Expand Social Security Now!: How to Ensure Americans Get the Retirement They Deserve - Steven Hill (2016)
INTRODUCTION. High Stakes for the American People
“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”
—PRESIDENT FRANKLIN DELANO ROOSEVELT1
“We are in the midst of a real and growing retirement crisis—a crisis that is shaking the foundations of what was once a vibrant and secure middle class.”
—US SENATOR ELIZABETH WARREN2
For more and more Americans, the dream of a secure retirement has become increasingly threatened. The hope for an old age spent in simple comfort and well-being, surrounded by family and community, is sadly fading for many. This transition—which we are told is as inevitable and natural as the laws of gravity—is part of the ongoing crumbling of the New Deal safety net and social contract that has protected American workers, families, and communities for decades. And this is not happening because America is broke and sagging under the weight of too much debt, as some have claimed. No, this threat to the nation’s future is self-inflicted—it’s because we have the wrong policies, and just as crucially, the wrong politics.
The correct policies would be eminently affordable—if the politicians in Washington, DC, could cease their fealty to wealthy special interests, as well as their partisan sandbox play, and act in the national interest. Instead, both Democrats and Republicans have waged a monstrous two-headed game of brinkmanship that only makes sense to those locked inside the hall of mirrors of our nation’s capital.
According to today’s mistaken Beltway consensus, the United States cannot afford to pay for the present level of Social Security benefits for retirees in future generations, and so benefits must be cut. This consensus is not only wrong in its diagnosis but also mistaken in its prescriptions—and potentially disastrous in its consequences.3
The attack on Social Security—the hugely popular program formally known as Old Age and Survivors Insurance (OASI)—is one of the best examples of a larger battle royal that should be headlined: “We the People versus Washington.” We are locked in a historic struggle over whether our nation is truly “of, by, and for the people,” or if, instead, it is ruled by an insider ring of powerful economic and political elites who are extracting the best of our nation for themselves.
In the battle over Social Security and other safety-net components, in a very real sense US democracy itself is at stake. Over the next few years, we are going to discover whether the American republic, which has been the model for so much good in the world, is fated to fulfill the prophecy of late nineteenth-century Italian political scientist Gaetano Mosca and his “ruling class” theory, which said that, at the end of the day, “the history of all societies has been, is, and will be, the history of dominant minorities.”4
To understand how far the Beltway consensus has drifted away from popular opinion, consider these words of a national leader from a previous era:
Should any political party attempt to abolish Social Security, unemployment insurance and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are … a few Texas oil millionaires and an occasional politician or business man from other areas. Their number is negligible, and they are stupid.
Yes, “stupid” is what the man said. Those blunt words, not very diplomatic, were penned by President Dwight Eisenhower—a Republican and military hero—in a letter to his brother Edgar in 1954. But flash forward sixty years, and even though the program that provides “old-age and survivors insurance” is extremely popular—even a supermajority of Republicans favor it—and even though three-quarters of Americans heavily depend on Social Security in their elderly years, the revered program has become a political football.
Many conservatives and special interest groups have called for austerity-like “entitlement reform,” and even leading Democrats, including President Barack Obama and Hillary Clinton, and before them President Bill Clinton, have knelt at the altar of proposing cuts “to save Social Security.” Yet as this book will show, not only are cuts to Social Security not necessary financially; in fact, the United States should be expanding Social Security—so that it provides a more secure and portable retirement for America’s well-deserving retirees, and acts as an “automatic stabilizer” for the new high-tech economy that is rapidly powering to the forefront of the twenty-first century.
Perhaps the most puzzling aspect of the bipartisan undermining of Social Security is that the program itself remains wildly popular across the political spectrum. A survey from the National Academy of Social Insurance (NASI) found overwhelming backing among voters in both major parties, with 69 percent of Republicans and 84 percent of Democrats agreeing “it is critical to preserve Social Security benefits for future generations, even if it means increasing the Social Security taxes.”5 You read that correctly—almost 70 percent of Republicans back a tax increase. And that’s not all. More than seven in ten Republicans and nine in ten Democrats agree that those in the top income brackets should pay more Social Security tax (specifically that they should be taxed on all of their earnings, not just wages under $118,500, which is the upper limit for Social Security’s payroll tax as of 2015). Three-fourths of respondents opposed increasing the retirement age to seventy or reducing the cost-of-living increases. Majorities opposed any measures to balance Social Security’s future finances by reducing benefits.
