This week the Social Security Trustees reported that our FICA contributions plus interest, net of all benefits paid out, have increased the Social Security Trust Fund by $32 billion. The trustees also forecast that Social Security benefits are completely sustainable for the next two decades.
The media hasnâ€™t played these reports up much, perhaps because they donâ€™t fit into the narrative that finances for Social Security are collapsing and the only way to save Social Security is to dismantle benefits nowâ€¦ Thatâ€™s a solution akin to amputating someoneâ€™s foot now, because he might get gangrene 20 years from now.
We shouldnâ€™t disregard the financing of Social Security two decades from now. But the â€œsolutionsâ€ proposed by the guardians of privilege only add to the recipe of redistributing money upwards to the already wealthy and powerful. We have had enough of that over the past 35 years.
The Social Security Trustees forecast projected revenue and costs for 10 and 75 years into the future. Obviously, this is at best a â€œguestimate.â€ The trustees canâ€™t foresee each economic downturn. They canâ€™t foresee immigration and the Social Security contributions of these immigrant workers. The guessing is educated, but not accurate. In 1986, the trustees predicted that the Social Security Trust Fund would run out of money in 2051. Then in 1994 they predicted that the trust fund would be drawn down to zero in 2029. Now their â€œpredictionâ€ is for 2033.
The funny thing is that the trust fund was purposely built up in anticipation of baby boomers retiring, and intended to be drawn down to help finance their retirement. So while the guardians of privilege see a problem with this drawdown, it is actually the model developed by one of their own, Alan Greenspan, the former chair of the Fed. And when the trust fund is drawn down, it wonâ€™t result in the demise of Social Security. Up to 1981, Social Security was pretty much a pay-as-you-go program, with current revenues from taxes paying for current benefits. That is still the way it is for the 80 percent of benefits.
In developing their forecasts, the trustees include a factor estimating worker productivity increases. But while productivity increases were proportionately shared between workers and corporations after World War II, in the recent decades these increases have accrued more and more solely to corporations. That detracts from Social Security contributions through FICA taxes.
There is a simple way to increase contributions to Social Security, insure sustainability of benefits, and actually increase those benefits. Increase the minimum wage, and have all wages reflect increases in productivity. For every $1 increase in wages, Social Security receives 12.4 cents. Increasing the minimum wage to $10 an hour for the 3.6 million American workers who make $7.25 or less would bring a minimum of $2.5 billion each year into the Social Security Trust Fund. If we were to increase wages by $2 for the one-fifth of all workers who make less than $10 an hour, the trust fund would gain $11 billion each year. That equals more than the combined Social Security benefits for over 750,000 recipients.
We often forget about the interconnections between different facets of our economy. If we continue to hold wages down, and not adjust them upwards for productivity, we let more and more income slide into corporate profits, and hundreds of billions of dollars is exported to other economies via the outsourcing of production. It also means that the social programs Americans hold closest to their hearts and depend on for their economic security are undermined by a diminished stream of revenue, that is, FICA taxes. We are willing to pay those taxes. But we canâ€™t when our wages stagnate.
Here is why the effort for increasing the minimum wage is so important. We not only begin to insure that workers will get appropriate compensation (and respect), but in turn, these workers and their employers, through FICA taxes, build up Social Security funds for current and future retirees. Itâ€™s mutually beneficial, for all of us.