Thursday, November 29, 2012

The Social Security Quiz

Here's a little true/false quiz to see how well you understand our Social Security crisis:

T   F   Raising the retirement age or reducing benefits would help reduce the federal deficit.

T   F   Social Security pays out more money than it takes in every year.

T   F   The money current workers pay into Social Security is paid out to current retirees.

T   F   Everyone pays the same rate (percentage of income) into Social Security.

T   F   The Baby Boomers will receive a windfall from Social Security, leaving little for their children.
Social Security and the Deficit

Perhaps the biggest myth is that payments from Social Security contribute to the deficit.  In fact, Social Security is a creditor of our national debt.  One quarter of US government debt is actually money owed to the Social Security trust fund. In the 1980s, President Reagan supported legislation allowing the government to borrow from Social Security. Two trust funds -- Social Security and Medicare -- today hold one third of government bonds. $4.7 trillion has been borrowed from Social Security and Medicare to pay for other programs.

Money In, Money Out

While it's true that payments are made from current revenues, revenues have exceeded expenses and the trust fund still holds $2.7 trillion, none of which has been tapped for benefits. Keep in mind that if the fund instead wrote checks from savings, it would need to cash in treasury bonds every month to pay recipients while also purchasing new bonds every month with payroll taxes received -- a rather cumbersome and foolish process.

The following chart from the Social Security Administration shows revenue and expenses for the past two years.

Trust fund operations, 2010–2011
(in billions of dollars)
Calendar year and trust fund Income Outgo Fund
at end
of year
2010 (actual)
Total 781.1 712.5 2,609.0
OASI 677.1 584.9 2,429.0
DI 104.0 127.7 179.9
2011 (estimated)
Total 807.7 738.4 2,678.2
OASI 700.7 605.6 2,524.1
DI 107.0 132.8 154.1
NOTE: Totals do not necessarily equal the sum of rounded components.

Note that Disability Insurance (DI) pays out more than received while Old Age and Survivors' Insurance (OASI) is still well in the black.  Much more oversight is needed in the Disability portion of the program. Most of us can name at least one DI beneficiary of questionable need.
Revenues consist of both payroll taxes and interest on the national debt paid back to the fund. Currently interest rates are near zero but are expected to rise as the economy continues its recovery.

It is true though that very soon recipients will need to be paid from the savings, in other words from the money they themselves paid in over the years.  Current projections are that the savings will cover benefits until 2036.  After that, revenues will only cover 75% of projected benefits, requiring either an increase in the tax, a reduction in benefits or removal of the cap.

Who Pays More?

The Social Security payroll tax is 6.2% of income (plus 6.2% paid by employers), taken before any deductions.  Most workers pay that portion of every paycheck.  But there is a cap on income of $110,000.  Workers earning above that amount pay a lower rate:  3.1% for those making twice the cap, 1.55% for those making four times the cap and so on.  Also, only payroll income is subject to the tax.  If (like Mr. Romney) your income is classified as carried interest, dividends or capital gains, you owe no money to Social Security.

Eliminating the cap would fully fund Social Security for the next 75 years (no one tries to project further than that).

Greedy Baby Boomers

In the 1980s, payroll taxes were increased substantially.  Prior to that, the taxes had been quite low.  The following is from Social Security and the Boomers:

Let's look at an American born in 1920 who worked from age 20 until age 65 and then retired and collected Social Security. We'll call him George, Sr. Assume that George, Sr. paid the maximum FICA rate and earned the maximum benefit. During his 45 years of employment, he paid about $20,000. After retiring in 1985, assuming he lived another 20 years, he received the maximum benefit of $172,000. This worker of my parents' generation received more than 8 times what he paid in. Where did that come from?

George, Jr. was born in 1945 and also started working at 20. He worked from 1965 until 2010 and has just retired and begun collecting Social Security. George, Jr. paid $179,000 in Social Security. Over the next 20 years (Both Sr. and Jr. are due to die at age 85), George, Jr. will collect a total of $526,000. George, Jr. will receive almost 3 times what he paid in. Still a good deal, right?

Wrong. If both men had invested their contributions and earned 5% per year in returns, Senior could only have had $60,000 when he retired. He did very well indeed with his $172K return on a $20k investment. Junior however would have had $640k at 5% on his investment. Junior actually lost $115k in the deal.
Answers to the Quiz

So how did you do? All of the statements were false except the third one.

See also: Punishing Work

Wednesday, November 7, 2012

True Story: From Fear to Equality

Twenty years ago, I led a multicultural committee made up of about half the teachers at my high school. My interest had been in making sure our curriculum recognized the accomplishments and unique histories of people from many backgrounds. I had done work on science achievements around the world, great mathematicians from every continent, diverse musical traditions and the American experiences of various immigrant groups. Other teachers though were more interested in organizing an event than in curricular reform.  I went along with the majority and set about creating a Diversity Day at the school, calling people I knew to share their cultures with us -- a bonsai gardener from Japan, a martial arts expert from Korea, drummers from West Africa, a world class wheelchair racer, and dancers from Mexico.

Looking for more ideas and contacts, I attended a diversity panel at the local college, where individuals shared their experiences being different in our rural community.  As I scanned the panel, I recognized a few faces, including J, our high school's former student body president.  He was the only Anglo-Saxon participant without a disability and I wondered how he fit. This was 1993.

J was very accomplished, poised and successful. He was beloved by his teachers and administrators as well as fellow students.  Finally he spoke.

"I am a gay man," J said. I was stunned. I knew a few gay people but my experience was shallow.  I held my breath and tried to understand.

"Let me tell you what it was like for me in my high school." He went on to describe homophobic comments he overheard from teachers, the clear and present danger he felt if he came out before graduation. The picture he painted was a grim one.

His revelation hit me like a brick.  Was I one of the guilty ones? Had I said insensitive things? I really didn't know. I had many conversations with J and learned more from him than I suspect he ever learned from me. I reported back to the committee and shared what J had said.  I suggested we invite him to a teachers' meeting to give all of us insights into how our secretly gay students experience our school. The committee rejected inviting him to speak to staff but did want him to address students as part of a panel during the Diversity Day.  I invited him.

Thus began one of the most difficult periods in my career. School and district administrators entered the picture and nixed his appearance, explaining that our community "wasn't ready".  Other presenters found out and began bailing, refusing to participate if J was excluded. The local newspaper editor got word from someone and threatened to expose the district's duplicity.  Teachers on the committee -- the same ones who had argued to include him -- were fearful and backed down, afraid to have their names associated with the controversy.  An administrator told me that if he had been "an obvious homosexual", they wouldn't be so opposed.  Presumably a gay man who was accomplished, known and well regarded was quite another matter.

As for me, I soon accepted another job and left the school.  Later,as an administrator myself, I worked hard to defend the rights of all of my students, including gays and lesbians. As the years passed, students did begin feeling safer being themselves, even at school.

It is now 2012, the day after our national election.  Maryland and Maine voters just approved gay marriage, the 8th and 9th states to accept marriage equality. Other states beat back new attacks on gay rights.  The President of the United States followed his Vice President's statement in support of marriage equality.  After a campaign season where subtly racist attacks on the president persisted and women's rights appeared to be slipping backwards with contraception damned and rape exalted, America's gradual trajectory of more inclusiveness and greater civil rights is still on course.

To all of my gay and lesbian friends, thank you for the courage to come out.  J opened my eyes.  Each of you has opened the eyes of others like me. Finally, the payoff is in sight.