And unlike the Beltway politicians, average voters are capable of making nuanced trade-offs and compromises to address the challenges faced by America’s ailing retirement system. In NASI’s survey, fully 68 percent of Republicans, 74 percent of Democrats, and 73 percent of independents favored a package of reforms that included gradually eliminating the payroll cap so that wealthy earners—millionaires and billionaires—have to pay their fair share of the Social Security tax on their full income; gradually increasing the tax paid by all workers by 1 percent over twenty years; increasing the cost-of-living adjustments; and raising Social Security’s minimum benefit level to ensure retirees stay out of poverty.6 That package would turn Social Security’s projected financing gap, predicted to occur sometime in the 2030s, into a small surplus.7 And notice: every partisan viewpoint had to give something for this package of reforms to work. But you know what? Regular people, guided by common sense, were able to figure it out. So could Congress, if its members really listened to their constituents. Problem solved, simple as that.
And yet nothing is simple when it comes to the politicians’ bipartisan bumbling of America’s retirement crisis. Here’s a clue why: research reveals one group of Americans that does not like, and in fact is opposed to, Social Security—the very wealthy. A recent study measuring policy preferences between the wealthy and the general public showed differences of opinion on a range of issues. One of the biggest gaps is over Social Security—by a wide margin most Americans at the top 1 percent income bracket want it cut.8 That’s where the bipartisan consensus apparently gets its marching orders, because the plutocrats have more influence with both Republicans and Democrats than “We the People.”
Expand Social Security Now! will show how political and economic elites in both the Democratic and Republican parties are selling out everyday Americans and stirring up an artificial and completely unnecessary national retirement crisis. They want us to think that the $2.8 trillion surplus in the Social Security Trust Fund is part of a massive government handout, even some kind of socialist experiment that is doomed to collapse, when nothing could be further from the truth. Just like a company pension or life insurance plan, that enormous surplus comes chiefly from premiums—in the form of payroll contributions—paid by all US workers. It belongs to the workers. It belongs to us, it is our money; it is an earned benefit, not a handout. The government is merely holding it for us, for all Americans, until it is needed in our elderly years.
Social Security in many ways is the “canary in the mineshaft,” the heart of the prosperous post-World War II society that launched an affluent middle class that has been the envy of the world. Rather than cut Social Security, I will demonstrate (as others have before) that it’s possible to expand it and secure a brighter future not only for the nation’s retirees but for younger generations as well. There is no inter-generational war over Social Security, though some of the “experts” have unconscionably tried to foment one.
This book will argue that, rather than cutting Social Security, we should make its expansion the core remedy for stabilizing the US retirement system and the broader national economy. More specifically, we should double Social Security’s individual monthly payout for the 43 million Americans who receive individual retirement benefits and create a new system that I call Social Security Plus. According to the Social Security Administration, it currently costs about $662 billion annually to provide benefits to those retirees, so doubling that amount sounds expensive and unaffordable.9 But this book will outline various ways to pay for it. It’s not as difficult as it sounds. Some relatively simple and straightforward changes to how retirement is funded can take us a long way toward making the US system better adapted to the realities of today’s new, high-tech driven economy. And we can accomplish this without spending a dime more in government money or national wealth than what is already being spent on the nation’s retirement system.
The challenge before us really boils down to one key concept: tax fairness. In reality, the current tax system is unfair in a lot of ways. And one of those ways is how Social Security is funded. For example, we have a progressive income tax system, which means that higher-earning Americans pay not only more income tax but a higher percentage of their income in income tax. That system is based on a long-held principle that those who are better off, and who have benefited the most from society’s rich garden that we all have had a hand in tilling, should give back to the garden and help maintain it. In many ways that “gardener’s principle” is one of the foundations of civilization itself.
Yet as we will see, when it comes to Social Security, we actually have a regressive tax system. Those who earn more income actually pay a lower percentage of their income into the Social Security Trust Fund. That’s because according to the current rules any income above $118,500 is not taxed for Social Security purposes. And any income obtained through dividends and capital gains—which is how many affluent people with a lot of investments make most of their wealth—is completely untaxed for Social Security purposes. Consequently, a chauffeur pays a 6.2 percent Social Security payroll tax on her salary, while the corporate executive she drives around pays less than 2 percent of his salary. A multimillionaire banker pays an even lower percentage, less than 1 percent. In this upside-down world, a billionaire pays the same amount of money into Social Security as someone who makes $118,500 a year. No other government program is funded through such a regressive tax. Medicare, defense, environmental programs, education, and more are all, for the most part, funded by a progressive tax system in which those who have greater means contribute more.
