Can you guess which of these 3 statements is the lie?
A. Social Security faces a significant financial shortfall, which Congress needs to address.
B. If Social Security’s retirement age had been pegged to increases in life expectancy, the retirement age today would be over age 80.
C. Social Security collects taxes from wealthier Americans to provide benefits to low-income seniors.
Let’s see how you did!
A. TRUE. Social Security is already running a deficit: it pays out more each year in benefits than it collects in payroll taxes, so uses money from the Social Security Trust Fund to make up the difference. The Trust Fund will run out in about 15 years and Social Security will only be able to pay about three-quarters of promised benefits. Congress should take action to prevent this outcome.
B. TRUE. When Social Security was created, life expectancy at birth was less than 62. Someone born in 2010 is expected to live for nearly 79 years. Had Social Security’s retirement age adjusted with increases in life expectancy, Social Security’s retirement age over 80! Of course, no one supports increasing Social Security’s retirement age by that much, but it is worth considering modestly increasing Social Security’s retirement age.
C. LIE. Social Security’s payroll tax is imposed on the first dollar every worker earns. Those payroll taxes are then used to pay current beneficiaries, most of whom are retirees. Social Security doesn’t take from the rich to give to the poor, rather it takes money from young workers to give to retirees. Note that young workers have higher rates of poverty than do seniors; In fact, seniors are the wealthiest age cohort.
This doesn’t mean that senior citizens don’t deserve Social Security benefits: Their retirement benefit payments are based on each person’s lifetime of income, and therefore are related to the amount of payroll taxes they paid (although the expected benefits of this generation exceed the payments they have made to the system).
However, as Congress considers how to handle Social Security’s growing financial problems, it’s important to understand how the program works, and who it helps and who it hurts. Given that today’s workers are already having trouble making ends meet and are paying about one out of every eight dollars they earn to Social Security, it seems unfair to ask them to turn over even more of their paychecks to pay every last cent—and then some!–of benefits promised to wealthy retirees.