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Protecting America: Social Security Is Here to Stay [1]
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Date: 2025-04-13
Last week, I asked, “What if you wanted to actually strengthen retirement?”
In other words, suppose we wanted to fund our Social Security and Medicare systems fully to the extent that they would not need additional money and would never run dry. How could we do that?
Here are some good ways to increase funding for both programs:
Increase the employer contribution. Increased productivity has given businesses a boost in earnings that employees lack because wages have been largely flat while productivity has skyrocketed since the 1970s. Boost the minimum wage. This would add tens of millions of dollars per year to Social Security for each dollar we increase it, plus additional funds because it would push up non-minimum wage wages. Increase the cap on Social Security contributions. Allow more of the 6% of employees who don’t pay on 100% of their earnings to contribute fully. Eliminate the trade deficit. We run about a half-trillion-dollar trade deficit every year, draining these programs of billions of dollars in lost payroll taxes. Convert our healthcare system to a good, single-payer system (replacing Medicare along with other systems).
Let’s examine these proposals, one by one.
Increase the Employer Contribution
According to the Economic Policy Institute, employee productivity grew by almost 60% between 1979 and 2019. But Worker compensation only grew by about 15.8%.
Other studies indicate that productivity has about doubled over the last fifty years. Most of this gain has gone to employers.
This divergence between the benefits of productivity suggests that the employer contribution to Social Security should be increased, while the worker contribution is held steady.
I suggest we increase the employer percentage from 6.2% to 9%. This is less than a fifty percent increase, but it would help to balance the books.
Boost the Minimum Wage
Of course, this suggests we should consider raising the minimum wage. Even without changing the percentages, this would automatically boost money going into both Social Security and Medicare.
How far behind are we on the minimum wage? One way to look at it is with the numbers above. Productivity from 1979 to 2019 went up almost 60%, but wages less than 16%. That’s a 44% deficit.
Another way to look at it is comparing it to the living wage.
The median living wage, according to the MIT Living Wage Calculator is around $38/hour. (This is my estimate based on a random sampling of counties across the country and taking the listed wage for a single adult with one child as typical.)
By this measure, the federal minimum wage is around $30.75/hour SHORT. Roughly 135 million people work full time, and we can take that to mean about 2,000 hours/year. So, that’s about $8.3 trillion SHORT.
If we raised the federal minimum wage $1/hour, it would push up all wages. Not dollar for dollar, of course, but a bit. If we raised it high enough, though, people would start to make something close to a living wage.
And at that point, the 12.4% payroll tax for all those workers would add more than a trillion dollars for Social Security per year. (Plus another 2.9% for healthcare.)
Could the rich afford this? Well, with their trillions of dollars in Republican tax cuts, maybe they could.
Remember: One of the primary reasons federal spending is “so high” is to make up for how little employers pay. Many people getting government benefits right now would not qualify if they were paid enough. So, if Republicans are going to cut taxes for the rich, the natural expectation should be higher wages.
Much higher.
Can’t see Democrats raising the minimum wage? Hard to get past the filibuster?
No problem. We can raise incomes through reconciliation, as I point out in Minimum Income Is Within Our Reach. The Democratic establishment is great at making excuses. Well, I don’t buy their excuses.
Increase the Cap on Contributions
Social Security is paid by the Old-Age, Survivors, and Disability Insurance (OASDI) program, and federal law provides for a percentage of all worker compensation paid by U.S. employers to be withheld and turned over to the Federal Old-Age and Survivors Insurance (OASI) Trust Fund and the federal Disability Insurance (DI) Trust Fund.
This percentage only applies to a certain amount of that compensation, up to a limit, which changes by law from time to time. For 2025, that limit is $176,100.
Setting the Limit
The limit started when Social Security was first established, in 1937, at $3,000 ($68,042 in inflation adjusted dollars), and Congress has raised it over time. The number of people who earn more is around 6%. Earnings for people who are paid more than the maximum have grown faster than overall earnings.