In addition, our tax code includes a vast number of federal deductions, exclusions, deferrals, and subsidies that vastly favor wealthier Americans. Indeed, the tax code is riddled with labyrinths, loopholes, and hidden trapdoors that only tax attorneys and accountants can figure out. It is like a maze in a video game, where you enter room after room, and if you have the right specialized knowledge and experience you can run through the maze and pick up the video game equivalent of gold coins and treasure chests. Since only better-off people can afford tax attorneys and accountants, or even earn sufficient income to benefit from these deductions, most of these tricks of the tax code conceal their benefits from the vast majority of Americans. As we will see, these tricks and loopholes have odd-sounding names, so technical in nature that they seem innocuous and obscure—“capital gains,” and its twisted offspring “step-up in basis” and “carried interest.”
But they are not innocuous, even as they have been hiding in plain sight. They amount to real money being steered into the pockets of wealthier Americans who have access to the experts who know how to run through the maze and pick up the gold coins. If these tax loopholes are eliminated, we would free up tens of billions—not millions, but billions—of dollars that can be targeted at better uses, such as funding Social Security Plus.
At the same time, we should redesign other components of the US retirement system, including 401(k)s, IRAs, private pensions, and even homeownership’s impact on retirement, so that they better fit with the type of society we are becoming. After a quarter century of experimentation with using the tax code to encourage private savings via various incentives, we now know that the vast majority of these benefits also go to the upper 10-20 percent of income earners. For the rest of Americans, this system has utterly failed to help them save for a secure retirement (which should hardly be surprising—with average Americans’ wages remaining flat for over two decades, it’s hard to save when you don’t have sufficient income). The proposal for Social Security Plus is based upon the commonsense notion that we should build upon what works rather than what has failed. Instead of compounding failure by expanding the flawed system of tax-favored private savings accounts—that is, 401(k)s, IRAs, and other personal deductions—we should drastically reduce their importance and even think about eliminating them altogether. This also applies to private employer-based pensions (which are quickly disappearing anyway), since doing so would provide some of the revenue needed for dramatically expanding the popular and successful Social Security program.
By shifting federal government tax and expenditure priorities that right now benefit a small number of better-off people, and focusing them instead on the vast majority of Americans, we can enact a retirement system that will work for all of us instead of some of us.
That’s why, when it comes to the nation’s retirement system, the solution to our current predicament boils down to a simple formula:
TAX FAIRNESS = RETIREMENT SECURITY
And a secure retirement for all Americans is linked to other extremely important national goals, such as a prosperous and robust economy, one that has automatic stabilizers built in that help to right the ship during economic downturns.
So our simple formula becomes:
TAX FAIRNESS = RETIREMENT SECURITY = ECONOMIC STABILITY
However, this is not a call for some “big government” intervention, but rather for a “smart government” solution, using government’s unique power to regulate and to bring various stakeholders to the table.* It is driven by a pragmatic recognition that, given all of the other options that have been proposed, this expansion of Social Security is the one that will actually maintain some semblance of the middle-class society that has helped make the United States the envy of the world. Call it the best solution, or call it the least-worst solution, if you wish. To get ready for the new high-tech economy that is barreling down the turnpike like a steamroller at Indy 500 speeds, a significant chunk of “workplace-based” safety-net supports for American workers—not only retirement but also health-care, unemployment, and injured-worker compensation; paid sick days; vacation; and other features—must become individually based instead of workplace-based. The safety net must become attached to individual workers and follow them around, no matter their work situation, who their employer is, or even if they are unemployed. Supports for workers must become what are known as fully “portable.”
I will show why designing a more portable and robust retirement system needs to be part of the new economy that is emerging, in which more and more workers are losing the “good” jobs of the New Deal society and becoming insecure freelancers, independent contractors, temps, and part-time workers in a “freelance society.” As time goes on, more workers will no longer have a single employer and a regular full-time job, but instead will cobble together their income from multiple employers, each offering part-time contingent work and none legally responsible for providing a safety net to their freelancing workers. An Oxford University study of over seven hundred occupations found that a significant chunk of existing US jobs are at risk of elimination from computerization over the next twenty years10—tens of millions of jobs threatened by “technological unemployment,” as economist John Maynard Keynes once called it.11 Other experts dispute the extent of computerization’s impact, but all agree that the US economy is about to go through a major technological shift. We have no choice but to position Social Security to play a much more robust role in the evolution of this new economy.
