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How did Time magazine get this essential fact about Social Security so fundamentally wrong?

Time magazine has just published online the latest in the media’s unceasing stream of alarmed reports on Social Security, declaring that the next president will have to face up to “one of the largest financial issues facing the country: shoring up Social Security.”

Unfortunately, Time’s analysis is undermined by a glaring misstatement about the program’s fiscal condition. “Since 2010,” reports the author, Penelope Wang, an editor at large at Money magazine, the program has been “running at a deficit, with tax revenues falling short of the benefits being paid out.”

This is fundamentally incorrect. Social Security is not running at a deficit. It’s recording a surplus and has done so every year since well before 2010. As is shown by the chart below (from the 2016 report of the Social Security trustees), from 2011 through 2015 the surplus came to $351.1 billion for the retirement component of the program. Last year alone, its surplus was $51 billion. When the cost of disability benefits is factored in, the surplus is smaller but still came to $23 billion last year.

Wrong, Time! As this chart from the 2016 Social Security trustees report shows, payroll taxes (red line) plus interest on payroll taxes (blue line) continue to exceed benefits (green line), producing a surplus every year (purple line). Figures are for the retirement program only.
Wrong, Time! As this chart from the 2016 Social Security trustees report shows, payroll taxes (red line) plus interest on payroll taxes (blue line) continue to exceed benefits (green line), producing a surplus every year (purple line). Figures are for the retirement program only. (Social Security Administration)
Measuring benefits against “tax revenues,” as Wang does, reflects at best a fundamental misunderstanding of Social Security’s revenue streams. They comprise more than current payroll taxes, which presumably is what Wang means by “tax revenues.” They also include interest on Social Security’s Treasury bonds, which constitute an asset portfolio currently amounting to about $2.8 trillion, and income taxes on Social Security benefits.

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It’s fashionable for conservatives and the misinformed to dismiss the bonds as merely “IOUs” from the government, but in fact they’re real assets — as real as the T-bonds in institutional and individual portfolios all over the world — and are backed by the full faith and credit of the U.S. government. More important, they represent past payroll taxes paid by millions of American workers, but collected in excess of benefits paid out each year. The excess has been banked by lending it to the government, with interest, in the form of bond purchases. There’s no justification legally, morally or logically for treating those interest payments as somehow illusory or irrelevant to Social Security’s financial condition.

Add the two categories together, and one can see the flaw in Wang’s statement. In 2015, current payroll taxes and interest on the bonds attributed to the retirement program came to $770.7 billion. Benefits came to $742.9 billion. In other words, no deficit. Federal income taxes on Social Security benefits, to which the program is legally entitled, provided an additional $30.6 billion.

For the combined retirement and disability programs, payroll taxes and interest came to $888.2 billion and income taxes on benefits generated an additional $31.6 billion, for a total of $919.8 billion. Benefits cost $886.3 billion. Detailed annual figures for the retirement and disability programs separately and the two combined can be found here.

It may be unsurprising that Wang’s analysis runs awry. One key source for her article, Maya MacGuineas, heads a think tank that has been campaigning for years to cut benefits, based on alarmist rhetoric about the program’s financial condition.

MacGuineas, president of the Committee for a Responsible Federal Budget, is quoted lamenting that “we’ve had eight years of lost opportunity to make Social Security structurally sound.” Her organization is described in the article as “a nonpartisan nonprofit dedicated to educating the public on fiscal issues.” What’s not mentioned is that it’s been closely affiliated with billionaire Peter G. Peterson, a deficit hawk and an outspoken advocate of Social Security benefit cuts.

In this chart of 2000-2045 federal spending, the Congressional Budget Office projects that Social Security spending will remain relatively stable in the future but health spending, chiefly on Medicare, will rise as a share of GDP. The dotted vertical line represents 2016.
In this chart of 2000-2045 federal spending, the Congressional Budget Office projects that Social Security spending will remain relatively stable in the future but health spending, chiefly on Medicare, will rise as a share of GDP. The dotted vertical line represents 2016. (Congressional Budget Office)
MacGuineas is further cited in the Time article in support of the assertion that Social Security, Medicare and Medicaid account for an inordinately large portion of the federal budget and for “most of the future growth in spending, not including interest payments on debt.”

