Fiscal Cliff Primer: Should Congress Take Social Security Advice From Bailed-Out Goldman Sachs CEO Lloyd Blankfein?

Should Congress Take Social Security Advice From Goldman Sachs CEO?

Goldman Sachs CEO Lloyd Blankfein urged Congress and President Barack Obama to cut Social Security, arguing that the program cannot "afford" to keep funding longer modern retirements. He left out that Social Security currently has a $2.7 trillion surplus and could strengthen its financial footing further by simply taxing more of the income of wealthy executives like Blankfein himself.

During an interview with CBS News' Scott Pelley on Monday, Blankfein said that entitlement programs including Social Security "have to be slowed down and contained."

"Social Security wasn't devised to be a system that supported you for a 30-year retirement after a 25-year career," Blankfein said. "So there will be things that, you know -- the retirement age has to be changed. Maybe some of the benefits have to be affected. Maybe some of the inflation adjustments have to be revised."

In fact, people do not receive full Social Security benefits until age 67, and the average worker receives those benefits for 16.1 years. Raising the retirement age would disproportionately hurt low-income workers, who tend to live shorter lives than wealthier workers.

Moreover, without any changes, Social Security's existing surplus is projected to keep the program solvent through 2033. That solvency could be further extended, without resorting to benefits cuts, by lifting the earnings cap on rich workers. Under current law, workers and employers pay Social Security taxes only on the first $110,100 of an individual's income. Any earnings beyond that are not subject to the tax, which is currently 6.2 percent for workers, plus an additional 6.2 percent for their employers.

Lifting the cap and making all income subject to Social Security tax would inject billions of dollars in additional revenue into the program.

Lloyd Blankfein received a $2 million salary in 2011. Lifting the earnings cap would result in an additional $234,347.60 for Social Security from just that salary. Based on the $1,229 average monthly Social Security benefit, taxing all of Blankfein's salary for 2011 alone could fund 15.89 years of benefits for an average worker.

Blankfein, however, receives additional income from cash bonuses and stock compensation. Last year, Goldman Sachs awarded him a $3 million bonus.

Taxing Blankfein's 2011 salary and bonus would yield $606,347.60 for Social Security, or 41.1 years worth of average benefits. Given that the life expectancy of American men who reach age 65 is currently 83.1 years, one year of Social Security taxes on Blankfein's full salary and bonus could fund the entire retirement benefit for two men and an additional decade of benefits for a third worker.

If Blankfein's total 2011 compensation of $16.1 million -- including the $2 million salary, the $3 million bonus and stock awards worth $10.7 million -- were subjected to Social Security taxes, it would yield enough money to fund the full retirements of eight workers, plus an additional 5.6 years of benefits for a ninth retiree.

While it's true that the average American lives longer today than in 1935, when the Social Security Act was passed, much of this statistical increase is due to lower infant mortality rates, making the metric largely irrelevant to a retirement program for the elderly. The average man who lived to age 65 in 1940 could expect to live 77.7 years.

Ironically, elsewhere in the CBS interview, Blankfein seemed to grasp the answer: He said that the federal government needs to secure higher revenue in the form of "more taxes on wealthier people" to prevent damage to the social safety net.

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