Defending a Sacred Trust
The US retirement system, with all its components parts, has been the yellow brick road leading to a pot of gold at the end of most workers’ careers. It has demonstrated its value decade after decade, and it has been one of the most successful government programs of all time. And yet it is threatened now more than ever by leading politicians, business leaders, and media pundits who insist, despite all the facts to the contrary, that Social Security benefits are no longer affordable and must be cut. To the extent that there is another “side” of this debate over whether to cut Social Security, it comes mainly from those who are on the defensive, fighting merely to maintain Social Security as it is, or those who propose incremental reforms to preserve the status quo—even though the status quo is increasingly inadequate. Neither “side” of this debate is addressing the reality of America’s retirement crisis.
As we will see, although two of the three legs of the “retirement stool” have been sawed back to nubs, the only bipartisan proposal currently under consideration calls for cuts to the last remaining leg—Social Security. Each partisan side of the aisle has its own preferred way of doing that, but don’t be fooled: they amount to the same thing. They will make cuts in the ever-popular program that has long been one of the glues of our society, a sacred trust between generations and a testament to American family values. Even President Barack Obama at times has proposed his own type of cuts. Both sides are presenting the same basic face, which is biased toward the affluent and skewed toward private savings, rather than doubling down on the type of “wage insurance” that has been so successful—Social Security.
Naturally, the entitlement busters don’t always announce their scheming plans. Instead, they have been waging a stealth campaign, and so far, it’s working. They have plans to cut Social Security benefits, privatize our contributions, increase the retirement age, minimize the cost-of-living increase, and turn the whole thing over to Wall Street managers who will reap a fortune in charging fees and premiums to oversee this transformation. We saw how well that worked out with the hedge fund-stoked home mortgage crisis that collapsed the global economy in 2008. Not enough people sounded the alarm on that one until it was too late. This time, we have to expose the banksters and make the politicians listen. We need a “people’s plan” for fixing the retirement mess that the bipartisan consensus has dropped into our laps.
Imagine if the front page of every newspaper, or if the lead story on every media news show, blared a headline that shouted “Washington and Wall Street Conspiring to Gut America’s Retirement—and Only ‘We, the People,’ Can Stop Them.” Would Americans stand on the sidelines and let that happen? Would they tune out with their favorite TV shows and Twitter celebrities? Or like Paul Revere and the Minutemen, would they answer the call? I believe Americans would respond with pitchforks and torchlight parades, marching to dump the tea into the harbor.
But most Americans don’t realize what is happening, or what is at stake. The current crisis provides a crucial opportunity to rethink the system as a whole, and to redesign this “third rail” of politics for the challenges of the twenty-first century. In this book, I will show not only how to expand Social Security but also how to pay for it, and why that would be good for America’s retirees, good for America’s businesses, and good for our nation’s continued standing in the world as a beacon of hope and prosperity. My proposed plan for Social Security Plus—including a doubling of the individual payout—would form the core of a new kind of deal for American workers. There hasn’t been a serious call for Social Security expansion in a couple of decades, yet recently more political leaders and media pundits have raised this possibility. In a relatively short period of time, Social Security expansion is being discussed by more and more people as a serious solution to America’s retirement crisis. The political needle has moved, and a moment may be arriving that will reset this landscape.
This book provides a blueprint for how to move forward. Simply by making our retirement system more fair, we will vastly improve everyday Americans’ lives, including the younger generations, and preserve the power of hope in our nation’s dream. By making it more innovative, we will design a retirement system that has the ability to preserve Main Street’s crucial place in the emerging high-tech, new economy. And by making it more stable, we will put the national economy on a more solid footing, preserving the robust middle-class society that made the United States a great magnet for the world.
More fair, more innovative, and more stable … and better adapted to the realities of today’s new economy. Social Security Plus will contribute to a solid foundation from which to build a strong and vibrant twenty-first-century economy.
* To be clear, besides being a core part of the nation’s retirement system, the overall Social Security program also includes disability and survivor benefits, which help Americans and their loved ones in the event they become disabled, or in case a breadwinner of a family dies prematurely. Social Security is a powerfully comprehensive insurance program in that way, and the disability and survivor benefits are fundamental components of what makes ours a civilized society. But in this book I will only discuss the retirement portion of the Social Security program.