A couple of points are important here. First, even if those three programs really do account for half the federal budget, as the article states, that doesn’t answer the basic question: “So what?” Shouldn’t caring for the sick and elderly rank among the top concerns of the U.S. government? Maybe devoting half of all spending to these important goals is too much, but who says so, and why?

Second, MacGuineas’ assertion involves a feat of legerdemain common among conservatives and especially among Social Security’s enemies — yoking together Social Security and the health programs and ascribing the ostensible future budget crisis to all three, without distinguishing among them.

The truth is that Social Security spending is expected to be fairly stable as a percentage of gross domestic product — rising from 4.9% in 2016 to 6.3% in 2046, and possibly plateauing or even shrinking toward the latter part of that time frame. The real problem is spending for the healthcare programs: That’s projected to grow from 5.5% of GDP now to 8.9% in 2046. That growth is mostly an artifact of America’s ridiculously high per-capita spending on healthcare, which outstrips the rest of the developed world by a handsome margin. Saying that “Social Security and Medicare” together are threatening the federal budget is misleading in the extreme.

The magazine claims that “time is starting to run out” to make changes in Social Security, but it doesn’t make the case. The trustees projected this year that the program’s trust fund will last until 2034, which is nearly two decades from now, at which point money will be available to pay only 79% of currently scheduled benefits.

MacGuineas and other critics of the program argue that the time to start cutting benefits is now so that we don’t have to do so later, but they don’t adequately explain why it makes sense to deprive retirees and disabled persons of benefits today based on conjecture about the future 18 years out. Time’s article asserts that “the future of millions of Americans depends on saving Social Security,” which is true. But it doesn’t tell us why the richest nation in the world can’t afford to do so while preserving, even expanding, its benefits rather than shrinking them.

This article originally appeared on the LA Times.

Bold, Smart, Progressive Ideas To Strengthen Social Security

It is well understood that Social Security’s financing needs shoring up; we’ve been drawing down the trust funds to meet current obligations and by 2034 the funds will be exhausted. That’s often mistakenly taken to mean that Social Security will no longer pay out benefits, which of course is wrong: 86 percent of its income comes from payroll taxes, which will continue to support the program, allowing it to pay about three-fourths of scheduled benefits in 2035 and beyond. To be clear, that is a totally unacceptable outcome, and one that could be—must be—avoided using Romig’s roadmap. She is absolutely correct when she describes, contrary to the hysteria I often hear on this issue, that Social Security’s shortfall is “significant, though manageable.”

In fact, the shortfall amounts to 1 percent of GDP over the next 75 years. So how can we close that gap? Much of the solution will have to involve increasing the payroll tax revenue that, as noted, is the mainstay of the program’s funding.

Romig’s key argument is that such an increase is justified by recent trends: “Social Security’s tax base has eroded since the last time policymakers addressed solvency in 1983, largely due to increased inequality and the rising cost of non-taxed fringe benefits, such as health insurance.”

But Americans wouldn’t stand for reversing that erosion through paying more into the program, right? In fact, Romig notes that “…the majority of Americans oppose cuts to Social Security and support strengthening the program by contributing more in taxes.” Other than Medicare, there may be no other government program that has this kind of support. So we should tap it.

To do so, she suggests three revenue-enhancing changes:

Increasing or eliminating Social Security’s cap on taxable wages. The current salary cap on payroll taxes is now118,500 a year. “Raising the cap would help mitigate the erosion of Social Security’s payroll tax base caused by rising wage inequality. Most workers’ taxes would not change…changes to the tax cap could close roughly a quarter to nearly nine-tenths of Social Security’s solvency gap, depending on how they were structured.”
Expanding compensation subject to Social Security payroll taxes. This would be a big change, but a worthy and a progressive one. The play is “to include fringe benefits such as employer-sponsored health insurance and flexible spending accounts. Fringe benefits are a growing slice of compensation, and including them in Social Security’s tax base would eliminate the discrepancy between those who receive fringe benefits and those who don’t. Affected workers — who would disproportionately be lower- and middle-income — would pay more in taxes but also receive more in Social Security benefits. Including employer-sponsored health insurance premiums could close over one-third of Social Security’s solvency gap; including other fringe benefits could close [another] one-tenth.”
Increasing Social Security payroll tax rates. As other aged wonks will remember, this wouldn’t be the first time the rate was increased, as the early 1980s commission headed by that wild-eyed radical Alan Greenspan also recommended various revenue boosters that became law in 1983. “Increasing rates alone could close the entire solvency gap; even a modest change, such as a gradual increase of 0.3 percentage points each for employees and employers (or less than3 per week for an average earner), could close about one-fifth of the gap.”
The two figures below show the extent to which the compensation base of the program has eroded, due in part to rising earnings inequality pushing a larger share of earnings above the payroll cap. Note first how that total amount of compensation has drifted about the taxable earnings base. The base for the payroll tax used to be three-quarters of total compensation; now it’s about two-thirds.