One way to increase the amount of money going to Social Security from payroll taxes is to raise that limit. The current limit is fairly arbitrary.
Originally, the Roosevelt Administration primarily wanted to alleviate poverty, so the program was focused on lower-wage workers. They expected to exempt non-manual workers, typically earning over $3,000 a year. Congress simply adopted that as a practical cutoff. The need for additional funding prompted Congress to increase the limit in later years.
Part of the reasoning was to provide higher levels of Social Security payments for workers who earned more, so that they would not suffer as much of an earnings drop when they retired. Under President Nixon, the limit was boosted and indexed to earnings growth.
What This Means
There’s an important lesson in this. The primary purpose of Social Security is to keep workers out of poverty when they retire. The general principle is to require employers to pay enough for their workers to survive not just when they can work, but when they can’t.
One of the beauties of the Social Security system is that its funding is directly related to the labor used. Employers are getting what they pay for. Or, more to the point, they have to pay for what they get. They can’t just exploit workers as disposable objects. Remember, freed of this regulation, the wealthy would gladly tell workers:
No, we don’t expect you to retire, Mr. Bond. We expect you to die.
So, maybe 100% of employee compensation should be subject to payroll taxes. In the past, this limit has mostly been determined by funding issues. But perhaps it should be determined by fairness issues.
Let’s say this year I make $100,000. And someone else earns $200,000. Why should I have to pay tax on 100% of my earnings while that person only has to pay on 88.05%? Where’s the justice?
Partly this goes back to the nature of work. Most workers have little or no power in determining their wages. So, they have little ability to put aside for retirement without government intervention. But for someone making large amounts, that might not be true.
To an extent it is a question of disposable income. In my county, the living wage for an adult with a child is $51.52/hour, which pencils out to about $103,000 a year. My measly $100K isn’t enough to actually have disposable income. But the guy making $200K, has abundant extra cash to put into retirement. They are more capable of paying for Social Security than someone struggling to make ends meet.
How Should We Set the Limit?
If we are going to have a limit, I suggest it be closer to “actually rich”. Maybe a million a year.
According to the Social Security Administration, “The most substantial growth [in earnings] has occurred in the top 1 percent, and in particular, the top 0.1 percent of earners.”
This suggests we are experiencing increasing wage disparity. That suggests raising the limit.
(See The Evolution of Social Security's Taxable Maximum by Kevin Whitman and Dave Shoffner. I used that article heavily for the facts in this section.)
Eliminate the Trade Deficit
Each year, the United States runs about a half-trillion-dollar a year trade deficit. Over a recent ten years (2013 to 2022) it was over $600 billion a year.
Many people claim that the trade deficit doesn’t matter because global trade is so good that it increases our wealth in the U.S. far more than we lose by having a deficit. It’s possible that we benefit in other ways (including national security), but there’s one way this deficit is harmful to Americans.
It causes a constant drain on our retirement funding.
That’s because we use payroll taxes as the primary source of funds for Social Security (and a substantial source for Medicare). When we produce goods in the U.S. to sell overseas, the government collects payroll taxes from labor that goes into those goods. And when we buy from overseas, we don’t.
How much payroll tax on the cost of labor that goes into goods we buy from overseas do we forgo each year? That’s hard to estimate because the amount of labor for products varies and it isn’t certain that these products would be produced in the U.S.
But if we eliminated the trade deficit, none of that leakage would occur.
If it were a few billion dollars a year deficit, it might not matter that much. But a billion here and a billion there, pretty soon it adds up to real money. Since we started running a yearly trade deficit in 1976, we have run up about $15 trillion in cumulative trade deficit.
That’s a lot of Social Security funding to forgo.
Convert to Single-Payer Healthcare
I’ve talked a lot about improving funding for Social Security here, but many of these measures would also increase funding for Medicare. For example, raising wages in the United States would increase funding for both retirement programs.
In my research, it appears that only about a quarter of the cost of Medicare actually comes from payroll taxes, with the rest made up from the general fund.
