face a shortfall in about two decades but because of worries about the federal deficit. Nancy Altman comes to the debate with 30 years of background on Social Security and as author of the book, "The Battle for Social Security."
She's co-director of an advocacy group, Social Security Works, a coalition of more than 270 mostly liberal national and state organizations. She also has served on the faculty of Harvard University's Kennedy School of Government and has taught courses on private pensions and Social Security at the Harvard Law School. Before that, she was a legislative assistant to Sen. John C. Danforth, R-Mo., where she advised on Social Security.
Her visit this week came during heightened national debate about the deficit and the future of Social Security. The program provides benefits to at least one out of every five Missouri residents, lifting an estimated 314,000 elderly residents out of poverty and offering about $14 billion in annual benefits to Missouri residents. This money includes benefits to about 700,000 retired workers, who get approximately $13,700 in annual benefits. Altman was in the state for talks in Columbia and St. Louis at the request of groups who are partners in her Social Security Works program.
The interview has been edited for clarity and length.
To what extent has the debate about the deficit complicated discussions about the future of Social Security?
Altman: It has complicated it enormously. You hear a lot of debate that Social Security is going to bankrupt the system. That's not true. It's not that we can't afford it, but we have to have the political will to say that this is a program that works and that we're going to make sure that everyone who contributes to the system will get his or her benefits. There were fringe groups who thought it was socialism. But the vast majority of the American people, and most policymakers, understood that it was a pension plan structured with a benefit formula and understood that it worked.
There is now a disconnect between the American people and Washington. Our polls show that the American people are concerned about the deficit. There's a lot of concern about waste and fraud. But when you ask them if they want to cut Social Security, Medicare and Medicaid, they say Social Security has nothing to do with the deficit.
Political leaders show us these big pie charts and say this is how much is going to defense, this is how much is going to Medicare, Medicaid, Social Security and discretionary spending and that, of course, we can't touch defense. So what's left? Social Security, Medicare and Medicaid. But that's not what's left. There's the revenue side, a lot of tax loopholes. If we are going to say we're willing to send people off to die in wars, we should be willing to pay for those wars through increased taxes. This is the first time in wartime when taxes have gone down.
But you agree that the Social Security System is running out of money?
Altman: Social Security is the most fiscally responsible part of the federal budget. It's very conservatively financed. It can only pay benefits if it has income on hand to cover the cost. Most federal programs project five or 10 years. Social Security projects out 75 years, three quarters of a century, to assure the American people that they will get their promised benefits.
So you are suggesting that the program is in good fiscal shape.
Altman: Right now Social Security is running a surplus. It's about a $69 billion surplus. Now whenever you project for 75 years, whether it's a private pension plan or Social Security, you have to take in all kind of assumptions. Social Security is indeed projecting a manageable deficit still decades away. So I would say it's not running out of money. Even after 2036, even if Congress did nothing, it could still pay about 75 cents on the dollar of all promised benefits.
Are you suggesting potential cuts or that there is time to find new sources of income?
Altman: You do have time. It's not a crisis. The prudent thing to do is to bring more revenue in. But we should also do it sooner than later, mainly because the program is supposed to provide people with peace of mind. When they hear it needs money, it's running out of money, then they get really concerned about it. Yes, we should be bringing in money, but it should not be done in a crisis atmosphere.
But if I'm about 40 years or older, shouldn't I be worried about this?
Altman: Well, if I were a politician, I'd say to 40-year-olds, 30-year-olds and 20-year-olds, that this is a promise and it's a promise we're going to keep and you're going to get your benefits. That's not what's being said. So absolutely everyone should be concerned because the politicians are not giving us that message.
What are some of the potentially adverse outcomes that might emerge for Social Security's future in relation to the discussions about the deficit?
Altman: There is no action forcing them to address the Social Security shortfall until 2036. But there's an artificial event coming on Aug. 2: The debt limit has to be increased. It's all taking place behind closed doors, so there is no way to know what's coming out. I worry that we might end up with bad policy by those who are not experts on Social Security, who might think only in terms of dollars and cents and not about who is affected by these programs and what kind of America we want.
On the other hand, if we get through the debt limit (deadline), there will be a lot of talk, but politicians don't like to do a lot of unpopular things close to an election. So I think 2012 will probably be OK. Depending on who gets elected, there might be legislation affecting Social Security in 2013. But if it is done in the open with full debate, with people knowing what's going on, I feel confident the solution will come out the right way. Congress has always acted responsibly toward Social Security. Whenever it raised benefits, it has raised revenue to cover the cost and there is no reason it can't do it again.
The New York Times recently reported as many as 3 million people who retire and take Social Security benefits at age 62 and are not eligible for Medicare until age 65 might turn to Medicaid for their health insurance. This is regarded as a costly unintended consequence of the health-reform law. How do you respond to that development?
Altman: The right policy would have been for people to become eligible for Medicare benefits at age 62 if they were getting Social Security at age 62. In addition, the right thing to do for both programs would be to control health-care costs, private and public, which is what the Affordable Care Act is attempting to do. There are ways to continue to give care and do it in an efficient and affordable way.
Could you explain the controversy about the Social Security Trust Fund and the argument that the fund is fiction?
Altman: The law is very clear. It's just like a private employer setting up a pension fund, putting money into it, separate and apart for operating funds. Social Security is a pension plan for all of us. It has its own trust fund. People ask whether it's real. Well, is a corporation real? If you set up a trust fund for your child, is it real? The Social Security Trust Fund is as real as any pension trust fund and as real as any trust fund you might set up for a child.
But there is no "lock box" where this money is kept.
Altman: And there couldn't be. When you put money in the savings account or checking account in the bank, the money doesn't just sit there. Banks invest it.
