Signed into law in 1935, the Social Security Act launched an integral social safety net program, but is it still sustainable?
JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I'm Jessica Desvarieux in Baltimore.
Today marks the 78th anniversary of the signing of the Social Security Act. In 1935, President Franklin Roosevelt signed the law, establishing a new form of economic security for seniors.
Here to discuss the history of Social Security and its health today is Nicole Woo. Nicole Woo is the director of domestic policy for the Center for Policy and Economic Research in Washington, D.C.
Thanks for joining us, Nicole.
NICOLE WOO, DIRECTOR OF DOMESTIC POLICY, CEPR: Oh, thanks for having me.
DESVARIEUX: So, Nicole, can you just give us a brief history of the Social Security Act? How did it come about, the signing of the act in 1935?
WOO: Well, people might remember that the Great Depression started with the stock market crash in 1929, and in the Great Depression there was poverty across this country. More than half of the elderly in this country were in poverty. And that was causing huge suffering. So in reaction to people just being poor, starving in the streets, we came up with a number of safety net programs, and one of them is Social Security. It's really more of an insurance program, where workers were able to start putting money into, basically, a pension, but a government-run pension. And this way it's been keeping seniors out of poverty till this day. If we didn't have it, it would be a lot harder for all Americans. For example, we'd have to support our grandparents and parents in their old age.
DESVARIEUX: Okay. And let's talk about Social Security today. What is the current health of the system? Because you hear different views on this. Obviously, people more on the right, they tend to say, oh, we should be raising the retirement age [incompr.] security. You even hear that from President Obama at times. When there were talks about balancing the budget, Social Security is often brought up. What is the real health of Social Security today? And if you could, just provide some numbers for our viewers.
WOO: Oh, sure. So Social Security is often lumped in with other government programs to make it seem really scary. But the fact is that Social Security is facing a small shortfall in the future, but it's really not that serious and it's not unmanageable. For example, right now Social Security is perfectly able to pay 100 percent of benefits, and it's going to be able to be able to do so for the next 20 years. After that, it'll be able to pay about 75 percent, three-quarters of the benefits of that are promised. And, you know, nobody likes to see that sort of shortfall, but it doesn't mean it's going to completely broke. We've been able to fix these sorts of problems in the past with changes in the payroll level, payroll tax levels, or how many people pay into the system. What we're looking at right now is that Social Security takes up about 5 percent of our GDP, our economy, and these long-term 75-year projections show that it'll go up to about 6 percent. So we're talking about a gap of about 1 percent of our economy, which really isn't that much. And there are many ways that we can fix that gap.
DESVARIEUX: Okay. Can you give us some suggestions of how? What has been done in the past?
WOO: Oh, in the past they've raised the rate of the payroll tax. And they've also added more workers to qualify for the system, for example certain government employees.
One thing that is really important to know is that there is a cap on the amount of income that's taxed for Social Security. Right now the first $113,700 of a person's income are taxed, and then any income that people make above that is tax-free when it's for--in terms of Social Security. So, you know, someone who's making a quarter of a million dollars a year is paying only about half the rate into Social Security as the rest of us. Somebody who's making a million and a half dollars a year is only paying about 10 percent of the rate of the rest of us. So we could fix almost all of that gap that people talk about by simply raising that cap on the wages of Social Security, taking it away completely and taxing everyone, rich and poor, at the same rate and have them contribute the same rate into the Social Security system.
DESVARIEUX: So, Nicole, let's talk a bit about the people that say Social Security is unsustainable. What do you make of the argument that the amount of money that is going in is less than the amount of money that will be going out? And secondly, what do you make of those like CEO of Goldman Sachs Lloyd Blankfein that said that essentially Social Security is going to be unsustainable, we need to change the system entirely? Are you a bit skeptical about their motives?
WOO: Well, there are many parts to your question. The first part is whether or not Social Security is actually paying out more than it's taking in right now. And that's absolutely not true. Actually, in 2013, Social Security is projected to take in $28 billion--that's with a B--$28 billion more in than it pays out to retirees. And that's because back in 1983, a number of changes were made to the Social Security system, and they started to build up a surplus, because they knew the baby boomers were going to retire. Right now we have about $2.8 trillion--with a T--$2.8 trillion saved up in the Social Security Trust Fund. When people say that Social Security's paying out more than it's taking in, they're not counting the interest that Social Security is making on those over two and a half trillion dollars in savings. And I know that I have to pay taxes on my interest income, you know, when I do my taxes every year. Interest counts. But the people who want to scare us about Social Security just don't count that. And that's really not fair, because, you know, the interest income is significant, and it will build up our payroll taxes that we're paying in, and the interest will continue to accumulate, so that by 2020 we'll have about almost $3 trillion in the trust fund. So that is not an issue. And when you do hear people say that we're in the red, they're simply not counting the interest. And I just don't think that's good accounting.
In terms of folks who say that it's a problem and they want to have it in these deficit and budget discussions, that's another sort of red herring. By law, Social Security cannot contribute a dime to the deficit. The law says that Social Security can only pay out what it has in its trust fund. And that's why I was saying that in about 20 years it'll be able to pay out only 75 percent rather than 100 percent of benefits. So there's no way that Social Security can contribute to the deficit, 'cause the law says that when it, you know, doesn't have enough to pay the full benefits, it simply doesn't. And it's never contributed to the deficit in the past, because that's how the law has always been.
DESVARIEUX: Okay. Let's switch gears a little bit and talk about unemployment and the high unemployment that we're seeing today. How is that going to have an effect on Social Security?
WOO: Well, it reduces the amount of workers who are paying into the Social Security system. So it does exacerbate, you know, the small shortfalls that we will see in the future. If we had more workers working, there'd be more workers contributing into the system, saving up for their retirement. So, certainly, you know, any time we talk about jobs programs and reducing the unemployment rate, that would also help Social Security.
DESVARIEUX: Okay. Thanks so much for joining us, Nicole.
WOO: Thank you.
DESVARIEUX: And thank you for joining us on The Real News Network.