Social Insurance not Investment
Social Security – Let Us Love One Another
As Christians, the fundamental tenet of our faith is to love God and love our neighbors as we love ourselves. In Matthew 25, Jesus says that if we are to inherit the kingdom of God, this love for our neighbors must be manifest in actions and extend to all, especially to those on the margins of society. We are called to feed the hungry, give drink to the thirsty, cloth the naked, and address the needs of the poor and excluded.
Both the Hebrew Bible and the New Testament repeatedly lift up widows and orphans, two special categories of marginalized people who lack an immediate family to care for them. In the book of Isaiah, God charges the Israelites to live up to their covenant: Remove the evil of your doings from before my eyes; cease to do evil, learn to do good; seek justice, rescue the oppressed, defend the orphan, plead for the widow (Isa 1:16-17). Compassionate and fair treatment of orphans and widows, and all the poor and oppressed, are central to God's call.
In New Testament times and up until the last century, there were few social programs to care for those unable to care for themselves. The economically marginalized relied on charity which may or may not have been available when it was needed. Nonetheless, there was a well-recognized obligation, placed by God on God's people, to care for others who could not care for themselves.
In the U.S. today, widows, orphans, and the elderly do not have to depend solely on charity. During the 1930s, Social Security was established to care for people who could no longer work including disabled workers and their families, the families of deceased workers, and retirees. Today's workers, just like previous generations, pay Social Security taxes to support those who came before them and are no longer able to work.
However in the U.S. today, there is a focus on the individual, on personal responsibility, and building an "ownership society." Privatizing Social Security would be further movement in this direction. But privatization would disrupt the way we have jointly, and successfully, cared for those who cannot work. Turning toward ourselves, individually, means turning away from our neighbors, and, according to Isaiah, turning away from God.
Social Security was created in 1935 to provide an income to those unable to work. Today, some 159 million people, 96% of all workers, are covered by Social Security. They receive disability insurance, survivorship protection for their families in case of their death, and retirement insurance. Some 48 million people (about one in every six Americans) are currently receiving Social Security benefits. Nearly one-third of beneficiaries are disabled workers and their families and the families of deceased workers, while the rest are retirees and their families. The program is especially important since less than half (47%) of the workforce has private pension coverage for retirement. Social Security provides the only income received by over one-fifth (22%) of the elderly and it provides over half the income received by fully two-thirds.
The disability insurance and survivor benefits provided by Social Security are especially important. An estimated three in ten of today's 20-year-olds will be disabled before they reach age 67 (their legal retirement age). But 72% of the private sector workforce has no long-term disability insurance except for Social Security. About one in seven workers will die before reaching age 67. Thankfully, an estimated 97% of the children and spouses of these workers are insured for survivor benefits through Social Security.
In many ways Social Security is similar to other retirement programs. Workers become eligible for benefits by making contributions to the program – payroll taxes labeled FICA on workers' pay stubs. Higher paid workers make larger contributions than workers with lower pay and receive larger benefits. But unlike other retirement or investment plans, Social Security is a social insurance program. It has larger social goals such as reducing poverty, guaranteeing benefits for as long as a beneficiary lives, and protecting beneficiaries against inflation. This protection against inflation is important since, at typical inflation rates, buying power would otherwise decline by one quarter in just ten years.
Unlike many retirement programs, Social Security benefits are not determined solely by how much someone earned or paid into the program. Social Security pays disproportionately higher benefits to those who need them most – for example, people who had relatively low incomes when they were working or beneficiaries who have a family to support. People whose wages or salary are relatively low, who suffer more unemployment, or spend more years out of the labor force – including many women and people of color – are especially well served by Social Security.
The Future of Social Security
Currently, the Social Security system is running a surplus. That is, more income is currently coming in than is needed for benefits. This is the result of careful, long-term planning. Anticipating the retirement of the baby boomers, Social Security taxes were raised in the 1980s and the surplus funds have been invested in U.S. Treasury bonds. Social Security actuaries estimate that current program funding (FICA taxes, Treasury bonds, and interest earned on the bonds) will enable the program to pay full benefits through 2042. (The nonpartisan Congressional Budget Office puts this date at 2052.) After that time, if absolutely no changes are made in the program, Social Security will be able to pay roughly 70% of benefits only.
This shortfall in funding that is projected to appear in 2042 or 2052 is called the crisis in Social Security. But this "crisis" needs to be kept in perspective. If Congress makes permanent the tax cuts enacted 2001 and 2003 as President George W. Bush is requesting, the lost tax revenues would be three times as large as the Social Security shortfall.
Nonetheless, Bush is arguing there is a crisis. He proposes that workers be permitted to place a portion of their Social Security taxes in private (or individual) investment accounts. While the full details of Bush's plan are still unknown, some aspects are clear. Diverting taxes paid today into private accounts will leave less money to pay for Social Security benefits today. This means that over the next few decades, Social Security will face a serious financial crisis. An estimated $5 trillion will be needed just during the first 20 years of the program to make up this shortfall – money that will come from either higher taxes, further reductions in other government spending, or an increase in the federal government deficit. And this system of private accounts will not reduce the shortfall that Social Security will face starting in 2042 or 2052.
If someone would choose to place some of their Social Security tax money in a private account, the Bush proposal would reduce their standard Social Security benefit. Whether the balance in the private account will be sufficient to offset the reduction in the standard benefit is hotly debated. Experience from Great Britain and Chile, places where private accounts were introduced some years ago and that are held up as examples for the U.S., indicates that workers could be worse off with private accounts. Particularly hard hit will be disabled workers whose standard Social Security benefit will be reduced, but who will be unable to access funds in their private account until they reach retirement age, no matter how young they were when they became disabled.
There are other disadvantages of private accounts. They are risky. While private investments are a good way to prepare for retirement, someone's core retirement income should not be at risk from the ups and downs of the stock and bond markets. Private accounts would also create winners and losers. Currently, while no one gets rich on their Social Security benefits, nearly everyone gets by. Under privatization, people whose investment choices were especially wise or lucky or who retired when the stock market was up, not down, could do very well. But others will fare quite poorly. Private accounts have more overhead and administra tive expenses. Social Security is very inexpensive to administer, much less expensive than managing private investment accounts. Higher administrative fees mean less money available to be paid out in benefits.
Just as in ancient Israel, we are easily and frequently tempted to look out for ourselves and ignore our neighbors. Today we need to hear God call: "learn to do good; seek justice, rescue the oppressed, defend the orphan, plead for the widow." Social Security has served the nation well for 70 years. It is a very sound program, not in crisis. It can serve us well for many years to come.
1. Does society have an obligation to provide everyone - including retired workers, disabled workers, and the survivors of deceased workers B with an adequate income?
2. "I may make plenty of money but I work hard for it - I put in long hours and worked hard to get where I am. Why should I give my money to someone else who does not deserve it?" What is your response to this feeling?
3. Should Social Security be privatized?