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Why Social Security Needs Separate Treatment

Philip Moeller

Like the fiscal Bobbsey twins, Social Security never seems to travel without its beleaguered entitlements companion, variously called health care, or Medicare, or sometimes Medicare and Medicaid.

This linkage is ubiquitous. To cite just one example, Maya MacGuineas, head of the Committee for a Responsible Federal Budget, said in a New York Times article last week that "additional reforms will be needed over the long-term, especially to slow the growth of health care programs and shore up Social Security."

[Read: How to Retire With $1 Million.]

This locked-at-the-hip association is bad for Social Security on multiple levels.

1. Lumping Social Security, Medicare and Medicaid together as social entitlement programs is not accurate. Social Security is a self-funded program. It is a progressive system, meaning lower-paid workers get a more generous percentage of their incomes back in their Social Security claims payments than workers at the higher end of the earnings curve. But for the most part, it pays people back for the payroll taxes they've paid into the system during their working lives.

By contrast, Medicare and Medicaid are paid for largely by taxpayers. The portion of the payroll tax that goes toward Medicare is nowhere near enough to fund what the federal government spends on health care. The health reform law is not going to change this reality and, critics allege, will lead to even larger spending deficits over time.

2. The scale of spending reforms needed to restore balanced budgets to Social Security and health care have little in common. Social Security's projected deficits are not very large. Medicare and Medicaid deficits are enormous and, after a current lull in health care inflation, projected to get larger and larger as the nation's aging population steps up its use of health care. By conflating the needs of Social Security and health care, they appear to be of comparable magnitudes.

[Read: The Real Obstacle of Health Insurance Exchanges: American Consumers.]

3. Distorting the scale of Social Security changes and lumping such changes into the broader federal deficit debate has turned the program into yet another Washington political football. We can "fix" Social Security with relative ease. We cannot "fix" health care spending so easily, if at all. Disentangling Social Security from the broader deficit mess would enable us to take needed action.

4. In a guilt-by-association pairing, the public has been given the impression that Social Security is adding to the deficits as much as Medicare and Medicaid. This incorrect implication has contributed to serious erosion in the public's confidence that Social Security will provide a reliable source of retirement income for future generations. It is no exaggeration to say that this is damaging to the social fabric that helps hold the nation together.

In a recent national poll of more than 2,000 adults, including more than 1,300 non-retirees, Gallup pollsters found that 47 percent of people age 60 and older expect Social Security to be a "major source" of their retirement funds. For people in their 50s, 42 percent said the same thing. But these percentages plummet for younger age groups - to 26 percent for those ages 30 to 49, and only 19 percent for those ages 18 to 29.

"Gallup has found that only about one in five young adults expect to receive a Social Security benefit when they retire," the company said when releasing the survey. "And even if they do receive a benefit, potential reforms to Social Security may require today's younger workers to wait until a later age to get full benefits or to get a proportionately smaller benefit than today's retirees. Thus, young respondents are looking to sources outside of Social Security to support them after they stop working."

[See: Places Where People Pay the Least Into Social Security.]

Looking at retirement needs by income levels, Gallup found that Social Security is seen as a major source of retirement income by 42 percent of non-retirees making less than $30,000 a year. Only 26 percent said private savings would be a major source of their retirement funds.

For middle-income respondents making between $30,000 and $75,000 a year, 33 percent said Social Security would be a major source of retirement funds, versus 44 percent who said the same thing about their private savings. In households with $75,000 and more of annual income, 65 percent said private savings will be a major source of retirement income; only 17 percent said they expected Social Security to be that important.

Given the importance of Social Security, Gallup said, "A key for government leaders is to find solutions that will keep the Social Security system solvent - for current retirees and near-retirees who do or will rely a great deal on it, as well as for lower-income Americans in future generations who cannot reasonably expect to adequately fund their retirements by saving and investing during their working years."

Of course, you don't need a poll to tell you that.

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