April 14, 2013 by David K. Sutton
Obama’s Proposed Social Security Cuts Are Wrong
Last week, The White House released a summary of President Obama’s budget. The proposal aims for a 3 to 1 spending cuts to tax increase ratio to reduce the deficit over the next 10 years. But the biggest headline from Obama’s budget plan is the $230 billion he wants to cut from Social Security.
It’s buried at the bottom of the last page. It just says:
$230 billion in savings from using a chained measure of inflation for cost-of-living adjustments throughout the Budget, with protections for the most vulnerable.
Now keep in mind, Social Security has nothing to do with the deficit. I know you will hear people say otherwise, but they are wrong. Social Security has its own funding in the form of the payroll tax deducted from our income. It’s entirely possible for Social Security to have its own financial woes, but it’s not related to the federal budget, and therefore does not add to the budget deficit. But don’t take my word for it, just ask The Gipper:
Thank you President Reagan for that quick lesson on Social Security funding. Too bad your party doesn’t get it. Even our current Democratic president doesn’t get it.
Now I know there are still some who will push back on this, saying that if Social Security pays out more than it takes in, the difference would be debt, and that would come out of the federal budget. Hence adding to the budget deficit. But two things would have to happen for that to be true.
1. It assumes benefits would still be paid in full. If we ever got to that point, and only then, should be consider a cut in benefits to make Social Security solvent. But we never have to get to this point. (more on that in a moment)
2. We would have to exhaust the Social Security trust fund, which is not projected to happen until 2033. So that means Social Security can pay out retiree benefits until 2033 without contributing a penny to the deficit or long-term debt.
Policy Basics: Top Ten Facts about Social Security — After 2033, when the combined trust funds will be exhausted if no changes are made, Social Security would still be able pay three-fourths of its scheduled benefits using its annual tax revenue. Alarmists who claim that Social Security won’t be around when today’s young workers retire either misunderstand or misrepresent the projections.
So how do we keep Social Security solvent? The nearly 80-year old social-safety net program has seen adjustments through it’s long history. And we know there will be a surge of retirees over the coming years. But this is not a reason to cut benefits. We should not be focusing on the spending side, but rather the revenue side.
If you aren’t aware, that payroll tax that we all pay has a ceiling. In 2013, all income above $113,700 is exempt from the payroll tax. This cap increases each year, but why not increase it by a healthy margin? Why couldn’t the cap be $150,000 or even $250,000? We could also consider a modest increase in the payroll tax rate, currently at 6.2%. Even a small increase would go a long way toward Social Security solvency for the next century.
So unlike President Obama, you should not buy into the alarmist rhetoric. Social Security is not a Ponzi scheme. Social Security is not bankrupt. Social Security does not add to the federal deficit. Most importantly, Social Security WILL be there when you retire. That is unless we cave in to the politicians who want to destroy it. We call them Republicans.
The only reason to offer Social Security cuts in a budget deficit plan is politics. President Obama wants to look like he’s compromising on a key Democratic issue. But Republicans do not care. They are not going to change their attitude towards this president. You would think Obama would have learned that lesson by now.