William_T._Bianco,_David_T._Canon]_American_Polit

594 Chapter 16Chapter 16 || Social PolicySocial Policy

wage or recent college graduates who are starting their careers and paying off student

loans to pay 6.2 percent of their income in taxes to support the benefits of some people

who are living comfortably in retirement. This critique also points out that current

retirees will receive far more in benefits than they paid in Social Security taxes, while

many current workers won’t get back as much as they paid in (if interest on the taxes

paid is considered). For example, the average worker who retired in 1990 got back all

of his or her Social Security taxes, plus interest, by 1999. It is difficult to project the

rate of return for current workers because we do not know what future benefits or

taxes will be.^46 However, it is safe to bet that taxes will be higher and benefits will not

maintain the same rate of increase that they have had for the past several decades.

Therefore, today’s retirees are reaping a windfall that strikes some critics as unfair,

especially given that these retirees are better off, on average, than the workers who are

currently paying taxes. Now you can start to see why reforming Social Security is so

controversial. Debate over Social Security reform exposes highly charged class-based

and intergenerational tensions.

Policy makers have known since the early 1960s about the eventual wave of retiring

baby boomers, so why haven’t they remedied the boomers’ effect on Social Security?

Actually, Social Security faced its first real crisis in the early 1980s, well before the

boomers started retiring. Benefits had increased faster than payroll taxes throughout

the 1970s, and the Social Security Administration estimated that it would not be able to

meet its obligations as early as 1983. As a result, President Reagan and Congress passed

the 1983 Social Security Amendments, which solved Social Security’s short-term

problems and made many other significant changes in the program.

In addition to increasing the retirement age, the 1983 reforms increased payroll

taxes to generate a surplus for a trust fund to take care of the additional burden of the

boomers’ retirement. The trust fund is a source of great confusion and controversy.

The idea behind the trust fund was sound: build up a surplus while the boomers are

working and use that money to pay for their retirement. From 1983 to 2008 payroll taxes

generated far more revenue than spending on Social Security. The problem is that this

money wasn’t really saved: the government spent it elsewhere, for example, to fund the

war in Afghanistan, food stamps, school loans, and the FBI. In turn, the government

gave the Social Security trust fund an IOU in the form of “special public-debt

obligation.” These IOUs are not tangible assets that can be traded on the open market;

rather, they are used like an internal bookkeeping mechanism. The government will

The pay-as-you-go nature of Social

Security creates intergenerational

inequities. Relatively poor young

people working for minimum wage

help fund the Social Security benefits

for retired people who are often

reasonably well-off.

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