There are two main reasons for that: higher inequality and the fact that an increasing share of compensation goes to health care and other fringes that are outside the payroll tax base.

The earnings inequality problem is clear in the next figure. The last time we addressed the shortfall, the payroll tax covered 90 percent of earnings. Now it covers only 82 percent.


It is often said that there are three legs to the retirement-security stool: savings, pensions, and Social Security. In benighted DC discussions, Social Security is often derided as the shakiest leg. In fact, it’s the firmest, as decades of wage stagnation and risk shifting (both the shift from defined-benefit to defined-contribution pensions and the simple shedding of pension plans) have undermined the other two legs.

Romig’s big three ideas are great ways to make the strongest leg of the stool even stronger, through broadening the base to correct the factors responsible for its erosion. Yes, that’s a tax increase, which is why I was struck by the boldness of her title. We are in an era where even the Democratic candidate for president will not propose tax increases on any but the top 5 percent; where we are somehow supposed to fund our transportation infrastructure on a gas tax that’s been frozen in nominal terms since 1993.

It is only in magical lands that we can get what we want and need without paying for it. In the real world, this is the way forward, and kudos to Romig (and CBPP) for saying so.

This post originally appeared at Jared Bernstein’s On The Economy blog.

On Social Security's 81st anniversary, a reminder that it's also a lifeline for children

One of the raps on Social Security is that it supposedly pits the older generation against the younger.

This seems intuitive — after all, retired Americans collect the benefits but those in the working population make all the contributions. The notion of a generational war has been pushed aggressively by (among others) Boston University economist Lawrence Kotlikoff, author of the apocalyptic 2005 book “The Coming Generational Storm” and of academic papers and newspaper columns in which he writes of “the terrible zero-sum nature of the generational game we are playing against our children.”

As we mark Social Security’s 81st birthday — it was signed into law by President Franklin D. Roosevelt on August 14, 1935 — it’s important to observe that the program doesn’t pit generations against each other so much as bind them together. As an example, more than a decade of research has established Social Security’s role as the nation’s most important anti-poverty program for children.

The growing number of children who rely on Social Security underscores the need to protect and expand this critical program — not slash it.
— Maya Rockeymoore, Center for Global Policy Solutions
That’s the headline on a paper prepared more than a decade ago by Heather Boushey, then of the Center for Economic and Policy Research. It’s underscored by a study just published by the progressive Center for Global Policy Solutions.

Social Security “is especially critical for children of color, who are more likely to live in families with limited or no other sources of income,” said Maya Rockeymoore, chief executive of the Center for Global Policy Solutions. The center’s study was conducted chiefly by Peter Arno and Jeannette Wicks-Lim of the University of Massachusetts-Amherst.

The most remarkable point made by both studies is that, except for the very poorest households, among low-income families more children live in households receiving a Social Security check than one from such anti-poverty programs as Temporary Assistance to Needy Families or Supplemental Security Income. In 2003, according to Boushey’s paper, 8.6% of children in households earning less than 200% of the federal poverty line were living with someone receiving TANF, but 11.9% were living with someone receiving Social Security. (That income figure was $38,314 for a family of four in 2003 and is $48,600 today.)

The poverty rate of children in families receiving Social Security would be much higher without its benefits.
The poverty rate of children in families receiving Social Security would be much higher without its benefits. (Center for Global Policy Solutions)
The later study put raw numbers to the finding: In 2014, 6.4 million children, or 8.7% of all children, benefited from Social Security, up from 5.4 million (7.3%) in 2003. Social Security keeps many of those children out of poverty — the child poverty rate in families receiving Social Security is 25.5%, but it would be 42.8% without those benefits.

