Expand Social Security Now!: How to Ensure Americans Get the Retirement They Deserve - Steven Hill (2016)
CONCLUSION. Guaranteeing the American Dream Through Social Security Plus
A woman I know named Jessica lost her job during the Great Recession, one of millions of casualties of the biggest economic collapse since “the one whose name must not be mentioned” (psst … the Great Depression). She had worked as a secretarial assistant for an upper-crust law firm in downtown San Francisco, which provided health care, a company pension, and decent wages. But when the economic earthquake shook, suddenly her world came crashing down. She was laid off and entered the scary, new world of being marginally employed.
Still in her mid-thirties, she collected unemployment for six months and then she bumped around from job to job, working as a temp, freelancer, contractor, gig-preneur—just about every worker classification there is—mostly part time with an occasional full-time office gig that lasted a short time. She tried her hand at being an Uber driver (“the company treats you like you are gum on the bottom of their shoe,” she said), and then she did a stint as a TaskRabbit handygal (“being called a ‘rabbit,’” she explained, “reminded me too much of Michael Moore’s film Roger and Me, when laid-off autoworkers ate pet rabbits being sold for food”). Finally, sick of feeling like a tumbleweed in the labor market, she scraped together her savings, borrowed a little from family and friends, and launched her own business. She decided to pursue a dream of being a seamstress, designing her own local line of women’s wear. She could use a “sharing economy” company like Etsy and its app-driven platform to advertise and sell. What the heck, she thought; if someone can make a fortune making cupcakes, why can’t I succeed at doing something I enjoy?
But soon after launching her one-woman business, she discovered that this was no nine-to-five gig. Oftentimes her workday was long, fifteen hours or more, sewing during the day and promoting her business at night, by e-mail, on her web page (which she maintained herself), often chained to her computer into the wee hours of the night. Working out of her apartment, slowly she cobbled together a small client list, mainly of older affluent women, silver-haired ladies with Margaret Thatcher hairdos who could afford her services. Though often these clients were so demanding of her time that when she figured out her earnings based on the number of hours worked, sometimes she barely made minimum wage. Plus, now she had to pay for her own health care, she had no paid vacations or holidays, and if she got sick, she couldn’t afford to take a day off. She knew she should be putting a certain amount of earnings away in order to build up her savings, but she didn’t earn enough to do that. She knew she was required, by law, to pay both her Social Security and Medicare contributions as well as the employers’ share, a total of 12.4 + 2.9 percent (15.3 percent) of her meager income, but that bite was kind of big, so sometimes she fudged on paying that as well.
Eventually she had to take a part-time job in order to make ends meet. After a couple of years of existing this way, she began focusing more intently on finding another full-time job, while still trying to service her small client list. As the economy began to recover somewhat, companies were hiring again, but now there was not as much of a demand for her office skills. New productivity software could do a lot of what she used to do. Should she go back to school and get more training, she wondered? She still had to pay off her original student loans. All of these questions rolled around in her head, nagging, as she worked over the sewing machine in her apartment.
For Jessica, and millions of workers like her, these dilemmas plague their every working day. Jessica used to converse with her wealthy lady clients, in the midst of measuring and sizing them, and they would give her advice about her business: “Deductions, Jessica,” they would tell her. “That’s the key, deductions.” If only she had a dollar for every time she heard that word. She was amazed to hear them talk about all their tax deductions and shelters, whether on their husbands’ business expenses (such as “work meetings” on the French Riviera), or the mortgage deductions on their fabulous homes in Seacliff or Pacific Heights, or on their 401(k)s and IRAs, or the low tax rate they paid on their capital gains investment income, and the accountant tricks with strange names like “step-up in basis” that allowed them to significantly reduce their tax burden. As a budding businesswoman, Jessica was all in favor of deducting expenses—except her business income was so low that deductions did her little good.
One day it struck Jessica: All of these ladies have ways to deduct, defer, exclude, and lessen their tax burden, but someone such as herself does not. When she worked at the law firm, she didn’t qualify for any deductions, outside the standard personal deduction that everyone is allowed on their income taxes. She was a renter, not a homeowner, so she didn’t qualify for the home mortgage interest deduction; she had paid into her company pension, but couldn’t afford a 401(k) or IRA, which would have qualified her for a tax-deferred deduction (and, as it turned out, her company received a significant federal subsidy for providing her pension). She didn’t have any inheritance or capital gains income that would benefit from the various federal subsidies provided to those forms of income. And her business did not have enough revenue to significantly benefit from business deductions. It kind of angered her to realize that, the way the tax system is structured, she, Jessica, was subsidizing all these wealthy ladies and their mountains of deductions, exclusions, deferrals, and government subsidies. What’s wrong with this picture? she wondered. Where is the fairness?
This is the nationwide context in which the debate over Social Security is taking place, yet most Americans don’t even realize it. The tax system has become so unfair that’s it’s wealthier Americans who are today’s “welfare queens,” not the poor. As we have seen, many of America’s most lucrative social welfare benefits relating to home ownership and retirement, as well as education and child care, are delivered through the tax codes as deductions against income. This has created a two-tiered welfare state that heavily favors higher-income groups; indeed the majority of benefits now go to the top 10-20 percent of wealthiest Americans, not to those who need them most.
