Sermon for Seekers Church
January 30, 2005
Taking Care of Each Other
I would like to begin by asking you a question. What is the most substantial thing that you do that shows solidarity with the poor?
I am fortunate to get a turn at preaching when the lectionary gospel reading is the Sermon on the Mount, perhaps the best-known sayings by Jesus. You heard the reading from Matthew. I am going to read from Luke’s version, specifically Luke 6:20b-21. I am reading from the Scholars Translation, reading the section of the Sermon on the Mount that the Jesus Seminar Scholars consider to be the most likely to be a clear transmission of the words of Jesus. In Luke, the words are spoken for the multitude but Luke says that Jesus looked squarely at the disciples when he spoke.
Congratulations, you poor!
God’s domain belongs to you.
Congratulations, you hungry!
You will have a feast.
Congratulations you who weep now!
You will laugh.
I call this sermon “Taking care of Each Other,” and, given our imperfect selves, we need a lot of taking care of.
Think for a moment about the ways you take care of each other in your family.
Now think for a moment about the ways we take care of each other in Seekers.
Perhaps you thought of the emotional support, encouragement, pastoral care, that we offer to each other. Maybe you remembered Tiffany’s sermon, the work and gifts of our massage therapists and healers, that encourage us to respect our bodies, the most intimate gifts of Creator God. Do you know that there have also been some moments of substantial financial aid, worked out privately in the Seekers context, that have helped to save a business or buy a first house.
Did you know that in 2004 Seekers gave more than $89,000 in gifts to groups other than Seekers for various kinds of ministry compared to about $69,000 in costs for building operation, salaries and program? Seekers are generous people and our contributions in 2004 came in at about $220,000, which is about 10 percent above what we had projected for income. Such generosity beyond our expectations allowed us to give an end of the year gift to Church World Service of over $4,400 for Tsunami relief.
I am thankful for the voluntary generosity we display and for the message that it sends about who we are.
Nevertheless, Seekers, collectively, paid a lot more than $220,000 to help care for the disabled, to help care for the survivors of workers who died, and to reduce poverty among the elderly. I am talking about the 12.2 percent tax on wage income up to a cap of $87,000 that you paid for Social Security. That is more than a tithe. More than half of U.S. taxpayers pay more in payroll taxes for Social Security than they pay in income tax for all the rest of federal government functions.
You do not have an individual choice about whether you want to pay your Social Security taxes or not so maybe you do not feel virtuous. However, we live in a country that has made repeated choices to first create, and then expand, Social Security. Now we face a key political moment in which the president has proposed taking a significant step to start breaking down the traditional Social Security system. The choice is collectively before us once again.
Social Security is the most important way we take care of each other as a nation in terms of federal dollars expended. Is Social Security worth preserving and strengthening, or should it be substantially changed or cut back?
To begin with, what do we get from Social Security for such a huge expenditure?
First, we have members of Seekers who are drawing retirement checks. I will start getting one in about a year. Such checks are important income support for most recipients. For two-thirds of elderly households, Social Security retirement checks provide more than half of their income. For twenty-one percent, such checks provide all of the family income. I am fortunate in that Social Security will pay me about half as much as each of the two pensions I have. Still, that check will make the difference in having as much income when I retire as I currently have. I was fortunate that for much of my employed life I had more employer contributions to my pensions than to my Social Security.
The Social Security safety net is growing in importance as the fundamental and secure source of income for the elderly because both savings and pension income is declining. This is troubling because Social Security was designed to be one part of a three-legged stool, the other two legs being savings and pensions. The public part is doing well while the private legs are doing worse. Recent massive losses to employer funds set aside for pensions due to hostile takeovers, plain old fraud and company failures, remind us of the bad old days in the early decades of the 20th century when private pensions presented one disaster after another.
Social Security was not created as an alternative to private savings and pensions but as a fundamental insurance program for the elderly to protect against poverty. It has worked. The poverty rate for the elderly has fallen from 35 percent in the 1950s to less than 10 percent today.
The funding formula for Social Security has been carefully balanced for several goals. Even though it is true that the more you paid in Social Security taxes the higher your retirement benefit, it is also true that the benefit is proportionally better for lowest income workers and retirees, which is fundamental to the anti-poverty goal. Furthermore, the money paid for Social Security taxes, if you counted it as a contribution to the average private pension, actually gave back a higher income in benefit checks.
