Social Security’s Real Crisis:
High Taxes and Low Benefits

Jun 10, 2013

According to the latest annual financial report from the trustees of Social Security, the Social Security retirement program is expected to take in 28 billion dollars more than it pays out. Its accumulated surpluses are now approaching three trillion dollars.

What makes this surplus possible ... in the middle of a real jobs depression? Four years after the official start of the economic recovery, there are still six million fewer jobs than there were before the recession started. And most of the new jobs that have been created have been low wage, temporary and part-time that pay next to nothing, the result of a real war carried out against the working class. All of that means that the taxes paid to fund Social Security have gone down.

Despite that, the Social Security surplus went up. One reason is that Social Security taxes are very high: 12.4 per cent of a worker’s wages from the very first dollar that a worker earns, all the way up to $113,700, or the maximum of what a skilled worker makes working a lot of overtime. (Formally, the worker and the employer each pay half of this tax. But in reality, the worker pays the entire tax, since the employer’s share is taken out of the worker’s compensation package and results in lower wages.)

At the same time, Social Security benefits are very, very low. The average monthly benefit in January 2013 was $1,264, or about $15,168 annually. That is less than the minimum wage for a full time worker, and it is barely above the official poverty level.

Of course, that’s the average. Because of the lousy job market, not to speak of the accumulated wear and tear from their jobs, most workers are forced to apply for Social Security at 62 and are therefore penalized with lower monthly benefits. Those who do not have steady work histories also get lower benefits. This is especially true for women, since they often have long spells of reduced employment while caring for young children, aging parents, or other relatives.

Moreover, further cuts in Social Security benefits are automatically being imposed. In 1983, Congress raised the normal retirement age in gradual steps, from 65 to 67, for workers born between 1938 and 1960. When the change is fully effective (for all workers born in 1960 or later), the average benefit at age 65 will be reduced by about 13 per cent. For a worker who retires at age 62, benefits will be 20 per cent lower. Other measures are cutting Social Security income as well, such as the six month delay in the cost of living increase and the taxation of the benefits of most retirees who continue to work.

The government has also been reducing Social Security cost of living adjustments by changing how it calculates the official rate of inflation. In the mid to late 1990s, the Clinton administration introduced a series of changes to the Consumer Price Index (CPI) that reduced the measured rate of annual inflation by more than half a percentage point every year. For a retired worker, this adds up to a five to a seven per cent cut in benefits after 10 years, and a 10 to 14 per cent cut after 20 years, etc.

And that’s just what the Clinton administration did. For more than three decades, presidential administrations have used statistical tricks to “reduce” the official rate of inflation ... and cut COLA increases. The Obama administration’s current proposal to link COLA to a new inflation index that would calculate inflation at a lower rate follows in those other presidential administrations’ footsteps.

The result is that Social Security does not provide “security” for retirees. And that’s an outrage in a country whose workers have produced so much wealth.