IWPR Releases New Findings on Increasing Importance of Social Security

A January 27 event at the National Press Club brought together experts on Social Security and the economy to discuss findings.

by Caroline Dobuzinskis

Social Security is vital to women and minorities. For many, this is not new knowledge. More surprising are findings from the Institute for Women’s Policy Research showing that rates of reliance on Social Security increased dramatically between 1999 and 2009—particularly among men. The findings were released on January 27 in our latest report, Social Security Especially Vital to Women and People of Color, Men Increasingly Reliant, authored by Heidi Hartmann, Jeff Hayes, and Robert Drago.

At the National Press Club, IWPR President Heidi Hartmann presented IWPR’s new findings at a release event that coincided with the kick-off of the annual conference of the prestigious National Academy of Social Insurance (NASI).

The report finds that, between 1999 and 2009, the number of men aged 65 and older relying on Social Security for at least 80 percent of their incomes increased by 48 percent (from 3.8 million to 5.7 million) to equal more than a third of all men aged 65 and older in 2009. The increase for comparable women was 26 percent (from 8.2 million to 10.3 million) to equal half of older women in 2009.

Dr. Hartmann, lead author of the report, was joined by other experts who shared their views on the report’s findings—Dr. Gary Burtless, Senior Fellow, Economic Studies, Brookings Institution; Virginia Reno, Vice President for Income Security,  NASI; and, Dr. Maya Rockeymoore, President and CEO, Global Policy Solutions.  Dr. Robert Drago, IWPR’s Director of Research, moderated the panel.  All the presentations are available to be viewed on YouTube.

The main theme of the discussion was the need for preserving the Social Security system, because of the impact that cuts would have for many who depend on it. Speakers pointed to how, particularly in the aftermath of the recent recession, Social Security is increasingly essential to keep many out of poverty. “For the majority of the aging population, the Social Security safety net is getting the job done,” said Virginia Reno.

“This [report] is a valuable contribution to our knowledge of how many older people, and particularly different population groups among the aged, depend on Social Security,” said Dr. Gary Burtless of the Brookings Institute. “It’s the most important source for the great majority of the elderly. Cutting it would have serious repercussions for the most vulnerable of the aged.”

IWPR’s report shows that, in 2009, Social Security helped more than 14 million Americans aged 65 and older stay above the poverty line. Without access to Social Security, 58 percent of women and 48 percent of men above the age of 75 would be living below the poverty line.

Dr. Burtless pointed to the fact that the social safety net continues to “get the job done” for the majority of the nation’s aged population, including those in the lowest income distribution brackets. As a result, many have been spared from the worst impact of the recent recession.

Dr. Maya Rockeymoore of Global Policy Solutions put forth the significance of the findings to communities of color, “a population that was already suffering from disparities in assets and income prior to the financial crisis.” She pointed to the asset gap outlined in the report, with white women in particular having more income from assets than black or Hispanic women.

IWPR’s research found that, among women aged 62-64, white women report an average of $3,471 in income from assets compared with $1,738 for black women and $1,417 for Hispanic women. Among women aged 75 and older, white women report $3,278 in income from assets, compared with $715 for black women and $549 for Hispanic women, on average.

“I would argue that the fact that we’ve seen increases in reliance in Social Security over the past 10 years is going to be a harbinger of the future as well,” said Dr. Rockeymoore. “Overall we know that this is going to have significance—severe significance—for populations of color in the future, not only today’s retirees.”

Additional findings from the report support the continued need for Social Security among minorities and women, who benefit disproportionately from Social Security because the program is designed to pay proportionally higher benefits to lower earning workers. Women also benefit from the program’s family benefits.

The study is based on IWPR analysis of data from the 1978 to 2010 Current Population Survey Annual Social and Economic Supplements collected jointly by the Census Bureau and the Bureau of Labor Statistics.

Please read the report in full on IWPR’s website.

To follow the conversation on Social Security, follow IWPR on Twitter. Join the conversation by using the hashtags #Social Security and #womenspolicy.

Caroline Dobuzinskis is Communications Manager with the Institute for Women’s Policy Research.

How the White House Is Putting Social Security at Risk

This blog post was originally published on New Deal 2.0. It is also published on The Huffington Post.

The payroll tax holiday in Obama’s deal endangers our largest and most loved social program.

By Heidi Hartmann, Ph.D.

In trying to make a silk purse out of a sow’s ear, the president’s advisors added a payroll tax holiday to the tax agreement they were working out with the Republicans last weekend. After giving away Bush’s estate and income tax cuts for the uber rich, they sought to get something back, and, they told me, the Republicans would not agree to the refundable aspects of the Making Work Pay Tax Credit, the president’s own signature tax cut initiative included in the 2009 stimulus package.

Earnest White House and Treasury staff members have been assuring various interest groups all week that in negotiating a payroll tax reduction of some 32 percent (a 2 percentage point cut from the worker’s share of 6.2 percent), they meant no harm to the long-term finances of the Social Security system. Not only is the higher tax rate proposed to be reinstated (without requiring a vote) after a year, but the Social Security Trust Fund is made whole by a transfer of like amounts from general revenues all during the year, so the Fund will even earn the same amount of interest it would have from payroll tax receipts. As they came under increasing pressure from Social Security advocates, the White House released a letter on Friday from Social Security’s chief actuary confirming that the Trust Fund would lose no money.

But the Trust Fund is not actually the advocates’ main concern. They’re more worried about being able to get the payroll tax up again in 2012 after the emergency situation of a tanking economy has hopefully passed. The central problem is a political one. Already some Republican members of Congress have said that a move back to 6.2 percent will be seen as a tax increase (in fact, close to a 50 percent increase), always unpopular, especially in an election year. If the payroll tax isn’t raised, squeezing the money out of general revenues every year when Social Security would be competing with all other spending could be extremely difficult, and pressure for benefit cuts would grow. As of now, the American people don’t mind paying the payroll tax: 86 percent said so in a recent survey, so giving them a short-term gift they don’t particularly want and, in exchange, putting the program that is their life support at risk is just a bad deal.