This money’s worth comparison is surprising for many and is due to two fundamental things about Social Security. First, Social Security is very efficient in three important ways. It is efficient in gathering income because it is part of the already existing income tax gathering process. Social Security is a very simple tax to administer. Secondly, the cost of managing Social Security investment is very low because it is all invested in U.S. Treasury instruments that are like bonds. Finally, the process of disbursing the benefit checks is simple because the several benefits are all based on nation-wide formulas and rules that apply to everyone.
The second fundamental advantage of the Social Security program is that it is social insurance and is only paid to those who are alive. For example, my former boss, Jay Lintner, died at 65. He got very little income from Social Security. The benefit of all the taxes he paid goes to the rest of the people in the Social Security benefit pool, not to his heirs. Therefore, even though Social Security is designed as social insurance against poverty for the elderly, it is competitive with private pension plans so long as you think of it in terms of income for those retirees who are alive. Furthermore, and significantly, Social Security is far more stable and secure than any private pension plan.
There has been a lot of well-financed scare mongering about Social Security by those who have opposed it since its inception. This intentional campaign to mislead the public has been quite successful and even many fairly well informed progressive people have come to believe that Social Security will not be there for them when they need it. This well-organized lie should be seen for what it is, a dishonorable scandal. The details of clarifying this scandalous lie may be found in my (attached) paper, Is Social Security Safe. Though Republicans, beginning with the president, are particularly at fault, there have been some leading Democrats who have contributed to this misinformation campaign.
However, popular Social Security has been with the majority of people in the United States, there have been those who have opposed it since its inception as the worst example of big government, high taxes and social spending. The last major reform, in 1983, began with President Reagan proposing major cuts in Social Security retirement and disability payments in response to what was a real financial crisis in Social Security funding.
From 1935 to 1983, Social Security was primarily on a pay-as-you-go basis with a low level of trust funds that served more like a checking account than a savings account. The income from the workers of those years paid for the retirement of workers in those years. The ratio of workers to retirees was very high, in significant part because only a small percentage of people were living past 65 and because workers who had come first come into the system had not yet retired. You can read about this in my (attached) paper Understanding Social Security.
Instead of following the lead of President Reagan, a bipartisan compromise was worked out in 1983 that made modest changes in the program such as raising the retirement date from 65 to 67, which is just now phasing in, and slightly raising taxes. The changes were sufficient, as it turned out, to create rapidly growing Social Security trust funds. The trust funds grew by about $150 billion dollars last year and are currently worth about $1.5 trillion dollars. The latest report of the Trustees of Social Security project solvency through 2042, which means solvency all through the time that the Baby Boomers are retiring. If the economy stays as strong as it has stayed, on average, for the last sixty years, the Trustees project that Social Security would be solvent indefinitely.
The current attempt to privatize Social Security is not needed to save Social Security. If Social Security did need saving, privatization would be like pouring gasoline on a fire. The core idea of privatization is that money would be pulled out of the basic financing pool for Social Security and transferred to individual accounts managed, in one way or another, by Wall Street. Most of the critique of this proposal has focused on the riskiness of investing in the stock market and on the administrative wastefulness as well as the profit to investment managers. I agree with both critiques but think it is more important to point to the protection of the basic social insurance concept. When money goes out of the Social Security pool into private accounts, it goes on to individual heirs upon the participants’ death, not back into the common pool. This important defunding of the common pool strikes at the basic formula which has served so well as an anti-poverty strategy while also making the value of a Social Security retirement benefit for those who are alive competitive with average private pensions.
In short, what we have here is fundamental ideological competition between those who would protect the existing Social Security structure in the interests of the common good and those who would take money from Social Security to advance the interests of those who do not need the fundamental anti-poverty protection offered by Social Security. Let us be clear. The structures of the United States economy and taxes have been moving steadily toward substantial financial increases for the most wealthy and stagnation or loss for most people in the United States over the last 25 years. The wealthy do not need Social Security and some wealthy resent it simply because it is a tax, not merely a personal tax on a trivial portion of their personal income, but a tax they have to pay for employees. For those who are fighting an increase in the minimum wage, fighting overtime pay, cutting back on health insurance and pensions for workers, reducing the commitment to workers that comes with paying Social Security taxes is a consistent position. The various privatization schemes are intended as a first step towards breaking up commitment to the basic structure of Social Security and transferring more money into the hands of private investors. This includes getting more people to think about their self-interest from the point of view of being an investor instead of from the point of view of being a worker.
