Should Social Security Be Expanded?

Time is running out for Rep. John Larson (D-Conn.), the chairman of the House Ways and Means Subcommittee on Social Security.

The Constitution, in Article I, Section 4, mandates that Congress assemble “at least once in every Year.” Each Congress is numbered and lasts two years, with two legislative sessions. The current Congress is the 116th to assemble since the first in 1789. Although congressional elections are held in November of even-numbered years, a new Congress does not begin until noon on January 3 of the following odd-numbered year. The first session convenes on or soon after that date. The second session convenes on or soon after January 3 of even-numbered years. Sessions typically adjourn before the end of the year, although they sometimes run all the way to January 3. All bills introduced during the first or second session that are not enacted by the end of the second session die, although they can be reintroduced in the next Congress.

The Social Security 2100 Act

Reintroducing a bill is exactly what Larson did last year and may have to do again if time runs out on him. On April 5, 2017, in the 115th Congress, Larson introduced the Social Security 2100 Act (H.R.1902) “to protect our Social Security system and improve benefits for current and future generations.” A companion bill (S.2671) was introduced in the Senate the next day by Sen. Richard Blumenthal (D-Conn.).

In a press release accompanying the bill’s introduction, Larson stated,

Social Security is not an entitlement — it’s the insurance Americans have paid for to fund retirement, disability, and survivor benefits through a lifetime of work. Seniors depend on Social Security and no one should be able to retire into poverty. I am committed to taking common sense steps to expand benefits and to make the system solvent for the next 75 years and beyond. The Social Security 2100 Act, will do just that, without adding to the national debt. Social Security is the most successful program in American history, it is time to expand it for the future. This bill will secure your future, your family, and our nation.

A year later, during a House Ways and Means Tax Subcommittee hearing, Larson defended Social Security and promoted his bill to expand Social Security:

Social Security is not an entitlement, it is the insurance that Americans pay for through the Federal Insurance Contribution Act (FICA) with every paycheck. It is exactly what it says, an insurance contribution that we pay into. My bill, the Social Security 2100 Act, would enhance the program, give current beneficiaries a benefit bump, and make the program solvent beyond the 75 year window. We need to come together and work on solutions, not cuts.

Although the bill eventually garnered 174 cosponsors (all Democrats), and was referred to several committees and subcommittees, including the subcommittee on Social Security, it died, as did the companion Senate bill.

Soon after the beginning of the 116th Congress, on January 30, 2019, Larson reintroduced the Social Security 2100 Act (H.R.860) in the House, with 201 cosponsors, while Blumenthal reintroduced his companion bill (S.269) in the Senate. In a press release accompanying the bill’s introduction, Larson stated,

Today, over 200 Members of Congress came together on the anniversary of President Franklin Delano Roosevelt’s birth to honor his legacy, and to enhance and expand the nation’s most successful insurance program, Social Security, which touches the lives of every American. With 10,000 baby boomers becoming eligible for Social Security every day, the time to act is now. The Social Security 2100 Act will provide economic security not just for today’s seniors but for future generations too.

A brochure put out by Larson’s office summarizing the Social Security 2100 Act says about Social Security,

You’ve paid for it.

It’s not an entitlement.

It’s an earned benefit.

Now, we have to protect it …

The brochure also echoes what Larson said in one of his press releases: “Social Security is not an entitlement. It is the insurance that you contribute to with every paycheck. That is what FICA stands for: Federal Insurance Contributions Act.”

A “fact sheet” that accompanies the Social Security 2100 Act touts that the bill increases Social Security benefits while strengthening the Social Security trust fund. It increases benefits by raising the amount paid out by about 2 percent of the average benefit (currently $16,848 a year), improving the annual cost-of-living adjustment (COLA) formula by switching to a consumer price index (CPI) for the elderly (CPI-E), establishing a new minimum benefit at 25 percent above the poverty line tied to wage levels, raising the income threshold to $50,000 ($100,000 for married couples) before Social Security benefits are taxed, and ensuring that any increases in benefits from the bill do not result in a reduction in, or loss of eligibility for, other welfare benefits such as Supplemental Security Income (SSI) or Medi-caid. It strengthens the trust fund by gradually phasing in an increase in the Social Security tax rate to 14.8 percent by 2043, applying the payroll tax to wages above $400,000, and combining the two parts of the Social Security trust fund.

The Social Security 2100 Act has been endorsed by the AFL-CIO, the NAACP, the National Organization for Women (NOW), the Congressional Progressive Caucus (CPC), the Paralyzed Veterans of America (PVA), the American Federation of Government Employees (AFGE), the Daily Kos, MoveOn, and many other progressive groups. But time is running out. When the second session of the 116th Congress comes to a close at the end of this year, the opportunity for Congress to pass Larson’s Social Security 2011 Act will end with it.