“The growing number of children who rely on Social Security underscores the need to protect and expand this critical program,” Rockeymoore said, “not slash it in the name of deficit reduction or tax reform.”

That’s an important point because it’s common to hear conservatives dismiss Social Security as merely a giveaway to seniors already living comfortably — “greedy geezers” was the term uncorked a few years ago by the egregious former Sen. Alan Simpson (R-Wyo.) during his campaign to cut benefits.

Most children who are direct beneficiaries of Social Security are survivors of deceased workers or children of disabled workers.
Most children who are direct beneficiaries of Social Security are survivors of deceased workers or children of disabled workers. (Center for Global Policy Solutions)
As these studies show, such attacks on Social Security overlook its important insurance component. The program’s benefits for dependents of workers who die or become disabled before retirement are much higher on average than anything a private retirement account could provide for a family bereft of a breadwinner in mid-career.

That this feature is so often ignored is surprising, because it can’t be unknown to one of the leading advocates for benefit cuts: House Speaker Paul D. Ryan (R-Wis)., who received survivor benefits during his college years because of his father’s early death. Benefits to surviving college students through age 21, which were instituted in 1962, are no longer available, as it happens; they were repealed in 1981, when the maximum age for receiving survivor benefits was reduced to 18. Several proposals for expanding Social Security include restoring the higher ceiling.

One interesting aspect illuminated by the Center for Global Policy Solutions is the increasing role of indirect benefits in keeping families solvent. While the number of children receiving direct benefits — through the survivor, disability, and retirement programs — rose by less than 3% from 2003 through 2014, those receiving indirect benefits — those collected by a grandparent or other non-parent in a household have soared by nearly 39%.

That reflects the rise of multi-generational households, especially among Asian, Latino and black families. The percentage of Americans living in households with two or more adult generations or grandparents and grandchildren rose from 12% in 1980 to nearly 20%, according to the Pew Research Center. The percentage exceeds 25% in Asian, Latino and black households.

This trend puts a new gloss on the importance of Social Security to Americans of all ages. Traditionally, the program was viewed in part as a way to maintain the independence of older generations to relieve their children of the economic burden of supporting them rather than making their own way. The renowned Social Security advocate Robert M. Ball was only half-joking when he remarked that one reason to support the program was “the value of not having your mother-in-law living with you.”

In the modern economy, however, Social Security is not a generational battleground — it’s a compact tying generations together.

This article originally appeared on the LA Times.

San Diegans wait 540 days for Social Security disability hearings

Whether it be an injured back, mental illness, or agonizing disease, scores of Americans are suffering from ailments so debilitating that they can’t work.

But when they apply for Social Security disability for financial relief — money to pay for housing, food and medical bills — they find they are in for a long wait.

In San Diego, the average wait to see an administrative law judge for a disability hearing is 18 months — or about 540 days.

That is a bit more than the national average of 17 months but less than some other regions. Buffalo, N.Y., has the highest wait time of 25 months, according to data released for September.

“That is a long time if you believe you’re disabled and not working. You don’t really have an income, you may need medical care and you may not have access to medical care,” said Marilyn Zahm, president of the Association of Administrative Law Judges. “I think the American public deserves better than that.”

About 1.1 million Americans are currently waiting for a disability hearing — a backlog that is largely the product of budget cuts and understaffing at the Social Security Administration.

In San Diego, 8,853 hearings were pending as of the end of October.

“The backlog has always been with us, but it is bigger than ever,” Zahm, a judge in Buffalo, said in an interview.

The issue was a recurring theme discussed at the annual meeting of judges who hear such cases, held in downtown San Diego this year.

The Social Security judges represent the largest judiciary in the nation, responsible for doling out millions of dollars each year in disability benefits to eligible Americans. In 2015, Social Security paid out $143 billion in payments to some 11 million disabled workers and their dependents, according to the board of trustees’ annual report.

Yet much of what these judges do they do in secret. Hearings by the Social Security Administration’s Office of Administrative Review are not open to the public or media, nor are case decisions public record. No judges are permitted to speak with the news media except for Zahm in her role as labor association president.

There are about 1,500 administrative law judges nationwide. In San Diego, there are 11.

That’s not near enough to deal with the enormous caseload, which grew during the economic recession and continues to spike with the aging of baby boomers, according to Social Security officials.