From my point of view, what we are talking about here is sin, capital S and little s. This is a bit of sin that the Bible, both Hebrew Scripture and New Testament, is clear about. Honor your father and your mother is one of the 10 Commandments. Caring for widows and orphans is not an option; it is a duty.
Congratulations you poor!
God’s domain belongs to you.
If you stand with me on this, I pray that you will do at least something to contribute to the tide of opposition to all attempts to privatize Social Security. Become informed. Talk about it in your conversational networks. Moreover, please write your Representatives and Senators. What you do to protect Social Security just might be the most important thing you do this year to show solidarity with the poor.
If you oppose what I have said this morning, I hope to stay in conversation with you and learn from you. If this sermon proves controversial, then I hope Seekers can construct a fair, open, and helpful structured conversation so that we may all grow together.
[Three of my basic Social Security papers are included below.]
Social Security was created in 1935 at a time when very few workers were covered by pensions. The pensions that existed were not guaranteed and many who were “covered” never got what they earned. The original act had two components, a retirement benefit that covered only workers that was not supposed to pay benefits before 1942 and a welfare program called Old Age Assistance. The funding level for the retirement benefit was low, one percent of wages from the employer and one percent from the employee.
From the beginning Social Security was intended as a base support for retirement to be supplemented by private pensions and savings for those able to invest in a higher retirement lifestyle.
Social Security has been reformed many times but the basic concept of social insurance has never been changed. Social Security insures against poverty for the living and a key element to its financial success is that some workers pay the tax but do not live to collect any, or only a partial amount, of their entitlement. (The privatization proposals would take money out of the common funding pool for the benefit of the heirs of investors.)
Another key part of the social insurance concept is that benefits are paid according to a progressive funding formula aimed first of all at overcoming poverty. The benefit formula also recognizes that those who paid higher level of taxes should get a higher benefit upon retirement, and, with the boost from those who pay taxes but die early, Social Security retirees have gotten their money’s worth in comparison to the returns from private pensions.
Social Security was amended in 1939 to provide limited support for the survivors of deceased workers and support for spouses of deceased workers or retirees when the spouse reached retirement age. Additionally, the 1939 Act provided for keeping the income from the Social Security payroll tax in a separate fund.
A major reform occurred in 1950 when the Old Age Assistance program was phased out and the Social Security retirement benefit were increased by 77 percent, bringing all recipients into the retirement program. The payroll tax was raised to 6.5 percent to cover the change. These changes were strongly supported by employers who considered Social Security cheaper than private pensions.
From 1950 to 1972 numerous improvements were made and many more groups of workers, such as clergy, were brought into the Social Security program, reaching near universality by 1965. In 1969 benefits were raised by 15 percent and in 1972 by an additional 20 percent with the addition of automatic increases to offset inflation. In 1956 the disability program was added. Early retirement at a reduced benefit rate was allowed for women in 1956 and men in 1961.
In 1983 several significant changes were made to strengthen the financial base of Social Security. President Reagan initially proposed sharp cuts in retirement and disability payments. Instead, a bipartisan compromise decided to reduce the benefits of Social Security recipients with an earnings penalty for wages above a certain level, to delay a cost-of-living increase for 6 months, to reduce the income of those who retired early, to raise the age of full retirement to 67, which has just recently begun to phase in, and to slightly raise the payroll tax. These changes, with an improved economy, have dramatically changed the funding base for Social Security. Instead of a pay-as-you-go reality, tax-payers have begun to significantly forward-fund their own retirement by greatly increasing the Social Security Trust Funds to about $1.6 trillion dollars with a projection that the Funds will increase to over $6 trillion dollars in the 2020s.
In the 1990s the wage penalty was ended.