Social Security

Social Security is officially the Old-Age, Survivors, and Disability Insurance (OASDI) Program, and consists of two parts. The Old-Age and Survivors Insurance (OASI) program provides monthly benefits to retired workers, families of retired workers, and survivors of deceased workers. The Disability Insurance (DI) program provides monthly benefits to disabled workers and families of disabled workers.

Social Security is funded by a 12.4 percent (10.03 percent OASI and 2.37 percent DI) payroll tax (split equally between employers and employees) on the first $137,700 of employee income. Self-employed individuals pay the full 12.4 percent, but receive a tax deduction equal to 50 percent of the amount of the Social Security tax they paid. One must pay Social Security taxes for a minimum of 40 quarters, or 10 years, to be eligible for benefits. Social Security benefits are figured on the basis of one’s Primary Insurance Amount (PIA), the average of a worker’s 35 highest years of earnings (up to a particular year’s wage base), adjusted for inflation. For those born after 1959, the retirement age to receive full benefits is 67. Reduced benefits are available for those who have reached the age of 62; increased benefits are available for those who wait until age 70 to retire.

According to the latest annual report by the Social Security Board of Trustees (“The 2019 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds”),

At the end of 2018, the OASDI program was providing benefit payments to about 63 million people: 47 million retired workers and dependents of retired workers, 6 million survivors of deceased workers, and 10 million disabled workers and dependents of disabled workers. During the year, an estimated 176 million people had earnings covered by Social Security and paid payroll taxes on those earnings. The total cost of the program in 2018 was $1,000 billion.

Social Security is the largest expenditure in the federal budget. According to Donald Trump’s fiscal year 2021 budget proposal, annual outlays are expected to increase from $1.15 trillion in 2021 to $1.91 trillion by 2030.

Expanding Social Security

What is unusual about Larson’s Social Security 2100 Act is that it is an expansion of Social Security. What we usually hear are calls to save or protect Social Security for future generations by doing one or more of the following: raising the retirement age, raising the tax rate, reducing or eliminating COLAs, increasing or eliminating the payroll tax cap, reducing benefits, or means-testing recipients.

As even Larson says, “For 75 years, Social Security has been a promise to all Americans that they would have a chance to retire with dignity after a lifetime of hard work. We have an obligation to keep that promise; to safeguard Social Security for our seniors, people with disabilities, and all Americans — today, tomorrow, and forever.” Although Democrats sometimes accuse Republicans of wanting to cut Social Security, Republicans are just as committed to the program as Democrats. According to the latest Republican Party platform, “Saving Social Security is more than a challenge. It is our moral obligation to those who trusted in the government’s word.” And as Trump said earlier this year, “Democrats are going to destroy your Social Security. I have totally left it alone, as promised, and will save it!”

Larson is not alone in his desire to expand Social Security. Sen. Elizabeth Warren (D-Mass.), one of the many Democrats who ran for president, had an ambitious expansion plan. She proposed increasing Social Security benefits immediately by $200 a month; further increasing benefits for “lower-income families, women, people with disabilities, public-sector workers, and people of color”; and increasing the Social Security “contribution” requirement by raising the tax rate to 14.8 percent on wages above $250,000 and implementing a new 14.8 percent tax on net investment income on persons making more than $250,000 ($400,000 for married filing jointly). Other Democratic presidential candidates were content to tax, at the existing rate, wages above $250,000 or $400,000 in the case of Joe Biden.

The problem with Social Security

Social Security is underfunded, unstable, and unsustainable. Since 2010, total expenditures of Social Security have exceeded the non-interest income of its combined trust funds. The trust funds are projected to be depleted in the early to mid 2030s. Once they are depleted, the Social Security trustees project that current revenue will be sufficient to cover only 80 percent of promised benefits. The ratio of those paying into the Social Security system to those collecting Social Security has declined from more than forty to one down to about three to one. Although Ida Mae Fuller, the first recipient of Social Security, paid in only $24.75 and received $22,888.92 in benefits (she lived to be 100), for many years now Social Security has been a bad investment.

A recent report by the Heritage Foundation, a conservative think tank, found that “Americans would be better off keeping their payroll tax contributions and putting them into private retirement accounts than having to sacrifice them to the government’s broken Social Security system.” Many workers who “pay into the program” end up with a negative annual rate of return. But there is a deeper problem with Social Security, and it has nothing to do with how solvent or insolvent or how good or bad an investment the program is.

Surely John Larson speaks for a majority of Americans when he maintains that “Social Security is not an entitlement,” but is “the insurance that you contribute to with every paycheck.” Yet nothing could be further from the truth.

Not insurance

First of all, the federal government doesn’t have a Social Security account with every American’s name on it. The Social Security trust funds are government accounting fictions. Unlike a real insurance company, which is required to carry huge reserves, there is no money in an account for people to withdraw from. All Social Security benefits are paid from current taxes collected. As the Social Security Administration acknowledges, “The money you pay in taxes is not held in a personal account for you to use when you get benefits. Today’s workers help pay for current retirees’ and other beneficiaries’ benefits. Any unused money goes to the Social Security trust funds to help secure today and tomorrow for you and your family.” The whole system is one gigantic fraud. Payroll taxes collected are deposited in the government’s general fund and immediately spent, not only on current Social Security benefits, but also on foreign aid, welfare, the drug war, the TSA, and countless other unconstitutional sinkholes.