But instead of trying to repair the current system, I think we should replace our entire healthcare payment system with what I call Healthcare for All.
This is a kind of publicly-funded healthcare system where people pay in based on family income and the system pays for all essential healthcare free at the point of delivery.
This is vastly fairer than what we have with Medicare. The quarter of Medicare funding from payroll taxes essentially come from a flat tax, which is a regressive tax. The general fund, which makes up the balance, is at best mildly progressive. But when a secretary pays a higher percentage of taxes than the big boss, then even that’s a suspect proposition.
My proposal is actually progressive. Not only is it tied to family income, but on a progressive scale.
For a number of reasons, I think Healthcare for All would be a much better proposal to crush Republican healthcare efforts. Remember that their proposal is that everyone fend for themselves. How do you feel negotiating with a multi-billion dollar corporation for your healthcare?
Makes me sick just to think about it.
The End of the End of Social Security
I want to put a stake in the heart of the privatization movement. In my opinion, it is not economically feasible to privatize Social Security. At all.
I covered the basic reason in last week’s segment. Our current Social Security system is based on transfer payments. That means that payroll taxes for working-age people pay for those who have retired. The alternative is to put away funds for retirement.
You may think of those funds as money in a bank account. But in economic terms, it is ownership in assets. For purposes of understanding privatization, it isn’t important to determine what asset. The important thing is that to privatize, you have to buy that asset while still paying out to current Social Security recipients.
Unless you are prepared to leave them starving on the streets. You’re not willing to do that, right? You’re not a Republican, are you?
To be able to pay future retirees in a private system, you have to have assets to sell to fund their retirement, when that happens in the future. But you can’t just stop paying current retirees.
These are conversion costs. They start when you privatize and last until everyone in the transfer payment system is no longer being funded by it (crudely, when every person currently qualified for Social Security has expired). So, another 30, 40, maybe even 50 years into the future. Who knows? Someone could invent a life extension treatment right now that adds 15 years to the human species maximum lifespan.
As I pointed out last week, they are talking about putting away over a trillion dollars a year for the private system while still paying out to current Social Security beneficiaries. So, over a trillion dollars of conversion costs, every year, for decades into the future. To pay that, the federal government would have to raise taxes, and we can be pretty confident Republicans are not going to do that.
Instead, they are going to try to cheat people. Will they cheat the elderly by cutting benefits? Or will they cheat the young by making them work doubly hard to pay for current retirees and their own retirement?
Let’s say neither. Because we aren’t going to let them.
Retiring in the Future
It is incredibly important for the public to understand why we have Social Security, why it is of great benefit to them, and why they need to support it by voting against Republicans at every turn.
In this series I made a series of points:
We need government. Government protects us. That’s its function, not returning a profit. We need Social Security. Before Social Security and Medicare about half of all elderly lived in poverty. That percentage is closer to 10% now. Republicans have always wanted to get rid of Social Security and the reason is pure greed. Money going to Social Security comes from employers, and eliminating it would increase profits. And money for private retirement funds would enrich the financial services industry. Social Security is financially sound. It is a transfer payment system. Any problem with funding comes from Republican politicians, not the nature of the system itself. The idea that Social Security will collapse is an old one, going back to the argument in Congress in 1937. It’s false. Republicans want to privatize Social Security, but where this was tried (in Chile and Argentina) it failed. It would be prohibitively expensive to convert to a private program. The point of Social Security is to provide a safe and secure retirement, free of poverty. For that purpose, a private fund is inadequate. It is wasteful to fund retirement privately and dangerous, because if the private fund fails, you can’t go back and invest more wisely. There are practical ways to increase funding for Social Security and Medicare that don’t require cutting benefits or tampering with the program. These include increasing worker compensation, requiring higher employer contributions, and raising the income cap. Our entire healthcare payment system needs to be revised, which would radically improve funding for healthcare for seniors as well as the rest of the population. Republican claims that we need to end Social Security should be met with demands for increased funding.
Thank you for reading this series!
Series
The start of this series is:
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