The Current Picture
According to the 2004 report of the Social Security trustees, “At the end of 2003 47 million people were receiving benefits: 33 million retired workers and their dependents, 7 million survivors of deceased workers, and 8 million disabled workers and their dependents.” (Numbers rounded by SSA) The average retirement benefit is $10,000 a year. Despite a weakened economy and a failure to recover to the 2000 level of employment, the Social Security trust funds still increased by $152 billion in 2003.
Social Security has largely achieved its primary goal. The rate of poverty among the elderly has been reduced from 35 percent in the 1950s to 10 percent today.
Social Security is a social insurance program designed first of all to reduce poverty among the elderly and then expanded to include support for the dependents of retirees, for the spouses and children of deceased workers, and for those who qualify as disabled. Begun in 1935, it has been repeatedly expanded, has repeatedly increased the benefits for those served, and has repeatedly raised the payroll tax by which the program is funded.
Social Security has largely reached its initial goal of reducing poverty among the elderly. The elderly poverty rate has dropped from 35 percent in the 1950s to about 10 percent today. Currently about 47 million people receive some benefit from Social Security. 40 million retirees and their dependents receive an average payment of $10,000 a year. Social Security provides more than half of the income for about two-thirds of elderly households.
How It Works
Social Security is paid for by a 12.4 percent tax on wages up to a maximum of $87,900 in 2004. The maximum increases annually in response to inflation. Payment of the retirement benefit is according to a formula that gives some advantage to those with lowest incomes but is also weighted to pay higher benefits to those who paid in higher payroll taxes. While the current political focus is on issues of retirement, it should be remembered that the benefits paid to the disabled, to the survivors of deceased workers, and to the spouses of retired workers are a critical part of the anti-poverty effort of the United States.
The basic operation of Social Security is extremely cost-effective because the income is gathered inexpensively through the annual income tax structure, the investment process is very inexpensive because the trust funds are fully invested in the equivalent of treasury bonds, and the payout system is inexpensive because all beneficiaries are paid according to nationwide formulas. The main operational challenges are running the Social Security centers that register participants and dealing with issues in record keeping.
How The Money Is Handled
The tax revenue comes into the U.S. Treasury and is distributed to the two Social Security Trust Funds: the Old Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund, jointly called the OASDI Trust Funds. $533.5 billion dollars was collected in tax revenue in 2003. The trust funds also increased by $84.9 billion from interest payments by the U.S. Treasury for the Social Security investment in the equivalent of Treasury Bonds, and by $13.4 billion from the income tax paid on Social Security benefits. Total income was $631.9 while benefits cost $474.5 billion, and the administrative expense was $4.6 billion. The net income of $152.8 billion was invested in additional equivalents of U.S. Treasury bonds. At the end of 2004 the OASDI Trust Funds were worth more than $1.6 trillion dollars.
If the time comes, as expected, when benefits and administration cost more tax revenues, then the trust funds will be reduced to pay the difference. Since the trust funds are expected to grow to a sufficient amount, over $6 trillion in the 2020s, to pay for the influx of “Baby Boomers” born in the late 1940s and 1950s into the retirement program, the long range question is about the relationship of the longevity of retirees to the level of the U.S. economy that generates the payroll income upon which the Social Security system is based. There are many factors that affect the economy. One rule of thumb is that if the economy stays as strong as it has been for the last decade, including the downturn since 2000, there would be no long term problem. If the economy turned bad, and stayed bad, then there would eventually be problems.
From 1935 to 1983 the trust funds stayed close to zero. Income was only a little higher than benefits and administrative costs. Since the changes made in 1983 the trust funds have sharply increased so that current generations are partially forward funding their own retirement. Social Security financing is stronger than it has ever been and so it is quite surprising that the scary rhetoric by opponents of Social Security has gathered significant political strength.
Those promoting the idea that Social Security is in economic crisis overlook the unpredicted improvement in the OASDI trust funds since 1983 and focus on the prediction of the Social Security Trustees that the funds will run out of money in the 2040s with reduced payments to today’s younger workers.
First of all, it should be noted that the prediction of the Trustees are made on assumptions about the birth rate and the general economy that are worse than the experience of the last dozen years, and in the case of the economy, worse than the average U.S. economy since 1960.
