Why Social Security WASN’T on the Dem’s Debate Stage

Dear Rich Lifer,

There was a notable absence at last week’s Democratic debate… Social Security.

Why weren’t the candidates discussing this critical issue?

Well, it’s the “third rail of American politics” for a reason – voters get really darn twitchy when they hear proposals of just about any type.

Yet several candidates have put forth their ideas regarding the program and those ideas vary wildly.

Moreover, in the wake of last week’s debate, the Sanders and Biden campaigns have been going at each other over the topic.

Without rehashing the whole ordeal, the Sanders camp effectively said Biden would be in favor of Social Security cuts.

Sanders, in contrast, is all for expanding the program.

Here’s what he says on his website:

“At a time when about half of American households over the age of 55 have no retirement savings and one out of five seniors are trying to live on less than $13,500 a year, our job is not to cut Social Security.  Our job is to expand Social Security so that everyone in this country can retire with the dignity they have earned and everyone with a disability can live with the security they need. 

“Social Security is the most successful government program in our nation’s history. Before Social Security was signed into law, nearly half of seniors lived in poverty. Today, while much too high, the poverty rate for seniors is down to 9.2 percent. Through good times and bad, Social Security has paid every nickel owed to every eligible American – on time and without delay.  That is an extraordinary accomplishment.  

“Despite what you may have heard from those who want to cut back on Social Security, let’s be clear: Social Security is not ‘going broke.’ Social Security has a $2.9 trillion surplus and can pay every benefit owed to every eligible American for the next 16 years.  

“Although Social Security’s finances are strong, Congress must strengthen and expand it for generations to come. How do we do that? Simple. 

“At a time of massive income and wealth inequality, the wealthiest Americans in this country must pay their fair share into the system. Today, a billionaire pays the same amount of money into Social Security as someone who makes $132,900 a year because the Social Security payroll tax is capped. 

“Bernie’s Social Security plan would lift this cap and apply the payroll tax on all income over $250,000 in order to accomplish four things. 

“First, we will make sure that Social Security will pay every benefit owed to every eligible American for the next 52 years.

“Second, we will expand benefits across-the-board including a $1,300 a year benefit increase for seniors with incomes of $16,000 a year or less.

“Third, we will lift millions of seniors out of poverty by increasing the minimum benefits paid to low-income workers when they retire.

“Fourth, we will increase cost-of-living adjustments to keep up with the rising cost of health care and prescription drugs by establishing a Consumer Price Index for the Elderly.

Breaking It All Down 

Okay, so basically, Sanders wants to expand Social Security and pay for it by taxing anyone making $250,000 or more.

Before we even explore that idea any further, is it really fair to call Social Security “the most successful government program in our nation’s history?”

For starters, research suggests Social Security is not a good deal for many U.S. workers.

As this article from CNN explained it:

“A couple who each earned the average wage during their careers and retired in 1990 would have paid $316,000 in Social Security taxes, but collected $436,000 in benefits, according to data crunched by Eugene Steuerle, an economist at the Urban Institute.

“Had that couple turned 65 in 2010, however, they would have paid $600,000 in taxes, but could expect to collect just $579,000. This is the first time in the program’s history that taxes outweighed benefits for this group, a couple with average earnings.

“The imbalance will get more pronounced for future generations of retirees. Couples now in their early 40s will have forked over $808,000 in Social Security taxes by the time they retire, but get back only $703,000 in benefits.”

This is a vagary of Social Security’s ‘pay as you go’ design.

Yes, certain groups continue to do well under the arrangement — especially single-earner households.

But there’s no such thing as a free lunch.

So for every cohort that benefits from the system’s construction, another will inevitably suffer.

Moreover, Social Security has required substantially larger contributions to keep up with shifting demographics.

The History of Social Security

When the program debuted in 1937, the initial tax rate was 2% — split evenly between employees and employers.

Today, it’s a shared burden of 15.3%!

Even if we back out the Medicare component, it’s still a combined 12.4% … more than SIX TIMES the amount initially contributed 74 years ago.

This is partly because of changing demographics and the pay-as-you-go nature of the program.

It’s also because of massive increases in the types of people covered under the Social Security program — including many categories of folks who haven’t actually contributed any money of their own.

While Sanders isn’t proposing another payroll tax rate hike that hits all workers, he is proposing a tax hike to keep the system going.

Moreover, even he suggests this measure won’t permanently fix the system’s shortfalls.

Again, is it reasonable to call this program successful?

I guess it depends on your definition (and what you think of the other government programs it’s being compared to).    

Which brings us to Sanders’ assertion that Social Security isn’t going broke.

We’ll talk more about that and ideas from some of the other Democratic candidates, in part two tomorrow …

To a richer life,

Nilus Mattive

Nilus Mattive

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Nilus Mattive

Nilus is the editor for the daily e-letter The Rich Life Roadmap and a Paradigm Press analyst.

Nilus began his professional career at Jono Steinberg’s Individual Investor Group, where he published his original research through a regular investment column. Later, he worked for a private equity business and spent five years editing Standard and Poor’s...

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