Aug. 14 marked the 80th anniversary of the Social Security program. Created in the midst of the Great Depression, the program was designed to provide subsistence income to the elderly poor. It was funded by a 2 percent payroll tax evenly divided by workers and their employers.
At its inception, life expectancy was 62 and there were almost 40 workers paying into the program for every beneficiary. Today, life expectancy is approaching 80 and there are less than three workers per beneficiary. Even though the Social Security payroll tax is up to 12.4 percent, the program is in financial jeopardy. The average payment is $1220 per month.
For five years in a row, Social Security has paid out more in benefits than it collected in payroll taxes. The deficit was nearly $80 Billion in 2014. I remember challenging Presidential candidate Newt Gingrich in 2011 on his plan to set up personal accounts under the program. I asked, “How can personal accounts be created when we’re not even collecting enough payroll tax money to pay beneficiaries?”
In 1983, President Reagan and Speaker Tip O’Neill came to an agreement to try to keep the program solvent for the Baby Boom generation (people born from 1946-1964). The payroll tax was gradually raised and the eligibility age was boosted from 65 to 67 for those born in 1960 or later.
For decades, the program ran huge surpluses with the goal of creating a Trust Fund to sustain the program when Baby Boomers reached eligibility age. The surpluses reached $2.7 Trillion by 2009. Unfortunately, Congress spent all of that money on other programs rather than setting it aside.
Every year, the Social Security Administration sends taxpayers a notice projecting what their benefits will be when they reach eligibility age. The notices now contain an asterisk with the disclaimer that the Trust Fund will be depleted by 2035 and recipients can expect to receive only 77 percent of projected benefits.
One of the components of the Social Security program is Disability Insurance for those declared unable to work but too young to qualify for the elderly subsistence program. Trustees have stated that Disability funds will be depleted by next year and that beneficiaries would only be able to receive 80 percent of current benefits.
There are many reasons that the program is approaching insolvency. Nearly 5 percent of working age individuals are collecting Disability checks, more than double the percentage from 1990. Median incomes have declined since the 2008 recession, meaning less payroll tax revenue is being collected. There are also 94 million Americans from 16 to 64 years old who are not in the workforce, largely due to the sluggish economy.
The tenuous condition of Social Security became the focus of national attention at the Aug. GOP Presidential candidates forum in Cleveland. New Jersey Gov. Chris Christie and former Arkansas Gov. Mike Huckabee were asked how they would make the program solvent.
Christie offered a plan which calls for gradually increasing the eligibility age and reducing benefits. Huckabee responded by saying that plan would be breaking a promise to the people who paid into the program. He subsequently released the following statement: “I’m shocked by the politicians who refuse to acknowledge the obvious – a promise is a promise. It’s your money!”
Huckabee notes that nearly 70 percent of our elderly population depends on Social Security for more than half of their income. Huckabee’s solution for paying full Social Security benefits to all who qualify is to change the way the program is funded by adopting the FairTax plan.
The FairTax eliminates all taxes on income, including the 12.4 percent payroll tax. Rather than funding Social Security through our 159 million workers and their employers, more than 310 million consumers would be paying into the program. Employers would report the wages they paid each year so the Social Security Administration could calculate benefits owed.
Huckabee announced in a recent statement, “The FairTax would abolish the IRS, revolutionize our economy and create a stable funding stream for Social Security and Medicare.” The FairTax plan would provide more economic opportunity for the 94 million who have left the workforce. It is the best plan to grow the economy, create prosperity and keep America’s promise to those who paid into Social Security.
John Steinberger is the former chairman of the Charleston County Republican Party, a leading Fair Tax advocate, and a West Ashley resident. He can be reached at John.steinberger@scfairtax.org.
