The Poverty-Fighting Power of Social Security

Written by

Algernon Austin
Algernon Austin Dr. Algernon Austin is a Senior Research Fellow at the Center for Global Policy Solutions. Previously, he directed the Economic Policy Institute’s Program on Race, Ethnicity, and the Economy (PREE). As the first director of PREE, Algernon built the program over six years into a nationally-recognized source for expert reports and policy analyses on the economic condition of America’s people of color.

American society is better off with less poverty and less of the many social problems associated with poverty. Social Security is our strongest poverty-fighting program; therefore our leaders should act to keep the program strong.

Of the programs existing today, none compare to Social Security in its ability to reduce the national poverty rate. The Census Bureau’s Supplemental Poverty Measure (SPM) shows the advantage of this program clearly. Unlike the official poverty rate, the SPM enables one to identify the effects of different programs on poverty. Figure A shows that Social Security reduces the SPM poverty rate by 8.2 percentage points. This reduction is nearly three times the reduction resulting from refundable tax credits like the Earned Income Tax Credit, and more than five times the reduction from the Supplemental Nutrition Assistance Program (SNAP). There is no other program that comes close to Social Security in poverty-reducing power.

Fig A-SocSec and Poverty

While Social Security has the largest effect on the elderly, as Figure B illustrates, it reduces poverty for Americans of all ages. Social Security helps all family members when a parent becomes disabled, retires, or dies. Through these family benefits, many individuals under 65 receive assistance. Social Security reduces the poverty rate among adults 18 to 64 years old by 4.1 percentage points and among children under 18 years old by 2.2 percentage points.

Fig B-SocSec Poverty Age

These figures demonstrate Social Security’s exceptional effectiveness. But in recent years, Social Security’s cash expenses have exceeded its cash receipts. According to the 2015 Trustees Report, funds in the Social Security system are projected to grow until 2019, and then be drawn down until 2034, when there will be a long-term shortfall. If we do not increase revenue going to the Social Security program, after 2034 Social Security will only be able to pay about 75 percent of benefits. This benefit reduction would undoubtedly increase the rate of poverty in America.

The Plan for a New Future presents various policies to improve Social Security’s finances. One important proposal is to lift the cap on earnings that are subject to payroll taxes. Although the cap is indexed to keep up with gains in average worker earnings, it has not kept up with rapid earnings growth at the top. This simple change, lifting the payroll cap, would strengthen Social Security without placing any burdens on low-income workers, thereby reinforcing its key role as a poverty-fighting program.

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