Second, those who die before signing up for Social Security forfeit every penny they “contributed” to the system. Americans with lower life expectancies have the most to lose because they receive little or nothing in benefits and cannot pass along their years of “contributions” to their surviving relatives. In Flemming v. Nestor (1960), the Supreme Court held that the widow of someone who had paid into Social Security for years and then lost his citizenship was not entitled to any benefits. The majority opinion stated, “To engraft upon the Social Security System a concept of accrued property rights would deprive it of the flexibility and boldness in adjustment to the ever-changing conditions which it demands.” And even Justice Hugo Black, in a minority opinion, stated that “no private insurance company in America would be permitted to repudiate its matured contracts with its policyholders who have regularly paid all their premiums in reliance upon the good faith of the company.”

Third, there is no connection between the taxes one pays to fund the Social Security system and the benefits that one receives from the Social Security system. Although most Americans think the opposite, Social Security benefits have never been based on the amount of Social Security taxes paid. They have always been based on the 35 highest years of one’s income earned from wages during his life. The benefits are calculated with an arbitrary formula that Congress can change at any time. The additional Social Security taxes that the Democratic presidential candidates wanted “the rich” to pay would not have resulted in any increase in their benefits. Under the Social Security expansion plans of Larson and Warren, benefits would be increased for those who didn’t pay more in taxes. And even though Social Security taxes were cut by 2 percentage points in 2011 and 2012, no one will see their future benefits cut.

Fourth, Americans have no contractual right to receive Social Security benefits. In Helvering v. Davis (1937), the U.S. Supreme Court ruled that “the proceeds of both [employee and employer] taxes are to be paid into the Treasury like internal revenue taxes generally, and are not earmarked in any way.”

There is contractual right to receive Social Security benefits.

According to Title XI, section 1104, of the Social Security Act, “The right to alter, amend, or repeal any provision of this Act is hereby reserved to Congress.” This means that Congress can raise Social Security taxes, raise or eliminate the wage base upon which taxes are figured, cut benefits, raise the retirement age again, means-test recipients, eliminate yearly cost of living increases, or make all those changes at the same time. Section 1104 was affirmed in the aforementioned Flemming v. Nestor decision. There the Court ruled that “the noncontractual interest of an employee covered by the Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits are [sic] based on his contractual premium payments.”

And fifth, although insurance proceeds aren’t generally taxable, Social Security benefits can be taxed almost in their entirety. According to the Social Security Administration,

Some people who get Social Security must pay federal income taxes on their benefits. But, no one pays taxes on more than 85 percent of their Social Security benefits.

You must pay taxes on your benefits if you file a federal tax return as an “individual” and your “combined income” exceeds $25,000. If you file a joint return, you must pay taxes if you and your spouse have “combined income” of more than $32,000. If you are married and file a separate return, you probably will have to pay taxes on your benefits.

The Social Security Administration (SSA) defines “combined income” as adjusted gross income, tax-exempt interest income, and half of Social Security benefits. According to the annual report of the Social Security Board of Trustees, in 2018 the Social Security trust funds received $35 billion from the taxation of benefits — 4 percent of the trust funds’ non-interest income. And “more than 40 percent of current beneficiaries pay income taxes on part of their benefits.”

Social Security benefits were exempt from income taxation through 1983. Section 86 of the Social Security Amendments of 1983 provided that up to 50 percent of benefits could be taxed if “combined income” exceeded $25,000 for individuals or $32,000 for married couples. In 1993, Congress amended section 86 to allow for an additional taxation of up to 85 percent of benefits if “combined income” exceeded $34,000 for individuals or $44,000 for married couples. Those numbers have never been indexed for inflation. In addition, there are also thirteen states that tax Social Security benefits. Social Security couldn’t possibly be an earned benefit that workers have paid for — not if the government can tax you on 85 percent of your benefits. If Social Security was really “the insurance that you contribute to with every paycheck,” then it wouldn’t matter how much money you made after retirement. Your income shouldn’t affect your Social Security at all.

So then, if Social Security is not a retirement plan, a trust fund, an annuity, an insurance program, a savings account, a 401(k)-type account, an investment vehicle, or a pension fund; if it is not “earned,” “paid for,” or “the insurance that you contribute to with every paycheck,” then what is it? It is simply an intergenerational wealth-redistribution scheme that has been an entitlement program for the elderly from the very beginning. Social Security doesn’t need to be expanded, and neither does it need to be reformed, privatized, fixed, or saved. Because Social Security is based on coercion, fraud, and theft; and because it is immoral for the government to take money from those who work and give it to those who don’t, the Social Security program should be eliminated, not expanded.

This article was originally published in the July 2020 edition of Future of Freedom.

Tags: Social Security