Social Security has been providing benefits to millions of workers for
65 years.
Social Security—Sometimes referred to by its full name, Old-Age, Survivors, and
Disability Insurance (OASDI)—is a social insurance system established in 1935 to
provide benefits to workers and their family members upon retirement, disability,
or death.
Social Security offers mainly retirement benefits.
Workers can receive four different types of benefits under Social Security:
retirement, early retirement, disability, and survivorship benefits.
Social Security is particularly important to women.
Women have fewer earnings to rely on in retirement. Less than half of all workers
(46%) had a private pension through their employer in 2002, women are less likely
than men: 44% of women have pensions compared to 47% of men. Women of color
are even less likely to have a pension than are white women. Furthermore, a
woman's pension is typically smaller than a man's because women earn less per
hour, and often work part time or spend time out of the labor force. Because they
earn less, women have fewer savings than men to depend upon in retirement—thus
they rely more heavily on Social Security.
Facts about Social Security finances:
To pay for benefits, Social Security receives income from three sources.
Most of the money that is needed to pay for benefits comes from payroll taxes.
Currently, employees and employer each pay 6.2% to Social Security, for a
combined tax rate of 12.4% of wages and salaries. Self-employed workers pay the
full 12.4% out of their earnings. Taxes, however, have to be paid only up to an
earnings ceiling, which is $90,000 annually in 2005. Earnings above the ceiling are
not subject to the payroll tax. In 2003, Social Security received a total of $535.2
billion in payroll taxes.
Social Security is building up a trust fund.
Because income is currently exceeding expenditures, Social Security is building up a
trust fund. Total income to Social Security was $632 billion in 2003. Its expenditures
came to $479 billion, $471 billion of which was benefit payments. Consequently,
Social Security managed to increase its trust fund by $153 billion in 2003. As a
result, Social Security held a total of $1,531 billion in assets at the end of 2003.
Social Security is not going broke.
Each year, in early spring, the trustees of Social Security release their report. As
required by law, the trustees present what can be described as their best guesses
for three different scenarios for the future of Social Security. In their annual report
for 2004, the trustees project that Social Security will take in more in income than it
will pay out in expenditures until 2018. Between 2018 and 2028, interest income
earned on the trust fund assets is forcasted to make up the difference between
income and expenditures. After 2028, Social Security is expected to draw down its
trust funds to pay for the expenditures that are not covered by income. Finally, in
2042, the trust fund assets are expected to be gone, and income is projected to be
less than expenditures. However, the trustees project that Social Security will still
be able to pay 74% of its promised benefits from 2042 to 2078, and those benefits
would still be higher in real (inflation-adjusted) terms than retirees are being paid
today.
Views of Bush Administration regarding Social Security
The Bush Administration has been making alarming claims that the current Social
Security program is "in crisis" and is unsustainable. These exaggerations simply are
not true. Estimates by the Social Security trustees (using rather pessimistic
assumptions) and the nonpartisan Congressional Budget Office (CBO) indicate that
the trust fund is solvent for another 38 to 48 years if we do nothing. In other words,
Social Security is not going broke anytime soon. Despite the fact that the Social
Security trust fund is as robust today as it has been in recent years, the
administration proposes to radically change the Social Security program by cutting
benefits while at the same time allowing workers to create individual private
accounts. While the exact provisions are not clear, any privatization proposal will
not, in and of itself, do anything to ameliorate the shortfall projected in 2042 or
2052.
The administration has said that it considers Model 2 proposed by the President's
Commission to Strengthen Social Security a "good blueprint" for reform. That
proposal does not "fix" Social Security but instead imposes significant new costs on
the existing program coupled with significant cuts in benefits. First, the government
will have to borrow trillions of dollars to pay for "transitional" costs since fewer
revenues will be available to pay for current beneficiaries. Second, the
administration's plan will significantly cut Social Security benefits (even for those
who choose not to create a private account)—with the exception of those who are at
or near retirement today. For example, the CBO estimates that Model 2 would cut
benefits under current law by 45% for average earners retiring in 2065. It is only
through benefit cuts that the administration can pretend to address the shortfall
that the Bush Administration's Social Security trustees predict when huge payroll
tax revenues are diverted into private accounts. Many workers will be unable to
make up these benefit cuts with their returns on their private accounts. And
women, minorities, and low-income wage earners will be particularly hit by these
changes. Finally, beneficiaries of the disability insurance and survivor portions of
Social Security will have their benefits cut as well, with no way to close the gap.
The Bush Administration's privatization proposal will not "save" Social Security but
will do just the opposite—it will erode a vital social insurance program that provides
American workers and their families with a core level of income during retirement,
disability, and early death.
Sources:
Century Foundation. 1998. Social Security Reform: A Twentieth Century Fund Guide
to the Issues, New York, N.Y.: Century Foundation.
Michel, Lawrence et al. 2004. The State of Working America, 2004/2005,
Washington, D.C.: Economic Policy Institute.
Social Security Administration. 2003. Annual Statistical Supplement to the Social
Security Bulletin. Washington, D.C.: Social Security Administration.
Social Security Administration, 2004, The 2004 Annual Report of the Board of
Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance
Trust Funds, Washington, D.C.: Social Security Administration.
Social Security Administration. 2002. Income of the Population 55 or Older.
Washington, D.C.: Social Security Administration.
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