Social Security has a large and growing surplus and eligible Americans will continue to receive benefits for decades to come.
So says a projection by the Strengthen Social Security Campaign of what the 2012 Social Security Trustees Report, which is due out on April 23, will reveal.
According to the Campaign—which is co-chaired by Nancy Altman, a former assistant to Alan Greenspan’s bipartisan commission whose recommendations formed the basis of the Social Security Amendments of 1983—with “modest legislated increases in revenue,” eligible Americans can count on receiving Social Security benefits “for the next century and beyond.”
How could this be, when repeated reports have said Social Security suffers a cash shortfall and benefits will eventually be cut? According to the Campaign, last year’s trustee report projected that by the end of 2011, Social Security would have an accumulated surplus of about $2.7 trillion, which it now has. This year’s report, the group says, will show that the surplus will be even higher by the end of 2012.
“Because this year’s cost of living adjustment was higher than projected in last year’s report, average wage growth was lower, and the economic recovery has been slower, this year’s report is likely to project that the number of years that Social Security can continue to pay benefits in full with no congressional action will be a year or two shorter, but still decades away,” the Campaign says.
The precise year of when Social Security would stop paying benefits has fluctuated in virtually every trustees report, sometimes projecting a later date, sometimes sooner, the Campaign says. “The fluctuation in the exact years is unsurprising given the uncertainties with projecting inflation, wage growth, productivity, immigration rates, fertility rates, and other factors so far into the future.”
Altman told AdvisorOne that while the trustee reports “don’t vary much from year to year, as they are projecting out 75 years, the projections for this year won’t be quite as favorable as they were last year."
The Campaign says the trustee report will also help put to rest the “misunderstanding” that Social Security has entered a cash deficit situation where it is paying out more in benefits than collecting in income. “Social Security is prohibited by law from doing that. It can only pay benefits if it has sufficient income to cover all costs. If there were less income than outgo this year, the Trustees would be reporting that benefits would not be able to be paid in full during the remainder of 2012!,” the Campaign says.
The Report will also likely project that Social Security’s benefits and administrative costs in 2012 will exceed the amount of payroll tax contributions collected, the Campaign says, “but that is not surprising in light of the stagnation of average wages and continued high unemployment. Indeed, it has happened 18 times since 1958, according to the Social Security Administration.”
The Campaign also argues that “Congress could eliminate Social Security’s entire projected shortfall, which amounts to around 0.8% of gross domestic product (about the size of the Bush tax cuts going to the top 2% of the population), by raising the Social Security tax cap so that the 6% of workers that make more than $110,100 a year pay taxes on all of their wages just like everyone else who makes less than that amount. This would guarantee full payment of Social Security benefits for the next 75 years and beyond.”
There are many other ways to address the projected shortfall without cutting benefits which are already very modest, the Campaign says, averaging just $14,781 a year for retirees–less than is paid in a year of minimum-wage work.
Two-thirds of seniors, the Campaign says, rely on Social Security for half or more of their incomes. “Our view is that we’re facing a retirement income crisis and we need to be increasing social security [benefits] because it’s the most stable source of retirement income,” Altman told AdvisorOne. “The last thing that should happen is to cut benefits.”
Altman also said that Congress should address Social Security’s funding gap—“although modest in size”—away from the deficit reduction discussions. By law, Social Security cannot borrow, the Campaign says. “If it lacks the revenue to cover benefits its only recourse is to cut benefits. Thus, it does not contribute to the federal deficit. Cutting its modest benefits does not reduce the federal debt subject to limit by a penny. Discussing Social Security in the context of the deficit debate risks reinforcing the widespread misperception that the government is stealing the contributions of hardworking Americans.”