Social Security facts for seniors

By 
Eleanor Guerrero
CCN Senior Reporter
Thursday, February 13, 2020
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Photo by Eleanor Guerrero
Tully Olson of BigSky55+ gave a presentation on social security at the Red Lodge Senior Center.

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Center on Budget and Policy Social Security changes lives, especially for rural seniors, vets, women and children.

On Wednesday, Jan. 29, Executive Director, Tully Olson, of the nonprofit Big Sky 55+ gave a presentation at the Red Lodge Senior Center regarding facts of the Social Security Fund. 

He said, “Without Social Security, the elderly poverty rate in Montana would go from 7.1 percent to 41.8 percent. In Montana, Social Security provides benefits to over 227,000 Montanans. Social Security is earned by over 159,000 Montanans aged 65 and these hard-earned benefits keep people out of poverty.” 

Olson said that seven percent of Montana’s income comes from social security. “This program is critical to Montana. It is critical to a quarter of the population to receive it; it is critical to the economy.”

Olson said these funds are not “entitlements.” “You pay for them, they coming from your deductions over decades.”  

The average check for a Montanan is modest-about $16,640 per year. This is lower than the national average of about $17,640 a year. (The average disabled worker and aged widow received slightly less.) 

“The key to the future is everyone loves social security,” he observed. 

According to ssa.gov, a federal government website, “In 2019, about 64 million Americans will receive over one trillion dollars in Social Security benefits. 

There are two separate Social Security trust funds, the Old-Age and Survivors Insurance (OASI) Trust Fund pays retirement and survivors benefits, and the Disability Insurance (DI)Trust Fund pays disability benefits.”

Montanans share in this system as well. 

Are its funds in danger? One senior listening to the recent presentation in Red Lodge, Lucy Nilson, disagreed with the term “entitlements” when money comes out of people’s paychecks each week for the fund. “They’re not entitlements! We earned them for years and years and years!”

It’s future, however, may depend upon other factors. According to U.S. Congressional Research: “Since 1982, the Social Security taxable earnings base has risen at the same rate as average wages in the economy.” There is a cap on income that is taxed. “Because the cap is indexed to the average growth in wages, the share of the population below the cap has remained relatively stable at roughly 94%. However, due to increasing earnings inequality, the percentage of aggregate covered earnings that is taxable has decreased from 90% in 1982 to 83% in 2017.”

Some say funds are expected to run out in 2035 if steps are not taken to change current methods or income levels.  

The Committee for Responsible Budget predicts, “Social Security cannot guarantee full benefits for current retirees. The Trustees project that on a theoretical combined basis, the trust funds will run out by 2035. That means the program will be insolvent when today’s 51-year-olds reach the retirement age and today’s youngest retirees turn 78. At that point, all beneficiaries will face a 20 percent across-the-board benefit cut, which will grow to 25 percent over time.”

The Social Security Act was signed into law by President Roosevelt on August 14, 1935. In addition to several provisions for general welfare, the new Act created asocial insurance program designed to pay retired workers age 65 or older a continuing income after retirement.

The cap where higher incomes no longer have to pay any social security tax for income was $132,900 in 2019. This amount goes up a bit each year but the cap continues. It had a significant increase from 2018, which was at $128,400 but many argue the cap should be totally removed and it would allow for not only stability but expansion of benefits giving a solid future for social security. 

On that basis, says Olson, there could easily be expansion and stability. In 2020, the cap increases to incomes of $137,700 and under being taxed for social security.

According to socialsecurity.gov, the taxable income does not count pensions, annuities, investment income, interest, veterans or other government or military retirement benefits.” 

People’s benefits may be reduced by a tax on their social security income. Socialsecurity.gov states, “The taxation of Social Security began in 1984 following passage of a set of Amendments in 1983, which were signed into law by President Reagan in April 1983.”

Olson said social security is amazingly self-sufficient system yet it is under constant threat. He says there is always an interest in setting up a bureaucracy that would need to be paid but isn’t necessary. He doesn’t agree that it will run out and says the cap should be lifted entirely.

“Social Security works for Montanans,” says Olson. “Medicaid and Medicare also work for Montanans. “It has very low overhead-taking only 1 percent to run it and taking nothing from the general fund. It is self-sufficient. 

One in 4 residents, 230,000 people, receive benefits in Montana from these funds.” He believes the taxable income cap should be removed and that will solve its future needs without cutting social security benefits or increasing tax deductions from paychecks. Expert opinions vary on the solution (see box). 

Without Medicaid expansion, Olson said, “A lot of rural hospitals (including Wolf Point, Glendive) would not exist anymore.” He said to ask questions and listen to who supports expansion which is both a state and federal issue. Seniors are formidable in Montana and constitute a large share of the population.   Montana ranks in the top 5 states with 17.8 percent of its population aged 65 or older.

Regarding the current administration’s proposal to cut $2.5 million nationally, Olson said cuts would affect rural areas and elderly populations the most-meaning the demographics of Montana. Veterans are especially affected and benefited by social security. “Nine million vets receive social security benefits; another 35 percent are families are veterans. If a family member is killed, SS is one of the first to kick in with benefits while they’re waiting for military benefit relief.” He said a huge amount of vets home from combat received disability in 2018.  