But that also means that as unemployment and underemployment rise and the incomes of those in the middle decline, so do their benefits for education, child care, and retirement. As a result, many everyday Americans can quickly find themselves pushed into the lower tiers of America’s social welfare system, fighting for limited resources.
Like many other Americans, at this point I find myself nostalgic for the “good old days,” even as I realize that they were not so good. When I was a kid, The Waltons was a hit TV show about a farming family and its feel-good experiences during the Great Depression in a close-knit agrarian community in rural Virginia. Each episode ended warmly with “Good night, John-Boy.” But today, when you say “The Waltons,” it has a very different meaning—they are the controversial owners of a multinational retail corporation that operates a chain of discount department and warehouse stores. The heirs of Walmart founder Sam Walton—three children and one daughter-in-law—are worth collectively over $140 billion and ranked six, seven, nine, and ten on Forbes’s list of wealthiest Americans.1 And yet Walmart officials insist that the scourge of just-in-time scheduling, in which employers dictate to their workers their daily work schedule, with no employee input or even advance notice, is central to its successful business model.2 Walmart, which costs taxpayers $6.2 billion per year for providing public assistance to its workers because the pay is so low, accepts no criticism of its exploitative business practices.3
The ridesharing octopus Uber, which is headquartered in San Francisco, raised eyebrows a few years ago over the Fourth of July weekend when it offered wealthy New Yorkers the “ultimate freedom from the crowds, the traffic and the long trip out East” to the exclusive enclave of the Hamptons: a rented helicopter for $3,000, called UberCHOPPER. “Blair Waldorf, Don Draper and Jay Gatsby got nothing on you. This is the epitome of luxury, convenience and style,” Uber boasted in a blog post.4
And billionaire Facebook executive and Napster founder Sean Parker spent $10 million on his fantasy wedding in a redwood forest on California’s Big Sur coast, hiring a landscaping company to “modify” the forest. The California Coastal Commission said Parker hadn’t acquired the permits for such modifications and ordered him to shut the party down. But Parker ignored the commission and went ahead anyway. The wedding took place amidst fake fairyland castle-type ruins, an artificial waterfall, stone bridge, and elfin cottage surrounded by five-hundred-year-old giant redwoods. In attendance was an A-list of guests that only money can attract, including entertainment glitterati such as Sting, Harry Potter’s Emma Watson, Sean Lennon, and Metallica drummer Lars Ulrich. Democratic politicians such as California attorney general Kamala Harris, former San Francisco mayor Gavin Newsom, and now-US senator Cory Booker were also there, and reportedly all the guests were clad in custom-made Tolkienesque garb.5 Afterward Parker paid a $2.5 million “settlement” to the coastal commission for his violations, but that’s just pocket change for an arrogant billionaire.6
Not to be outdone, David Sacks, a former PayPal executive who founded Yammer, threw himself a birthday party rumored to cost $1.4 million. It had a Louis XVI theme, “Let him eat cake,” complete with attendees dressed in Louis XVI costumes and entertained by Snoop Dogg.7 Could there be a more fitting symbol for these extravagant times?
But it’s not just certain rich individuals who have benefited from this new Gilded Age; it’s also US corporations writ large. These “artful dodger” corporations have found numerous loopholes and foreign tax havens to reduce their tax liabilities.8 On their $2.1 trillion in profit in 2013, they paid just $419 billion in corporate taxes, an effective tax rate of just under 20 percent9—one of the lowest rates since 1931, only a third of the rate that corporations paid in the 1960s, and less than the rate paid by most middle-class people.10 The share of federal tax revenues paid by US corporations has declined dramatically, from 33 percent in 1952 to a mere 11 percent today. Corporate profits are at their highest level in at least eighty-five years, while employee compensation is at its lowest level in sixty-five years.11
So, it’s pretty hard to argue with a straight face that our great nation doesn’t have the money to pay for a doubling of the Social Security payout. Disparities in wealth, which have long been a major part of the political jousting field on the American landscape, were greatly exacerbated by the Great Recession, and in so many ways our nation has still not recovered. But it’s getting harder to notice, as the “new normal” has settled into our bones. The economic collapse reinforced America’s growing two-tier society and put into question our entire economic model. It also put enormous strain on the US social contract. A census report found that many households have still not regained the purchasing power they had before the recession that began in December 2007. Median household income was 6.5 percent lower in 2014 than in 2007, and with median household income in the United States stuck at around $53,660 per year, that represents a loss of nearly $3,500 per year, per household. Nearly 15 percent of Americans remain in poverty, which amounts to almost 47 million people, larger than the entire populations of Spain, Kenya, or Iraq.12
In the immediate aftermath of the economic collapse, in December 2009, the official unemployment rate was 10 percent, but everyone knew that number was only a half-truth; even more workers had dropped out of the labor force and become “discouraged,” and still others were forced into part-time work out of necessity. Indeed, what is known as the U6 unemployment rate, which is the measure for “total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons,” was over 17 percent for many months after the Great Collapse. Today, the official unemployment rate is 5.7 percent, but the U6 rate is still an alarming 11.3 percent.13 There are a lot of workers who have left the labor force—an estimated 12 million, in fact—and other Americans who are stuck in part-time work.
