With the next Presidential election coming up this November, Social Security reform is a hot topic that has many people talking. Unfortunately, some dangerous myths are being perpetuated, confusing the discussion. Here are nine Social Security reform myths - busted by the Committee for a Responsible Federal Budget at CRFB.org!
Myth #1: Social Security reform can wait.
This is a myth because waiting to reform Social Security comes with a high cost. While estimates from the Social Security Trustees say that Social Security has the reserves to pay full benefits for as long as 2034, that date is not as far away as it seems. People who are 49 today will be just reaching the normal retirement age in 2034, while many people who are retiring today will still be receiving benefits.
The biggest reason we need to start thinking about Social Security reform now is that the problem gets worse as we get closer to 2034. The closer we get without taking action, the more money Social Security will need to avoid cutting benefits, and the more impossible a solution will become. It is best for us to act now while the problem is still manageable.
Myth #2: Social Security is only facing a small financing gap.
This is a myth because the reality is the opposite. In 2016, about $70 billion more will be spent on Social Security benefits than Social Security will be able to generate in tax revenue. This gap will widen as the population ages.
Here is a chart that illustrates the forecasted gap between revenue and scheduled Social Security benefits over time.
Myth #3: We can fix Social Security by making rich people pay the same amount into the system as everyone else.
This is a myth because even if the payroll tax cap was eliminated, Social Security would still fall short in the long term. Social Security currently pays benefits that are based on the amount of income taxed - so taxing the entirety of higher earners' pay would only result in those high earners receiving even more Social Security benefits. In order to make this a true solution, higher earners would need to be taxed more but still receive the same amount of benefits as before. (And even then, this would only partially close the gap.)
Myth #4: Workers today will not be able to receive Social Security benefits.
This is a myth because Social Security benefits will not disappear unless lawmakers take legal action to end the Social Security program. Benefits will still be paid after 2034, but they will become reduced or delayed if no action is taken. Even though they won't disappear, the sudden cut will be catastrophic to thousands of people who are depending on them at that time.
Myth #5: We wouldn't have a problem with Social Security if we hadn't "raided the trust fund".
This is a myth because the real reason Social Security is struggling is that its incoming revenue is no longer able to keep up with the benefits that it pays out. Regardless of how the trust fund money was loaned out, current law states that the full $2.8 trillion is still owed to Social Security's trust fund. The big problem with Social Security is not that the trust fund won't be repaid, but that the gap between revenue and benefits paid is going to widen over time regardless of the trust fund.
Myth #6: Social Security can't run a deficit.
While it is true that Social Security is not able to spend more than it takes in, it is still able to run a deficit until its trust funds run out in 2034.
Myth #7: Social Security doesn't affect the rest of our national budget.
This is a myth because the government will have to borrow more, cut other spending, or raise taxes to make up the difference in Social Security's cash flow deficit.
Myth #8: We can save Social Security by getting rid of system abuse and wasteful spending.
This is a myth because the amount of fraud and abuse cases in the system is estimated to be very low compared to the overall gap between revenue and benefits paid. Even if we were able to eliminate all fraud and abuse with no additional spending towards that effort, we would only be able to close the revenue-benefits gap by 2%.
Myth #9: Low-income seniors are affected the most by raising the retirement age.
This myth is based on a misunderstanding of Social Security's retirement age. Social Security actually has more than one retirement age. The earliest eligibility age for retirement is 62, while the delayed retirement age is 70. The normal retirement age, 67, is the one lawmakers are proposing to raise. Because of this, raising the normal retirement age doesn't actually change eligibility, it only changes the date that people can claim full benefits (or how much they are penalized for claiming full benefits early).
Orginal source: CRFB.org
For more information about Social Security reform from the perspective of a Social Security Disability attorney, see my earlier blog, What You Really Need to Know About the Positions of the Candidates on Social Security Reform.