I have no doubt that the staffers working on this who have spoken with me mean well. They carefully explained to me that they set the size of the payroll tax reduction so that a person earning $20,000 per year would get a $400 tax cut, the same as under Making Work Pay; that required a 2 percentage point tax cut, which when aggregated to all workers paying the FICA tax is some $112 billion. They were pleasantly surprised when the Republicans agreed to that large a tax cut, which constitutes significant stimulus to the economy since much of that extra disposable income will be translated into demand for housing, transportation, meals, and so on.

While a payroll tax cut would be good at getting small amounts of money into each paycheck, it has some other less desirable features as stimulus. Most importantly, a lot of it goes to high-income people who tend to hold onto added income. Everyone earning more than $106,800 per year (the maximum salary on which workers will pay FICA tax in 2011) will get the full $2,136 reduction, including members of Congress, the president, Wall Street traders, and top managers across the country, and many of these high earners will save rather than spend their extra income.

Under Making Work Pay, every person with earnings of at least $6,451 got the maximum credit of $400 and married couples with earnings of at least $12,903 got the maximum couples credit of $800 (whether one or both worked). These credits started phasing out at $75,00 for singles and $150,000 for couples, and no one earning more than $95,000 ($190,000 for couples) received anything at all. For low-income people who owed no federal income taxes, the credits were refundable, so an eligible person or couple received a check from the government. With a payroll tax reduction, every individual making less than $20,000 and every married couple earning less than $40,000 (roughly 40 million workers in total) would get less than they would under a Making Work Pay extension, but the payroll tax rebate at least gives them something back. Since Republican opposition to refundability would have left many low-income people with nothing had the income tax been used as the delivery mechanism, the payroll tax cut seemed like the better alternative to White House staffers concerned about low earners.

What is most troubling now is that even though the risk to Social Security has been pointed out to the White House, these same staffers continue to insist that the rebate must take the form of a payroll tax cut delivered in every paycheck in 2011 and that other alternatives won’t do. For example, Congressman Brad Sherman has suggested issuing a rebate check to each worker early in 2011 for 2 percentage points of the 6.2 percent FICA tax each paid in 2010. Dollar-wise, that’s essentially the same as giving workers 2 percentage points in 2011. Sure, there will be more workers in 2011 (if we’re lucky and get some employment growth), but they could be included by issuing rebate checks early in 2012 based on what they earned in 2011. Also, even though research shows that lump sums aren’t spent as readily as smaller amounts, the portion spent after 3-6 months is quite substantial. And since we will need stimulus all through 2011, the difference between these two distribution systems can’t be so great as to make the Sherman alternative totally unacceptable to the White House — when it has the very important advantage of never reducing the payroll tax rate to 4.2 percent and so never having to figure out how to get it back up to 6.2 percent. While Sherman’s proposal virtually mimics the payroll tax cut, Nancy Altman, co-chair of Social Security Works and a leading advocate against the payroll tax rate cut, suggests a more progressive alternative, one that would likely increase the stimulative value of the tax cut — an identical lump sum to every worker who paid FICA tax. Such a method would direct more dollars toward lower earners (the average benefits would be on the order of $800) and therefore generate more spending.

Many people are becoming aware of the dangers to Social Security from a cut in its tax rate — phone calls, organized by groups like NOW and the National Committee to Preserve Social Security and Medicare, have been pouring into Congress and the White House. For sake of Social Security and the millions of women and men who depend upon it, I hope Congress will be able to negotiate a change in the agreement. Since the payroll tax cut is viewed as a Democratic win, the Republicans should not object to whatever mechanism the Democrats choose to deliver the same amount of funds. Of course, it would be better for all if the White House would just do the right thing and stop insisting on a payroll rate reduction.

Heidi Hartmann, Ph.D., is an economist and the president of the Institute for Women’s Policy Research, a scientific research organization that she founded in 1987 to meet the need for women-centered, policy-oriented research. She has published numerous articles in journals and books, and her work has been translated into more than a dozen languages.

Social Security for us 20 and 30 somethings

A Woman Running

My grandfather jokes that he makes more now off of Social Security than he did when he was working. He will turn 90 this year, and I am turning 30. I remember reading about the need for Social Security reform when I was in high school and even wrote an article for my school’s papers. The bottom line: many experts were saying back then and still are that Social Security will not be available for us when we are ready to retire, or will be greatly reduced.
What does that mean for me? Well, I started a 401K plan at my first job out of college as soon as I became eligible. Now, seven years later, I have approximately $29K saved in my IRAs. The problem for others in my age group? They are delaying starting a personal savings plan, which can be a costly mistake for their future.
I don’t understand everything there is to know about investments, but I do know this: You need to start saving early and the longer you keep saving, the more money you’ll make over the long term. Maybe Social Security will be there for us (at least if IWPR where I work now, has anything to say about it) but Social Security was never meant to be a complete retirement package—it’s supposed to be combined with employer pensions and personal savings.
It’s not always easy financially to take out that extra $20 or $50 a paycheck, but I’m hoping down the line it will pay off for me with a secure (perhaps early?) retirement. I feel proud looking at my account to see what I’ve accomplished so far at my young age.
This also points out the need for reform, and for us 20-30 somethings to ask for change in the system. Yes we know we can’t rely solely on SS for retirement, but we have paid into the system with our payroll taxes, so we deserve and are entitled to fair benefits based on our contributions.
– Michelle Schafer