“Robbing” Social Security
Former Congresswoman Marjorie Taylor Greene claims that “Republicans” and “Democrats” have “robbed” Social Security, “which will lead to its bankruptcy.”
IN FACT, politicians haven’t robbed SS but boosted it by dramatically increasing its tax revenues. Yet, SS is still facing insolvency due to its inherent flaws. Here are the specifics:
- During the Great Depression of the 1930s, Congress and Democrat President Franklin Delano Roosevelt enacted SS with an explicit promise that “the most you will ever pay” in taxes for the program is “3 cents on each dollar you earn, up to $3,000 a year.”
- Since then, various Congresses and Presidents have passed more than 15 laws to increase the payroll tax rate above that 3% promise and raise the maximum taxable wage faster than inflation.
- As a result, the maximum inflation-adjusted payroll tax is now 9.4 times the promised amount.
- Beyond increasing SS payroll taxes, Congress has added revenues to the program by taxing SS benefits, thereby violating the government’s original promise that Americans will receive these benefits “regardless of the amount of property or income” they have.
- Contrary to the popular myth that SS saves workers’ money and returns it to them during retirement, SS is primarily a tax-and-spend program, not a savings plan.
- Highlighting the implications of that reality, the first person to receive SS benefits was a legal secretary by the name of Ida May Fuller who paid a total of $25 in taxes over three years of work, lived to the age of 100, and collected $22,889 in benefits.
- As explained by the National Academy of Social Insurance, SS is “largely a pay-as-you-go program” in which “today’s workers” pay money that “flows back out as monthly income to beneficiaries.”
- Likewise, the SS Administration states, “The money you pay in taxes is not held in a personal account for you to use when you get benefits. Your taxes are being used right now to pay people who now are getting benefits. Any unused money goes to the Social Security trust funds, not a personal account with your name on it.”
- From the start of the SS program in 1937 through the end of 2024, 95% of all SS payroll taxes were spent in the same year they were collected, and all of the surpluses that accumulated in the SS Trust Fund over those 88 years are only enough to pay for two years of program costs.
- Contrary to another popular myth that SS has been “looted” to pay for other programs, the finances of SS have always been separated by law from the rest of the federal government, and this law has never been violated.
- What some people call “looting” is actually a legal requirement established in the original Social Security Act of 1935 that all of the program’s surpluses be loaned to the federal government and paid back with interest.
- Throughout the history of the SS program, the federal government has never failed to pay that interest, and since 2010, SS has been using these interest payments to cover the shortfalls between the program’s expenses and non-interest income.
- Over the history of the SS program, the federal government has paid an annual average interest rate of 5.0% on the debt that it owed to SS, while inflation averaged 3.7% over this period.
- Just the opposite of the looting myth, if politicians hadn’t added extra money to SS by increasing its payroll tax rates above the levels specified in the original Social Security Act, the program would have become insolvent before 1980.
- Contrary to another myth, Democrat President Lyndon B. Johnson didn’t use SS to finance other government programs in the late 1960s. Instead, he changed an accounting convention to make the budget deficit seem smaller than reality, which misled the public but had no impact on the finances of SS.
- As documented by the SS Historian’s Office, “the financing procedures involving the Social Security program have not changed in any fundamental way since they were established in the original Social Security Act of 1935 and amended in 1939.”
- Contrary to yet another myth, SS funds haven’t been funneled to the Supplemental Security Income (SSI) program. Although SSI is administered by the SS Administration, it is funded with general revenue taxes.
- SS is facing insolvency mainly because the ratio of workers paying taxes to people receiving benefits has fallen by three times since 1955 and is projected to fall further, much like a Ponzi scheme.
- One of the primary causes of that dynamic is increases in life expectancy without comparable increases in the retirement age. Thus, today’s beneficiaries are collecting SS benefits for 37% to 41% longer than when the program began, even though the wealthiest age cohorts in the U.S. are now 65 years and older.
- Another less impactful dynamic driving insolvency is the increasing number of people receiving disability benefits, which account for 11% of all SS payouts. From 1965 to 2024, the U.S. population grew by 69% while the number of people receiving disability benefits increased by 379%.
- Per the SS Administration, “Since the Social Security system has not accumulated assets equal to the liability of promised future benefits, the social security wealth that individuals hold represents a claim against the earnings of future generations rather than a claim against existing real assets.”
- The program’s current claim against the earnings of future generations is $52.2 trillion, which amounts to an average of $207,417 for every person now receiving SS benefits or paying SS payroll taxes.
- Proposals are on the table to give workers the option to change part of their SS involvement from a benefit program to a savings plan, like at least 27 other countries have done.
- Such proposals are generally structured to improve the program’s finances. Although they have transition costs to cover the lowered taxes of those who opt to have personal accounts, the costs are more than offset by the savings of not paying these individuals full benefits.
- Based on worst- and best-case S&P 500 returns over the past 100 years, if workers earning $50,000/year could save and invest half of their SS payroll taxes, they would have an additional $428,000 to $1.6 million of wealth by the age of 67, which would be heritable, unlike SS.
In summary, the common fictions that SS “saves workers’ money” and has been “robbed” have enabled creeping socialism in which each generation of beneficiaries takes more of the next generation’s paychecks. Those falsehoods also thwart honest discussions about opportunities for reform.
