Social Security Is Not the Problem

Cutting Social Security to fix the fiscal cliff will only further harm our economy by reducing productivity.

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Young hands tending to an elderly person

David Brodwin is a cofounder and board member of American Sustainable Business Council. Follow him on Twitter at @davidbrodwin.

With the election behind us, all eyes are turning to the so-called "fiscal cliff." Democrats want to cut the debt by boosting taxes while keeping government programs roughly as they are. Republicans want to cut the debt by slashing government programs while keeping taxes steady or cutting them further. Both sides have taken hostages, and the hostages are scheduled to be executed on January 1 if neither side gives in.

Social Security is one of the hostages. Critics argue that Social Security is a major cause of the debt, and we have to scale it back. Admittedly, it's easy to get the impression that Social Security drives the debt, because it is, after all, the second largest and most expensive federal program. But despite the claims of reasonable-sounding groups like "Fix the Debt", Social Security does not add to the overall federal deficit or debt. Gutting Social Security will actually make the United States less competitive rather than more competitive.

[See a collection of political cartoons on the economy.]

How Social Security boosts productivity

Both Social Security and Medicare play a key role in maintaining the high productivity of American workers. Without these programs, tens of millions of working Americans, in the prime of their careers (ages 35 – 49) would be forced to care for aging parents. Social Security often makes the difference between retired people being able to afford to live on their own versus needing to move in with their adult sons and daughters. Medicare, also under attack, makes a difference too.

It's easy to understand the stress created by needing to care for aging, insolvent, and ill parents who can no longer care for themselves. It takes time. It calls for difficult, high-stakes decisions. It requires financial sacrifice. It may entail a great loss of privacy. It creates tension among siblings and between spouses. Inevitably, these stresses take a toll at the work place, particularly when the work involves long hours, travel, making tough decisions, or maintaining an upbeat presence with clients and customers. For many jobs in our society, particularly high-level, high-stakes jobs, performance will suffer as stresses at home increase.

[Read the U.S. News Debate: Should Cuts Be Made to Domestic Social Programs to Protect the Defense Budget?]

How much productivity is lost by the demands of care-taking? We lack clear statistics on this, but we know that care-taking has a high cost on wages. The primary caretakers of children (principally women) on average earn 25-30 percent less after differences of education and experience are taken into account. Primary caretakers are not able to work as many hours or travel as readily. They are always trading off the demands of the work place versus the needs of those they care for. The lost productivity is costly and society has yet to develop an adequate solution to minimize it or ensure fair compensation for it. Yet without the financial stability provided by Social Security and Medicare, the 30 percent productivity loss could easily extend over a hundred million working Americans for 15-plus years of their productive lives. It's a cost we can't afford.

Social Security has no impact on the federal debt

While we recognize that Social Security plays an enormous role in sustaining productivity, we should acknowledge that Social Security has zero impact on the federal debt. In fact, Social Security is the most sustainably-funded government program of all, with a built-in revenue stream, transparent reporting, and strict rules about how its funds can be used. If all government programs and policies were this robust, our economy would be in terrific shape!

Social Security finances are 100 percent separate from the general revenues and expenses of the federal government. Social Security gets its money only from the payroll tax deduction, and not from any other taxes. Social Security funds cannot be tapped to pay for any other federal program. As a result of its independent structure, Social Security needs to be (and is) entirely self-funding. Any imbalance between what Social Security takes in and what it pays out needs to be corrected within the Social Security program itself.

[See a collection of political cartoons on the budget and deficit.]

Right now, there is a slight imbalance between what comes in and what goes out. But the imbalance is so small that the system could run for more than 50 years without trouble. Only a tiny fine-tuning of the system is needed to make it work for the next 100 years and beyond. Four levers can be pulled to restore balance: the retirement age, the payout rate, the FICA tax rate, and the salary ceiling (above which no FICA tax is collected). 

The problem with Social Security isn't that it is running out of money. The problem is that it is hard for people to understand just how safe their money is. People fear that politicians can raid it and that people can take money out even though they haven't paid in over the years. They envision their hard-earned cash sitting vulnerable in a "lock box" that is under constant attack by thieves swinging pick-axes.

It's true that our growing national debt needs to be lowered. We have programs that don't add value commensurate with their cost. We have cut taxes farther than we can afford. But Social Security is the safest, strongest, and among the most productive parts of the entire federal budget. Let's keep it that way.

  • Read Chad Stone: Tax Increases and Spending Cuts Needed for Deficit Reduction
  • Read David Shulman: How Obama and House Republicans Can Compromise on Taxes
  • Check out U.S. News Weekly: an insider's guide to politics and policy.