Social Security’s Explosive Injustices

People over 65, a growing share of the US population, are suffering a crisis-ridden capitalist system. High unemployment, reduced private pensions, fewer job benefits, less job security, high personal debt levels, and falling real wages make Social Security payments more important than ever. Yet President Obama and Congress recently agreed to bargain over how much to reduce Social Security payments from current levels. That would not only hurt seniors – but also the children who help them.

Consider these statistics covering 2010 [New York Times, April 20, pp B1 and B4]. Married and single people over 65 earning $32,600 or less per year relied on Social Security for between 66% and 84% of their total annual income. That is the majority – 60% – of all US citizens over 65. Cutting Social Security payments seriously damages their lives. An additional 20% of the over-65 population, earning between $32,600 and $57,960, count on Social Security for 44% of their annual income. Cutting Social Security benefits is a cruel “thank you” for a lifetime’s work, a default on the payroll taxes they paid into the Social Security system.

Cutting Social Security is an outrageous injustice that may provoke historic shifts and splits in the political landscape. A new left political movement may emerge driven less by students and the young than by their parents and even grandparents. Planned Social Security payment cuts would force many in the older generation to ask the younger for more help just when crisis capitalism distresses them both. Politically explosive pressures are building.

Since its 1935 beginning, the Social Security system has collected trillions in payroll taxes, half paid by employees and half by employers. But employers lowered wages and salaries because of what they paid to Social Security. For that reason, Social Security’s whole inflow came ultimately from workers’ wages and salaries. Other forms of income (interest, rent, dividends, and capital gains) – those received mostly by the rich – were exempted from the payroll tax. Also, the payroll tax hits high and low wage and salary earners with the same tax rate. It is not progressive like the federal income tax that imposes higher rates on higher earners. Worse, it is regressive because it applies only to the first $113,000 of income earned in 2013. Wages or salaries above $113,000 pay no payroll tax. Thus, the higher your income over $113,000, the smaller the share of your total income that goes to payroll taxes.

Worse still: Wage and salary earners had to pay excess payroll taxes for the last several decades. Washington taxed more than was needed to pay benefits to eligible Social Security recipients. Excess payroll tax collections were deposited into Social Security “trust funds” – now almost $3 trillion in size. The trust funds lent the excess to the US Treasury; they get interest on those loans. Social Security thus has two income sources: payroll taxes plus that interest. The US Treasury spent all its loans from Social Security on Washington’s usual expenditures. By 2021, Social Security payments to the growing over-65 population will likely exceed the system’s inflow of payroll taxes plus interest. Then the US Treasury will have to pay back to Social Security the trillions it borrowed.

Setting regressive payroll taxes to yield an excess then lent to the US Treasury was an unnecessary injustice. Part of that money should have come instead from the existing progressive personal income tax. The other part should have come from higher corporate income (profits) taxes. Those least able to pay – middle income and poor – contributed $3 trillion in excess payroll taxes – in addition to the personal income taxes and legitimate payroll taxes they paid – to support Washington’s budget. Yet now, because that budget has large deficit problems, the rich and big business favor cutting Social Security payouts. Millions who paid more than was needed into Social Security for years are now to be given less than was promised to them. What kind of system works like that?

Yet another outrage emerges when we remember why the federal budget has the bigger deficits now used to justify cutting Social Security payments. Deficits shot up because of the capitalist meltdown beginning in 2007. Washington suddenly spent much more to bail out/rescue the biggest banks and some major corporations and to “stimulate” the crisis-wracked economy. Washington feared to raise taxes to pay for that extra spending. Federal budget deficits zoomed because more spending was not matched by more taxes. No sudden increase in Social Security payouts happened to cause fast-rising deficits. Rather, capitalist crisis and bailouts did that.

Indeed, capitalist crisis hurt Social Security finances in multiple ways. High unemployment meant that millions fewer paid payroll taxes. Likewise, payroll tax revenues fell as the crisis replaced lost high-paying jobs with lower-paying jobs. Meanwhile, the crisis did not reduce the number of eligible Social Security recipients. So Social Security’s inflow fell, but not its outflow.

To cut Social Security payments now punishes the people already most afflicted by the capitalist crisis that they did not cause. The richest Americans and the large financial and other corporations are the least affected by cutting Social Security, yet they push the hardest for those cuts. The rich and the corporations gained the most over the last 30 years, bear much responsibility for the crisis, and got big bailouts exclusively for themselves. The rich and the corporations saved billions as working people overfunded Social Security with their excess payroll taxes over decades.

The abuse of Social Security, already decades old, reaches a new level of injustice with the impending cuts in payouts to eligible beneficiaries. Alongside unemployment, home foreclosures, reduced job benefits and security, falling real wages, and rising indebtedness, the assault on Social Security further squeezes the mass of Americans for the benefit of the few at the top. This reality trumps words of concern for “the middle class” pouring from Republicans and Democrats, Boehner and Obama. Politically, pressures keep building. Social Security may prove to be an explosive spark.