The process to get before an administrative law judge typically goes like this: A person believes he is disabled for at least a year and cannot work. He first applies for disability though the state, which is denied. He appeals the state decision and is again denied. He can then request a hearing in front of a Social Security administrative law judge to determine if he meets disability requirements.

To prepare for the hearing, the judge will review medical records and other evidence — sometimes more than 1,000 pages — submitted by the claimant, state doctors, worker’s compensation doctors and vocational experts. At the long-awaited hearing, which usually lasts an hour or two, the judge questions the claimant and possibly experts to fill in any gaps, and then authors a decision.

The claimant, if unhappy with the decision, can take it up with an appeals council, and lastly can bring it to the federal courts as a final measure.

In fiscal 2015, Social Security received about 746,000 hearing requests and issued approximately 663,000 decisions.

The number of disability claims has jumped from 2.5 million to nearly 3 million from fiscal 2007 to fiscal 2013, according to the Social Security Administration. That’s an increase of about 20 percent in initial disability claims. Appeals hearings before administrative law judges have also spiked during that same period by 40 percent, the administration reports.

In the meantime, budget cuts and a small pool of qualified judge applicants to hire from have made it hard to fully staff the bench.

The administration as a whole was down some 11,000 employees since fiscal 2011, and more than 21,000 employees are expected to retire by 2022, according to officials.

From fiscal 2011 to fiscal 2013, the administration received nearly a billion dollars less each year than the president requested in his budget, according to testimony from Social Security Deputy Commissioner Theresa Gruber to the Senate Committee on Homeland Security and Governmental Affairs in May.

The reduction in services that resulted included scrapping plans to open eight additional hearing offices in the country.

Short of the obvious solutions of hiring more judges and staff and increasing the budget, Zahm and Social Security officials said there are ways to make the process more efficient that would help with the backlog.

The administration has laid out a plan to help reduce the backlog, with the goal of reducing waiting times for a hearing to no more than 270 days and to decrease the number of pending cases by half by fiscal 2020.

That includes using technology to streamline medical records evidence and using video hearings to expedite decisions. Other programs offer administrative help for claimants who aren’t using attorneys to keep the process running smoothly and provide summaries and analysis in cases with massive medical files.

The backlog has also been the subject of audits by the U.S. Office of the Inspector General.

“To us 1.1 million is not just a number; it is a line of people and their families — many of whom are in desperate circumstances,” Gruber testified. “For many of them, long wait times can mean catastrophic consequences, such as losing a home or making agonizing choices between other basic needs.”

San Diego attorney John B. Martin, who handles such cases, agrees the effects can be dire for some people.

“Some become homeless. They’re just without income for a very, very long time,” Martin said.

He said the people who become homeless get priority for a hearing, but even that is a long wait.

“You can imagine people had a good salary — I’ve had clients making low six figures — and one day become disabled. Because they didn’t have a nest egg, they end up on the streets. It’s happened several times.”

Health conditions can also worsen during the wait, officials said. “Our judges have shared with us having to dismiss cases, or substitute a party, because claimants have died while waiting for a hearing and decision,” Gruber testified.

Among those who start receiving disability benefits at the age of 55, one in five men and one in seven women die within five years of the onset of their disabilities, officials said.

“The toll it takes on somebody when you have to wait that long, that is not right,” Zahm said. “That is not good public service.”

Judges have also seen an increase in Iraq and Afghanistan war veterans who are suffering from traumatic brain injury and PTSD and claiming disability.

“We are adjudicating more claims than ever for veterans,” Zahm said. She said those claimants are moved to the head of the list. “They put their lives on the line for the American public and we owe them that.”

Originally posted on the San Diego Union Tribune

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Maryland first state to OK password protection bill

Maryland is poised to become the first state to ban employers from demanding applicants or workers hand over their log-in information for social media sites like Facebook.

The measure, which handily passed the legislature earlier this month, keeps managers from snooping on password-protected content, a practice advocates of the bill say violates privacy and intimidates job seekers and employees.

[Read more…]

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MR&D relocates to new Bel Air office

The Law Offices of Mignini, Raab, & Demuth is pleased to announced that we have moved our Bel Air location to 429 South Main Street, Bel Air, MD 21014. The new office is conveniently located in the business district area of downtown Bel Air.