In order to keep social security alive, the Committee for Responsible Budget says, “The sooner changes are made, the less severe they will need to be. Restoring solvency today would require the equivalent of a 22 percent increase in payroll taxes, a 17 percent reduction in all benefits, a 20 percent cut to new benefits, or some combination.” If we wait until 2035, future beneficiaries would not benefit.

Olson sees Social Security as “a vital service we all deserve. In Montana, Social Security is earned by over 159,000 Montanans aged 65 and these are hard-earned benefits keep people out of poverty.” 

He said before social security, poverty was rampant, nationwide. Without it he believes the U.S. would go back to 43 percent poverty like before social security. “One in two were poor, there were poor houses in every state. That’s half the people in your community. Social Security (SS) got rid of that. Women had even higher rates because they live longer, make less.” SS also lifts 1.4 million children out of poverty.

He calms those worried about social security running out. He said, “It’s hardly running out but warns it could be dying “by a thousand cuts.”

With most Montanans getting $15-16,000 from social security Olson asks, “What are you going to cut from that?” 

Like many recipients he reflects, “Obviously, the benefits are too low,” he says, especially for people to retire on alone.  

He notes in this self-sustaining system, staff and offices are covered. The cuts being made such as closing offices, cutting hours are unnecessary. “You pay money for these services and there is the money to pay it.” 

Yet as locals in Carbon County know, Montana is cutting mobile contact for rural citizens and decreasing access, making it harder to access services they have already paid to receive. “You’ll hear about the push to close these offices.” Olson doesn’t see a good reason. “We pay for our benefits and also for our services. Less than one cent of every dollar goes the administration. The rest all goes to benefits. It covers all offices, staffs and infrastructure. It’s efficient.” People are encouraged to ask questions and learn the facts. 

Fixing Social  Security

Here are some pros and cons to eliminating the cap on paying social security taxes for higher incomes:

According to investopedia.com it can be done: “Increasing the Social Security cap helps, but it does not solve the impending Social Security shortfall. The tax cap would have to be eliminated entirely to close a significant percentage of the Social Security gap, according to calculations by the Committee for a Responsible Federal Budget, a think tank that publicizes Social Security and other federal budget issues. Even that drastic measure would be far from a complete fix. Truly solving the problem will require a combination of measures, such as higher Social Security taxes, lower benefits (perhaps only for the well-off), and indexing the retirement age to life expectancy.”

According to Motley Fool.com: “Here’s why the payroll tax cap hasn't been dramatically increased or eliminated: In a normal year, the payroll tax earnings cap increases in step with the National Average Wage Index. But you might be wondering why, if Americans overwhelmingly support a measure that would impact fewer than one in 10 workers, the payroll tax cap hasn't been dramatically increased or eliminated in its entirety.

For starters, the reason the payroll tax cap exists is because there's also a cap on maximum payouts from Social Security at full retirement age. Each year, this maximum payout is updated by the Social Security Administration. In 2018, it happens to be $2,788 a month. It simply wouldn't make sense for the program to tax earned income up to say $400,000 or $1 million if the maximum payout achievable at full retirement age is "only" $2,788 a month. In other words, there's a reason both caps exist. (Both caps would have to be changed.)

Secondly, amending Social Security would require bipartisan support. Things are arguably more partisan than ever in Washington, and Democrats and Republicans both have markedly different proposals for fixing Social Security. Since both parties have a solution that would completely erase the $13.2 trillion long-term cash shortfall, neither feels incented to find common ground with their opponent. Thus, a perpetuated stalemate that will only end with bipartisan support or a supermajority (60 or more seats held by one party) in the Senate, which hasn't happened for four decades.

Last but not least, don't overlook who this payroll tax increase would impact: the wealthy. Sure, the wealthy are much less likely to be reliant on Social Security during retirement than the average American worker, but they're also much more likely to make political contributions during election years. If the rich were to suddenly face the prospect of higher payroll taxes, it wouldn't be out of the question that campaign donations lessen to the party that passes such a measure. In short, there could be political motivations not to increase the payroll tax cap. Clearly, something needs to be done to fix Social Security, but it'll almost certainly require a bipartisan compromise if it's to happen.”

According to U.S. Congressional Research: “The Center for Budget Policy and Priority says, “Raising or eliminating the cap on wages that are subject to taxes could reduce the long-range deficit in the Social Security trust funds. Social Security taxes are levied on covered earnings up to a maximum level set each year. In 2019, this maximum—formally called the contribution and benefit base, and commonly referred to as the taxable earnings base or the taxable maximum—is $132,900. The taxable earnings base serves as both a cap on contributions and on benefits. As a contribution base, it establishes the maximum amount of a worker’s earnings that is subject to the payroll tax. As a benefit base, it establishes the maximum amount of earnings used to calculate benefits.”

Examples are provided of benefits in removing the cap. “For example, phasing in an increase in the taxable maximum to cover 90% of covered earnings over the next decade would eliminate roughly 30% of the long-range shortfall in Social Security. If all earnings were subject to the payroll tax, but the current-law base was retained for benefit calculations, the Social Security trust funds would remain solvent for over 60 years.”

It comes with a caveat: “However, having different bases for contributions and benefits would weaken the traditional link between the taxes workers pay into the system and the benefits they receive.”

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