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No Need To Get Hysterical About Social Security

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The Tampa Tribune

Published: August 15, 2008

I'm afraid that I will have to decline Jim Gries' generous offer to sit in his rocking chair and explain Social Security to his 3-year-old granddaughter. And I'm amused that Mr. Gries does not consider it "fear-mongering" to call the Social Security system a "weapon of monetary destruction (WMD)." Actually, although he says that his earlier letter was a recital of fact, there is nothing in any of his letters that backs up his hysterical attack on the Social Security system.

I stand by my statement that Social Security is a simple income transfer program. It is financed by a special payroll tax. Workers pay 6.2 percent of their earnings and employers match that. If you are self employed, you pay the whole 12.4 percent. That money goes to support elderly retirees and the disabled. It is a simple income transfer.

It is not a transfer of wealth as Mr. Gries claims. Wealth is a stock. Your savings account is wealth. The payroll tax doesn't touch that. What is taxed is your flow of income.

Is Social Security in trouble? No. The payroll tax brings in much more than is needed to pay current retirees. This is the result of a 1983 "reform" that increased the payroll tax, raised the retirement age and required that the Social Security surplus be invested in U.S. government securities (bonds). This collection of bonds is held by the Social Security Trust Fund and will be used to make up the difference if benefit payments exceed payroll tax revenue.

Suppose there were no Trust Fund? Well, somebody would have to make up the difference: Either retirees would have to accept lower benefits or taxpayer money would have to be used. This might mean slightly higher payroll taxes or appropriation of funds by Congress. In real life, the 1983 reform mandates that money held by the Trust Fund should cover the shortfall.

Actually, there is no functional difference between tapping the Trust Fund and Congress simply appropriating enough money to cover a shortage. The money comes from the same taxpayers. The real effect of the Trust Fund is to convert the payroll tax surplus into debt, which means that repaying Social Security has priority over other spending.

Keep in mind that it is not at all certain that there will ever be a payroll tax shortfall.

At any rate, Mr. Gries' granddaughter can relax. She won't have to come up with the $2.5 trillion all at once. If it is ever spent, it will be disbursed over decades.

Mr. Gries fears that his daughter won't be able to save and invest because she will have to pay Social Security taxes. Well, the tax rate has been the same since 1983 and people have managed. And if his granddaughter one day finds herself long-term unemployed or disabled, she'll be glad that somebody was paying those Social Security taxes to help with her retirement.

Dallas Dunlap

Brooksville

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