Social Security advocates want any proposals to address a looming shortfall in the system to be developed in the open, not behind closed doors. (Getty Images)

When President Franklin D. Roosevelt and Congress enacted the Social Security system in the depths of the Great Depression, a universal retirement plan was supposed to be just the first step.

“People wanted health care in the program initially, but didn’t feel they could get it through Congress at the same time that he did retirement,” said James Roosevelt, grandson of FDR, during a panel discussion in Madison last week.

The panel discussion was organized by the Wisconsin Alliance for Retired Americans as well as the American Federation of Government Employees, which represents Social Security Administration employees.

Roosevelt quoted his grandfather’s explanation of the program at the time of its enactment: “We can never ensure 100% of the population against 100% of the hazards and vicissitudes of life,” he recalled FDR saying. “But we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against a poverty-ridden old age.”

FDR envisioned Social Security as part of an economic bill of rights, said Nancy Altman, president of the research and advocacy group Social Security Works, including disability coverage and even universal health care. Those weren’t included from the start, Altman said, “because it was too important to not be successful, and it was the largest undertaking that any government had taken up to that point.”

Administrative funding lags

Today, Social Security faces two major challenges. One is that funding for its administration has not kept up with expenses.

Martin O’Malley, Social Security Administration commissioner and a participant in the panel discussion, said in an interview that the agency’s overhead costs amount to 1.2% of the benefits that Social Security pays out. Private insurers, he said, have overhead costs in the neighborhood of 20%.

Administrative overhead is supposed to come out of the payroll taxes that fund Social Security. “You and I paid for that already — we paid for it out of our benefits,” O’Malley said. “But in a strange anomaly of these more recent times, Congress has chosen to treat the administrative overhead budget as discretionary.”

One example of the impact: In the agency’s Madison field office alone, the staff has dropped by 40% over the last five years, from 28 in 2019 to 17 now, O’Malley said.

Even with that challenge, however, O’Malley said the Social Security Administration has improved its customer service nationwide in the last year. Callers to the 800 number for assistance with benefits now wait 11 minutes on hold on average, he said — down from more than 40 minutes.

Disability applications have been backlogged, but for the last 18 weeks, O’Malley said, the agency has succeeded in chipping away at it, completing more applications than new ones are filed.

Still, there remain 1.2 million people waiting to hear if their claims will be accepted. “It’s not right that people should have to fight so hard to get customer service,” O’Malley said.

The other challenge, long identified, is the looming shortfall in the funding for Social Security. The program is funded on a “pay as you go” basis — with the current generation of workers funding the benefits paid to the current generation of retirees.

With the large bulge of retirees currently, along with a smaller population of working-age people, Social Security’s revenue is expected to fall short of what is needed to fully fund benefits by 2033.

During the panel discussion, O’Malley described a conversation he’d had with an agency actuary. Forty years ago Congress was apprised of the coming bulge of Baby Boom retirees and enacted legislation that built up a surplus in anticipation of that surge in people drawing on the system, he said.

What wasn’t foreseen then, however, was a major spike in income inequality. The trend “took a lot of the earned income in the United States of America and concentrated it in the top 6% of the American public,” O’Malley said. The result was higher Social Security payouts for the highest earners, and a surplus that had been structured to last until 2057 is now forecast to last only until  2035.

Another challenge that the system has faced is misinformation.

One myth is that undocumented immigrants are draining the Social Security system.

“This is categorically, objectively false,” O’Malley said. Immigrants without legal status in the U.S. still have federal taxes withheld from their earnings, and therefore “actually pay into Social Security about $22 billion a year that they will never see a dime of coming back to them.”

Another myth is that Social Security won’t be there for younger workers. J. Michael Collins, a professor at the University of Wisconsin-Madison La Follette School of Public Affairs and the leader of the UW Retirement and Disability Research Consortium, said he hears that often from his students at UW.

In the worst case scenario, however, the shortfall would cut benefits to 72 cents on the dollar, he said.

Advocates point to possible fixes

Such a drastic cut can be avoided, however, panelists said. One fix would be to lift the cap on how much income is taxed to fund the system. Currently that cap is just under $170,000 a year. Proposals in Congress have called for requiring people with higher incomes to pay the Social Security payroll tax on all of their earnings, extending the shortfall deadline several decades.

A related challenge, Altman said, is that the program has been subject to “not just misinformation, but disinformation.”  

In its earliest days, Social Security was opposed by wealthy interests as “socialism,” but as the program has become widely accepted and appreciated, the opposition has shifted to suggesting that “we can’t afford it,” she said.

Altman said the shortfall can be headed off without drastic cuts but that any changes need to be made “in the open, transparently, with votes that are clear.”

She is skeptical of the motives of any attempt to modify the program that isn’t conducted that way. Social Security’s opponents, she charged, want to “go behind closed doors, come up with something or have a fast-track process” that will require an up-or-down vote. “And then that is very dangerous, because that is the way they’ll be able to cut it.”

James Roosevelt said the program his grandfather launched shouldn’t be viewed simply as a benefit for the elderly. Its existence “means kids can go to college because their grandparents have earned benefits,” he said. And it enables adults to have a better life themselves while feeling secure that aged parents also have some continued support.

“Social Security is a family program,” he said.

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