Montana Viewpoint


March 15, 2004

I don’t get outraged by political statements very often, but the gall of Alan Greenspan in suggesting that Social Security benefits be cut is, well, outrageous.

How come? First, although Greenspan will be able to receive benefits from the program, I doubt if he needs them. Second, Greenspan pays a smaller percentage of his income in Social Security taxes than 84% of American wage earners. That’s because of the limit on the amount of salary subject to the Social Security tax. While his salary as Chairman of the Federal Reserve Board is $172,000, Greenspan will pay Social Security taxes on only $87,900 of that, which is only 51% of his income. He will also not pay the tax on the income from his considerable investments. Most of us will pay the tax on 100% of our income.

So, here’s a guy who pays a smaller percentage of his income in Social Security taxes than you or I, who doesn’t need the benefits, who has condoned a budget that is projected to cause the largest budget deficit in the history of the U.S., who has helped shift American jobs overseas and in consequence helped lower Americans’ real wages; telling you and me to tighten our belts when we get to retirement. Hogwash.

There are other ways to address this “Greenspan crisis” in Social Security, but first of all, is there one, and if so, how serious is it? Well, it’s quite a ways down the road in the first place.

Social Security was originally a pay-as-you-go kind of deal where the tax on workers’ salaries directly paid retirees’ benefits, buck for buck. (Yes, there is an employer contribution, too; but economically that should be considered as also being paid by the worker because it decreases salary.)

As the number of workers has fallen, the number of retirees has risen, and there are fewer salaries to pay for the benefits. To fix this, the Social Security tax was increased in 1983—with Greenspan’s support. Retirement benefits are still paid directly out of the tax, but the tax collects much more than is needed to fund retirement benefits, so now there’s a large Social Security surplus.

As the number of retirees continues to increase and that of workers to decrease, that surplus will be used to supplement the tax to pay benefits. In about 40 years, that surplus—if it is not stolen to balance the budget—will be gone. That's the “crisis.” At some point the options are to raise taxes, cut benefits, increase the age needed to start drawing benefits, or a combination of the above.

Of all the ways to address the so-called crisis that he helped cause, Greenspan chooses one that punishes America’s present and future retirees. Just one of the options he didn’t choose: eliminating the upper income limit for contributions would eliminate three quarters of the projected problem.

Some 84% of Americans earn less than $87,900, above which no wages are subject to Social Security taxes. From 1990 to 2001 the income share of the bottom 80% of Americans has decreased, but for the top 20%, it has increased. The greater share of the benefits from the President’s tax cuts has also gone to that top 20%. Since the income growth and income tax cut benefits have gone to the top 20% of Americans, removing the cap should not be seen as unfair to the wealthier among us. Removing the $87,900 cap would make everybody’s Social Security tax rate the same. It’s not a question of punishing the wealthy, it’s a question of treating everyone the equally.

Greenspan lives in a world of theory. If he lived in the world of hard economic reality, he might make choices that are beneficial to American workers and retirees, not detrimental.


Jim Elliott
Phone: 406-444-1556
Mail: State Senate Helena, MT 59620