Social Security at risk: now and then

Yesterday the New York Times published an unusually lucid description of the danger to the Social Security program that lurks in the plan to extend last year's emergency cut in the payroll tax. People who care about old people having enough to eat need to understand what's going on.

Critics predict one extension will lead to another as politicians balk at raising taxes to their former level, especially if unemployment remains high.

“Imagine that next December the unemployment rate is 8 percent and a year later it’s 7.4 percent,” said Robert Reischauer, a former director of the Congressional Budget Office who is one of two public trustees for Social Security. “We’ll still be trying to stimulate employment and terminating the payroll tax holiday will be a big hit on most families, one that will hurt job growth.”

Democrats fear that repeated extensions would disrupt the link that President Franklin Delano Roosevelt forged to lock in support for Social Security: with workers taxed for their benefits, politicians would not cut them. And Republicans object that transferring general revenues to Social Security to offset the tax cut makes the program more like welfare, and worsens the federal budget deficit.

Politics aside, the bottom line is that a temporary tax cut is inconsequential to Social Security’s long-term health, from an accounting perspective. The threat remains the financial pressure of an aging population.

Social Security is essentially a pay-as-you-go system, with payroll taxes from workers flowing back out to retirees, survivors and the disabled. Last year, before the tax cut, the system for the first time since 1983 collected less in taxes than it paid out to 55 million beneficiaries — $49 billion less.

The program’s operating deficits will grow as more of the 78 million baby boomers become eligible. But trust fund reserves built up over years of annual surpluses will not run out until 2036, when tax revenues will cover three-quarters of benefits, trustees project.

***David M. Kennedy's monumental history of our country in the middle of the last century, Freedom from Fear: The American People in Depression and War, 1929-1945, makes it all too clear that winning and keeping a Social Security program for elders has always been a struggle. His description of the legislative history put me in mind of the contemporary fight over Obamacare.

No other New Deal measure proved more lastingly consequential or more emblematic of the very meaning of the New Deal. Nor did any other better reveal the tangled skein of human needs, economic calculations, idealistic visions, political pressures, partisan maneuverings, actuarial projections, and constitutional constraints out of which Roosevelt was obliged to weave his reform program. Tortuously threading each of those filaments through the needle of the legislative process, Roosevelt began with the Social Security Act to knit the fabric of the modern welfare state. It would in the end be a peculiar garment, one that could have been fashioned only in America and perhaps only in the circumstances of the Depression era.

If we weren't watching Republicans challenge what looks like an inadequate, jerry-built new health insurance reform law in the Supreme Court, we wouldn't be able to imagine how much the shape of the 1935 law was set by trying to avoid having the plan declared unconstitutional.

Taking his own measure of "the prejudices of our people," Roosevelt clearly intended to establish his social security system not as a civil right but as a property right. That was the American way. The contributory requirement enormously complicated the planners' task. "What in the world," [Thomas] Eliot [the staff attorney writing the bill] asked himself, "could be devised to carry out the president's wish for a contributory old age insurance program that would pass judicial muster?" The president's insistence that workers themselves should contribute to their own individual old-age pension accounts through a payroll tax seemed to offer an open invitation to judicial nullification.

The result was intrinsically regressive: for the people who could least afford it, those with the lowest wages, Social Security taxes amounted to the highest percentage bite out of their take home pay. That discrepancy lingers today in the cap on the amount of income taxed for Social Security; people earning over about $108000 annually stop paying into the fund at that amount. The rest of us pay on every dollar of wages. Roosevelt understood he was creating a less than fair system.

"No dole," Roosevelt emphasized, "mustn't have a dole." "No money out of the Treasury," he declared on another occasion. He understood as clearly as any the inequity and economic dysfunctionality of the contributory payroll tax, but he understood equally those "legislative habits" and "prejudices" about which [Labor Secretary Frances] Perkins had reminded the CES. "I guess you're right on the economics," Roosevelt explained to another critic some years later, "but those taxes were never a problem of economics. They are politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program."

The political history of Social Security is instructive and fascinating. The issue of maintaining our legal, moral and political right to old age assistance from the federal government is still alive today as Republicans repeatedly float plans to hand our security over the Wall Street.