Social Security is the largest, and arguably most important, program in the federal government. It is a life-line for millions. For the rest of us the program is a set of never-ending, polarizing arguments.
The contentiousness is caused in large part by the number and conflicting nature of the urban legends surrounding the system. Everyone has a fact that is someone else’s myth.
These convictions about the program shape who voters elect, and seriously limit what candidates are willing to say to the electorate. These beliefs have so penetrated the public conscience that actual policy makers are left herding unicorns.
Here are three myths that you will see repeated so many times that you assume that there is some truth to them. There isn’t.
1. In a worst case scenario, the program will pay benefits until 2034.
First, 2034 is a forecast based on a fairly benign economy far removed from a worst-case scenario.
Second, that outcome is only a single example in an infinite number of possibilities. There is no certainty in these forecasts. The Trustees actually believe that it is basically a coin-flip whether Social Security will pay scheduled benefits into 2034. (Source: Figure VI.E2. — Long-Range OASDI Trust Fund). Thus “Probably” is still too strong of a word.
This date is actually intended to serve as a warning about what might happen under normal economic conditions. Instead, the conventional coverage converts that warning of danger into a strength of the system.
2. Even if the Trust Fund runs out, the program will still collect enough to pay you 77 percent of your benefits.
In reality, we don’t know. We do not know the size of the cuts, and we do not even know how the reductions would be distributed to the individual. (Source: CRS “Social Security: What Would Happen If the Trust Funds Ran Out.”)
While the program may in fact reduce benefits in total by 23 percent, there is no reason to believe that each individual will get 23 percent less.
At this point, current law limits what Social Security can pay, but it does not reduce benefits of any individual. Technically, this means that you will continue to get your full benefits at some point but not on the due date. You might retire at 67 and your first check might arrive when you are 68.
We have no idea what happens when the Trust Fund reaches exhaustion.
3. There is an easy fix for Social Security’s woes: raise taxes by 2.83 percent.
First, raising payroll taxes to 18.1 percent does not fix Social Security. It is a measure to kick the can for 75 years. That would be great for us, but not so good for our kids.
Second, the statement is based on a basic misunderstanding of the data. Pundits have converted what is essentially contrast-information about the problem into a do-it-yourself solution.
Yes, the Trustees say that the shortfall of $12.5 trillion equates to an increase of 2.83 percent of our taxable wages. No, you can’t simply add the sum to the existing payroll taxes to arrive at a solution because increasing the tax rate would slow the wage growth on which the solution is based.
You can fill-in the gaps over 75 years with revenue that equates to 2.83 provided that incremental revenue does not cause wage growth to slow. In this case, pundits are assuming that an 18 percent increase in tax rate will equate to an 18 percent increase in revenue as though taxes have no economic consequence.
Beyond not fixing Social Security, this approach creates a problem for Medicare, a completely different flavor of social insurance. If we raise the payroll tax to give Social Security more money, the wage growth on which Medicare’s problems are gauged with evaporate.
Brenton Smith writes on all aspects of Social Security reform, translating the numbers and jargon of the issue into terms that everyone can understand. His work has appeared in Forbes, MarketWatch, Fox Business, The Hill, and a number of regional newspapers. To read more of his reports — Click Here Now.
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