Joseph Dixon was the seventh governor of Montana. In 1923 the Republican enacted the nation’s first old-age pension program. Twelve years after Montana passed a safety net for seniors, President Franklin D. Roosevelt signed Social Security into law as part of the New Deal.
Even as we face $14 trillion in national debt, Social Security enjoys a $2.5 trillion fund surplus, which is expected to grow to $4 trillion by 2025. It is often wrongly blamed for causing national debt.
Most say that if Congress took no action, the safety net program would pay 100 percent of benefits for the next 25 years and 75 percent thereafter. Others insist that the number of middle class workers heading toward retirement, coupled with the fund’s IOUs, will bankrupt the promise without intervention.
The vast bulk of Social Security is funded through dedicated payroll taxes or the Federal Insurance Contributions Act (FICA). One-hundred-fifty million American workers and their employers pay into the fund. One in five Montanans draw Social Security pensions. That represents 180,000 Montanans who receive $2 billion in benefits annually, with a median pension of $13,000.
The 6.2 percent FICA tax applies to an employee wage cap of $106,800, while self-employed pay double. Last year, the president and Congress significantly cut the employee portion of FICA and backfilled it with $100 billion of taxpayer dollars. Nearly 400,000 Montana workers received a temporary payroll tax reduction. Many expect the matching employer FICA tax is in the negotiation mix, making hiring less expensive.
Social Security was last reformed under President Ronald Reagan and House Speaker Tip O’Neill. That compromise included a good-sized increase in FICA taxes and a two-year growth in retirement age.
Recent statements by AARP, the powerful lobby for seniors, indicate that more reform is pending to maintain longer-term solvency. “It’s AARP’s belief that at the end of the day there will be a package that affects both the benefit and the revenue side,” said David Certner, the policy director for AARP. Other social advocates insist that AARP jockeyed a seat at the covert negotiation table to discuss benefits, eligibility age and lifting the wage cap.
House Republicans recently introduced the Savings Account for Every American Act to privatize Social Security and allow workers to partially opt-out now, and fully opt-out in 15 years. But if former Presidents George W. Bush had his way in 2005, privatized Social Security pensions could have easily been part of the 2008 Wall Street meltdown.
Texas Republican Congressman Pete Sessions is chairman of the National Republican Congressional Committee and the main sponsor of the privatization bill. He said, “To simply maintain the status quo would weaken American competitiveness by adding more unsustainable debt and insolvent entitlements to our economy when we can least afford it.”
With more than one-third of pension benefits paid to veterans, Montanans will agree with Sen. Jon Tester when he said, “Social Security works. It’s not a handout; if you don’t work, you don’t get it. It’s that simple.”
During a recent veterans’ conference in Great Falls, Tester said that it is “irresponsible and reckless” for Congress to cut veterans’ benefits, Social Security and Medicare, adding that “we can responsibly cut spending while honoring our promises to those who’ve served.”
If Washington, D.C. really wants to help Social Security, it should improve the economy and grow more jobs for Middle America. But keeping Social Security solvent long term may break the political log jam that prohibits Congress from reforming Medicare or balancing our books.
Whether the moderates in Congress grab the third rail of politics remains to be seen. But if politicians unfairly cut senior pensions or wrongly blame Social Security for national debt, they should not be shocked to hear plenty of charged feedback.