Just the Facts

The Truth about Social Security

The first important fact about the Social Security “crisis” is that there is no crisis. The second important fact is that the Bush administration’s proposals for fixing the “crisis,” especially its “privatization” scheme, are perversely designed to make the system’s finances much more precarious than they are now and to impose deep benefit cuts. In fact, it would be hard to conceive of a more destructive set of policy initiatives than those the president is advocating. And it’s all completely unnecessary. Here’s why.

Social Security benefits are paid from government trust funds. The lion’s share of the funds’ income comes from payroll taxes. (The funds also collect interest on their investments and get credited with income taxes levied on the taxable portion of Social Security benefits.) The Social Security payroll tax, the cost of which is split evenly between a worker and her employer, is currently 12.4 percent on the first $90,000 (in 2005) of a worker’s annual earnings. All economists agree that the “employer share” of payroll taxes really comes out of the worker’s pocket, since paychecks are reduced by the employer’s contribution amount. For the great majority of American families, the payroll tax, not including their employers’ amount, is the largest tax they pay.

The trust funds use their income and accumulated investments to provide for nearly all retired Americans. Benefit levels are modest,...

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About the Author

Charles R. Morris, a Commonweal columnist, is the author of The Two Trillion Dollar Meltdown (Public Affairs), among other books, and is a fellow at the Century Foundation.