The Social Security Administration has enthusiastically rolled out its new and improved Social Security Statement to nearly universal applause from the press. The new Statement tells workers how much they have paid into Social Security and how much they can expect to receive in retirement. SSA Commissioner Kenneth Apfel calls the Social Security Statement "a valuable tool that will help Americans prepare for their long-term financial security."
But how much does the Statement really tell Americans? As with anyfinancial statement, it pays to read the fine print. Except that on theSocial Security Statement there isn't any, and it's in the details that itsdangerous deceptiveness lies.
On one count, the new Statement is an improvement. Past statementsdisclosed only the employee's share of the payroll tax, 6.2 percent ofwages up to $72,600. That made Social Security seem like a good deal,since the worker did not see the 6.2 percent tax his employer paid on hisbehalf. But economists agree that the full 12.4 percent tax is really paidby workers, since the employer's share is deducted from wages. Congresshas now forced the SSA to disclose both employee and employer shares of thepayroll tax.
Although workers now know how much they have paid into Social Security, thenew Statement tells them little about what they can expect to receive. AGallup survey shows that Statement recipients know that benefit levels arebased on earnings and that Social Security pays disability and survivors'benefits, but the Statement doesn't reveal that there simply is not enoughmoney to pay for those benefits. While Democrats and Republicans agreethat Social Security faces substantial long-term financing issues, theSocial Security Statement acts as if these problems simply do not exist.By 2014, payroll taxes will be less than needed to pay benefits. By 2035,SSA's own "intermediate" estimates project that Social Security will beable to pay only 72 percent of promised benefits. The non-partisan ConcordCoalition considers more accurate SSA's "high cost" estimates, which showthe ability to pay only 61 percent of promised benefits. Payroll taxshortfalls of that size would reduce today's average monthly retirement andsurvivors' payment from $711 to between $434 and $512.
In other words, the numbers just don't add up: either taxes must go up orbenefits come down. But you would never know that from reading the newStatement. Unlike an IRA or 401(k) statement, there's no fine printstating that benefits might fall by close to 40 percent or that tomorrow'sworkers might be unwilling or unable to shoulder payroll taxes of between18 and 21.5 percent of their wages.
Commissioner Apfel concedes that "the estimate is not just a projectionbased on current income, it's based on current law. Both could change."In fact, the Statement's benefit projections completely ignore SSA's ownbest estimates. The Statement relies instead on promises from politicians,whom a Gallup survey revealed to be the second-least trusted profession inAmerica. (Car salesmen should demand a recount.)
Apfel claims "the new statement will help people plan better forretirement." Maybe it will help people who would accept an IOU fromsomeone they don't trust, who admits not having the money to repay, and whowill be long out of office when the crisis hits. But the rest of us wantto know how much retirement income current payroll tax rates will reallybuy. The true answer is less than 75 percent of already meager promisedbenefits, and perhaps as little as 60 percent. By 2067, when today'snewborns will retire, Social Security may be capable of paying no more thanhalf of promised benefits.
There are two alternatives: stick with the status quo, which means highertaxes, lower benefits and an increased retirement age, or allow workers toinvest their payroll taxes in individual accounts that they would own andcontrol. Privatization will raise Social Security's rate of return sofuture retirees can live in dignity without burdening workers withback-breaking taxes. Real social security comes not from paper promisesbut from real money, held by workers and invested in American businessesthat produce real increases in wealth.
Commissioner Apfel declares that SSA must "focus on the people paying intothe system rather than the ones receiving benefits." Indeed. SSA's firststep should be to tell workers how little they can really expect to receivefor their payroll tax dollars. That information alone would be an impetusto privatization.