Furthermore, those promoting fear assume that the federal government would not do anything to correct problems that would show up decades before they became serious. This assumes that future governments would be far more hard-hearted than all the governments from 1935 to the present that have improved, expanded, and strengthened the core Social Security programs.
The several privatization plans promoted as “saving” Social Security are all wolves in sheep’s clothing. They would take money out of the general Social Security accounts and trust funds and turn them into private investment accounts that individuals would own. This approach undercuts the fundamental social insurance concept of Social Security, that makes the benefit formulas come out so nicely because the money goes to those who live long enough to get it and not to the heirs of those who died at a younger age. Social Security is an anti-poverty program for all U.S. elderly and a floor of income for those fortunate enough to have pensions and/or savings. Because of the social insurance design, even with the weighting of benefit formulas to those with lowest incomes, surviving elderly get their money’s worth in benefits for their tax payments into Social Security compared to average pension investments.
The financial problems facing the elderly come from breakdowns in the private sector from pension troubles and a lack of adequate savings, not from any problem with Social Security. Things could be done to strengthen pensions and savings but that can be done in addition to, not by attacking, Social Security.
The Short Answer
Social Security is as safe as the economy of the United States. Social Security helps the economy in hard times because the benefits paid by Social Security continue in hard times and serve as a stimulus to the economy to counteract downward pressures. The main thing to remember is that a decline in tax revenues because of a bad economy would be a problem that touches all society, not just Social Security.
A More Complete Answer
A lot of damaging and misleading things have been said by opponents of Social Security in hopes of scaring the people of the United States into radically changing the most successful anti-poverty program in the history of the United States. Before getting to the substantive debate, some widely promoted negative mythology has to be cleared up. This negative mythology has been so successfully promoted that many politically progressive people believe it and some news sources that should know better report the negative mythology as if it were fact.
In an attempt to undercut confidence in Social Security, then (2001) Treasury Secretary Paul O’Neill said, “The Social Security Trust Fund does not consist of real economic assets.” No doubt Mr. O’Neill has some definition of “real” that he thinks makes it acceptable to say such things, but the clear intent is to make people uncomfortable about the security of Social Security.
The Social Security trust funds are totally invested in the equivalent of U.S. Treasury bonds. When Mr. O’Neill was selling treasury bonds to individuals, to corporations, to local and state governments, and to foreign nations he got very low interest rates because all the buyers believed that U.S. Treasury Bonds are among the safest of all possible investments.
The substantial question is the one repeatedly posed by the Social Security Trustees in their annual reports. By law they are required to predict the future solvency of the Social Security Trust Funds. Until 1983 those funds were close to zero and just about all of the income from payroll taxes was used to pay benefits to then current Social Security retirees and their dependents, to the survivors of deceased workers, and to those eligible for disability payments. In 1983 changes were made that have led to a sharp increase in the trust funds to a current level of about $1.6 trillion dollars. The prediction is that they will rise above $6 trillion in the 2020s. In the short and medium run, Social Security has never before had it so good.
But what about the long run? The trustees predict that the trust surpluses will all be gone in the 2040s. (The Congressional Budget Office recently set a date in the 2050s.)
The first thing to remember is that it is very hard to make long term predictions. The predictions of 1983 were not for any thing like a $1.6 trillion surplus in 2004. In the late 1990’s the economy sharply out performed even optimistic predictions, employment was higher than many economists thought was possible, and the trust funds racked up big gains. Even in the weak economic and employment year of 2003 the trust funds increased by $152 billion dollars.
The trustees predict that the economy is going to be worse than the average economy between 1960 and 2000 and significantly worse than the economy for the last ten years. They also make gloomy demographic projections. Despite the fact that the total fertility rate (number of babies per woman) has been over 2.0 since 1990, they predict 1.95 and then argue that there wont be enough workers to keep the economy going. Similarly, despite recently high rates of immigration they predict low immigration. In short, if the population and the economy continue like they have for the last ten years there would be no long-range Social Security funding problem. Since both political parties and most citizens want a strong economy, why pick assumptions that lead to prediction of a bad economy? Social Security looks reasonably safe for a long time unless we give in to fear, unless we allow opponents of the core concepts of Social Security to have their way.