Factcheck.org Busts Romney in Iowa on Social Security

Romney’s Run-in on Social Security


August 12, 2011

Mitt Romney gave a misleading answer to a question about Social Security during a feisty exchange with a heckler in Iowa. He said payroll taxes take 15.3 percent "out of your earnings," but only the self-employed pay that rate. All other workers pay half of that, with the other half being paid for by the employer.
The Republican presidential candidate and former Massachusetts governor also said that the payroll tax rate would have to go up to 44 percent to pay for Social Security, Medicare and Medicaid, if no changes are made in the programs. (He mistakenly added Medicaid to the list of programs funded by payroll taxes.) But what he didn't say is that the payroll tax wouldn't reach 44 percent until 2075, and even then it is largely driven by Medicare — not Social Security, which was the subject of the question. The nonpartisan Congressional Budget Office put out a report this month saying that Social Security payroll taxes would have to be raised from a total of 12.4 percent to 14 percent in order to keep Social Security in balance for the next 75 years.
On the morning of the Aug. 11 debate, Romney made an appearance at the Iowa State Fair, delivering a speech and answering a few questions. His first question was about the Social Security payroll tax, which applies only to the first $106,800 in earned income.

Question: Do you support scrapping the Social Security payroll cap so that rich people pay their fair share into the trust fund?

After criticizing people who "go after people because they were successful" and questioning the fairness of a system that allows nearly half of U.S. workers not to pay any income tax, Romney gave this answer:

Romney: You may say we should just raise everybody's taxes. Do you know what the tax rate would have to be — to be able to honor the promises of Social Security, Medicare and Medicaid — if we just raise taxes and leave the programs as they are? Right now, those programs combined take a payroll tax out of your earnings of 15.3 percent. That would have to rise to 44 percent. We're not gonna do that.

Romney meant Social Security and Medicare, of course, not Medicaid. And his larger point that entitlement programs consume a large and ever-growing part of the federal budget is correct. As we have written before, Social Security and Medicare accounted for 33.5 percent of total federal outlays in 2010.

But his response lacked important context. First, the total payroll tax is 15.3 percent. As the Social Security Administration explains on its website, half of that is paid by the employee and half by the employer — except for the self-employed, who pay the total 15.3 percent.

Second, Romney said "if we … leave the programs as they are" then payroll taxes "would have to rise to 44 percent." But he didn't say when the rate would rise to 44 percent or how much of that is because of Social Security — which was the point of the question posed to him.

Romney's spokesman, Eric Fehrnstrom, said Romney got the 44 percent number from a 2005 analysis by the Concord Coalition, a nonpartisan think tank that advocates for deficit reduction. The group's report says that to cover the future costs of Medicare and Social Security, the 15.3 percent combined payroll tax would have to steadily rise to 25 percent in 2025, 32 percent in 2040 and 44 percent in 2075. So, the hike to 44 percent is 64 years away.

Also, the report says the driving factor in that projected tax hike is Medicare, not Social Security. Under this analysis, the tax rate for Medicare would rise dramatically from the current total of 2.9 percent (1.45 percent paid by employees and 1.45 percent paid by employers) to 25 percent in 2075 — a nearly nine-fold increase. Social Security taxes would rise at a slower rate, from a total of 12.4 percent (6.2 percent paid by employees and 6.2 percent paid by employers) to 15 percent in 2025, 17 percent in 2040 and 18 percent in 2075. The Medicare payroll tax hike would be so dramatic that by 2075, under this analysis, it would outstrip the Social Security tax — which is currently more than four times the Medicare tax.

This month, the nonpartisan Congressional Budget Office issued a long-term analysis of Social Security that said it would take an immediate increase in the Social Security payroll tax from 12.4 percent to 14 percent to keep the program in balance for the next 75 years. That's significant, but less than the estimated tax increase in the report cited by Romney.

CBO, Aug. 5: In other words, to bring the program into balance over the next 75 years, payroll taxes would have to be increased immediately from 12.4 percent to about 14.0 percent and kept at that higher rate, or the benefits specified in law would have to be reduced immediately by about 10 percent, or some combination of those changes and others would have to be implemented.

Of course, there is no talk of raising the Social Security payroll tax. In fact, Obama signed legislation that cut the tax for this year to help stimulate the economy, and he is urging Congress to extend that tax break another year — which will only deepen the program's financial problems.

It's clear that something needs to be done about Social Security — a fact that was inherent in the question posed to Romney. As we have written before, Social Security for the first time last year took in less money in revenues than it paid out in benefits, and that will be the case from now on. Unless there are changes, the program's trust fund reserves — $2.7 trillion in Treasury securities — will all be redeemed and exhausted by 2036, the Social Security and Medicare Boards of Trustees has reported. After that, the Social Security "tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2085," the board said.
But Romney made Social Security's problems look even more dire than they are.
– Eugene Kiely