The difference, the argument goes, is where the money is invested.
Altman: That's what's a little bit different. Congress wanted to be very careful with the funds; it didn't want to invest in something that could lose value. Treasury bills are backed by the full faith of government, meaning they are safe. That's what Social Security is completely invested in. Now again, projections over 75 years cause some people to worry. But the fact that it's invested in such a safe way allows people to say this is just the government lending to itself, and that the money has been spent. That is true if you were to go out to buy a savings bond for your child and the government of China purchased treasury bonds. All investors who invest in bonds understand that the money will be spent, and that they will be paid back with future income. So we shouldn't be talking about Social Security being any different from treasury bonds or corporate bonds.
Fellows at the Heritage Foundation and politicians such as GOP Rep. Paul Ryan of Wisconsin have argued that the government ought to give people breathing room about where at least part of their Social Security taxes are invested.
Altman: That's really a misunderstanding of what Social Security is. It's not a savings plan; it's insurance. As long as people are dependent on wages, they need insurance in case they lose those wages. We as a society have decided to provide that. In the event you become disabled or lose your employment, you collect Social Security. If you start to save in a private account, and you become disabled three years later, the private savings account is not going to do much for you. But Social Security will. To use another example, when you drive a car, you are required to have car insurance. The law doesn't say you should put money in a savings account in case you have an accident.
Even so, there is the argument that people would come out better if they were allowed to invest in personal retirement accounts.
Altman: Again, the problem is that Social Security is an insurance plan not a savings plan. And what Ryan (proposes) dramatically reduces Social Security benefits. It really would undercut the idea of Social Security, which works because it's all of us together. His plan is too risky. Individuals would bear all that risk. If the market went up, great for you. If you lost all that money, sorry. All you have to do is look at what the stock market has done in the last few years. Polls show that is not what the American people want.
The alternative argument, of course, is that Social Security trustees should be allowed to diversify their investments by moving into areas other than government bonds.
Altman: Some have said Social Security should have a diversified portfolio, in the way that private pensions have. That proposal has a lot of merit. It could take care of about one-fifth of the shortfall. So you're not raising taxes; you're not lowering benefits. You're just getting a better return. The advantage of that over a private account is that the benefits would remain the same. You're not subjected to the ups and downs of the stock market.
Is there anything positive, in your view, to Ryan's proposal?
Altman: The answer is no. It's really an ideological difference. I'm all for limited government, but my view is that there are some things that the government does better than the private sector. In addition to co-directing Social Security Works, I chair an organization called the Pension Rights Center, which is a private pension beneficiary rates organization. So I see the private pension side and the public pension side. Social Security is more efficient than private pensions. It's universal, whereas private pensions are not.
What's behind the AARP's recent suggestion that it is open to negotiations on the Social Security issue?
Altman: I was surprised both by the substance and the timing of the AARP's announcement. They have not changed their position on the point that Social Security has nothing to do with the deficit. I understand AARP wanting to have a seat at the table, but it wasn't very smart negotiating to tell everybody what your position is. You're saying you're going to accept benefit cuts as a starting position. We've been doing a lot of polling, and AARP has been doing a lot of polling, and the polls show that their members do not want their benefits cut. The timing was terrible, their tactics were terrible. I think of them as a pretty shrewd organization, but in this case, I was very surprised.
Given the political climate, I am surprised that some groups like yours are arguing that the debate should also be about raising rather than reducing benefits.
Altman: Those (people) who are lucky enough to have 401(k)s lost a lot of value. Those who are fortunate enough to have homes saw the value of (their) homes drop drastically. Even people who are employed are often underemployed or their wages are stagnating. And a lot of these people, in their 40s and 50s, or those getting close to retirement age, are not going to be able to recoup that lost value. So Social Security benefits are already too low. (Benefits) average $13,000 -- less than full-time minimum wage work. We think benefits should be raised.
The Obama administration has suggested that one option might be slightly higher Social Security taxes for individuals earning over $250,000, and a similar rise in the employer share of those taxes.
President Barack Obama talks about this not only because it makes good policy sense but because it's politically popular. We think that's wonderful. But some of his advisers also talk about a "balanced solution." If benefits already are too low, why is it balanced to cut benefits further? I'm actually concerned that the White House is not as strong on this issue.
So what, in your view, is the answer?
Altman: I had the privilege of meeting Robert M. Ball. His name is not well known. But he is someone who started working on Social Security in 1939. He was the Social Security commissioner under three presidents -- John Kennedy, Lyndon Johnson and Richard Nixon. He died at age 93, in 2008, after dedicating 70 years of his life to Social Security. He had three parts to his plan. One part deals with the FICA contribution to Social Security. You are required to pay the FICA contribution to a maximum now of $106,800. Some people talk about scrapping the cap or eliminating it. But Ball wouldn't have scrapped it. He would have raised it very, very gradually. Another part would have been to diversify the trust fund, and a final part would have been to dedicate estate taxes to Social Security. The most anyone would pay is another week of withholdings a year. It's a pretty painless approach.
What about other options beyond cutting benefits?
Altman: Well, you could talk about scrapping the cap. That could take care of the shortfall. Another approach is similar to what happens in Great Britain. It has a tax on financial transactions to stop speculative activity (that can erode public confidence in the stock market). If we put that same tax in place and dedicated that to Social Security, it could generate enough money to raise benefits. You could fix the problem by taking all or part of these three approaches. All of these would be acceptable and so much better than raising the retirement age and cutting benefits.
Contact Beacon staff writer Robert Joiner. Funding for the Beacon's health reporting is provided in part by the Missouri Foundation for Health, a philanthropic organization that aims to improve the health of the people in the communities it serves.