And this occurred after two long decades of stagnant wages and declining prospects for the middle- and lower-income classes. The Great Recession clearly exposed the many holes in America’s rather porous social safety net. Before the collapse, says Sherle Schwenninger, director of the Economic Growth Program at the New America Foundation, “rising home prices and access to credit had masked the effects of stagnating wages.” Inflated prices (that we now know were the result of a massive housing bubble) allowed homeowners to live a fiction, maintaining and even improving their living standards by taking out second mortgages and tapping into the inflated equity in their homes. In addition, easy access to credit allowed families to weather economic downturns or medical emergencies. But it came at a slowly creeping cost—rising household indebtedness.
“With the bursting of the housing and credit bubble,” Schwenninger explains, “this essential feature of the Clinton-Bush era imploded, leaving many households with a large debt hangover.”14
The “New Economy” Steamroller Arrives
If only we could have frozen things there for a few years as we tried to figure out appropriate policy interventions. But rust never sleeps, and in the aftermath of the Great Recession, the economy morphed into another animal entirely—and in ways that make expanded Social Security even more important to the retirement security of most elderly Americans.
Increasing numbers of workers now find themselves on shaky ground, turned into freelancers, temps, contractors, and part timers. Even many professional jobs are experiencing this precarious shift. Within a decade, it’s been estimated that nearly half of the 145 million working Americans could be impacted, turned into so-called “independent workers” with little job security, insufficient safety-net supports, and poor wages.15 Add to that new antiworker methods such as “just-in-time” scheduling and the steamroller of automation, robots, and artificial intelligence already replacing millions of workers and projected to “obsolesce” millions more, and suddenly things don’t look so economically set for a lot of Americans. Now an insidious mash-up of Silicon Valley technology and Wall Street greed has thrust upon us the latest economic trend: the so-called “sharing economy,” with companies that offer short-term freelancer employment with low pay, no safety net, and a need to be in constant job search mode, looking for the next gig. One Uber driver with whom I spoke laughed bitterly when I mentioned the term “sharing economy.” “More like the ‘share the crumbs’ economy,” he said.16
It’s an alarming transformation. The US middle class, one of America’s greatest inventions and a gift to the world, is in danger. The future is anything but secure. Set to replace the crumbling New Deal society is a darker world in which workers can be hired and fired by the touch of an app—turned on and off like a water spigot.
These changes mark one of the great social and economic transformations of the postwar era. A seismic shake to the supportive edifice for American workers has cracked and is beginning to crumble for all but the better-off. Not since the Great Depression have we been so in need of a system of retirement security that acts as both a buffer for individuals and families from the sudden shocks of economic downturns and bursting asset bubbles, but that also acts as an automatic stabilizer and stimulus capable of steadying the broader macroeconomy. At the very time when Americans most need a stable retirement system, it is more threatened than ever.
So yes, our economy is changing, and yes, Social Security must change with the times. But the change that must occur is not cutting it back, quite the contrary. We have to expand Social Security and create a robust, single pillar retirement system for every worker, one that is portable from job to job. And one that functions even for those workers who have multiple employers. So the safety net has to work for these new types of workers, and for many different classifications of workers. That’s what the need is, and an expanded Social Security could best provide the retirement portion of this new kind of safety net for this new kind of economy. No other system or method—not 401(k)s, IRAs, the remnants of company pensions, the loopholes of tax deductions and deferrals, or any other current method, even if scaled up—are capable of playing this role. Only Social Security can do it.
And yet Social Security’s payout to each individual is so meager that, unless it is expanded, it will not be robust enough to play this central role as the nation’s de facto national retirement system.
Social Security Plus—the Only Solution Left Untried
Winston Churchill allegedly once said, “You can always count on Americans to do the right thing—after they have tried everything else.”17 We’ve tried just about everything else to create a secure retirement system for seniors, and to stabilize this part of the consumer demand that drives our economy. What we haven’t yet tried is Social Security Plus.
Late nineteenth-century German leader Otto von Bismarck first pioneered the idea of old-age government pensions, and it has since become a staple around the world. A universal social support system, whether in Europe, Canada, Japan, or Australia, is guided by a philosophy that values the creation of “social insurance” that helps individuals and families prepare for their future, including retirement. In fact, the various social insurance systems force individuals to prepare, paycheck by paycheck, by deducting from workers and businesses the funds necessary to better secure their futures. Universal social insurance means everyone pools their money, which is a crucial step that allows better planning and the creation of more efficient and less expensive support systems. Consequently, European systems of health care, child care, senior care, housing, and education cost much less per capita compared to US systems, because the efficiencies that can be designed into universal systems make them much more economical and cost-effective.
For example, the United States spends over 17 percent of gross domestic product (GDP)—about $2.9 trillion, or $9,255 per person—on a decentralized hodgepodge health-care system that is very expensive to administer and operate.18 Even after the improvements of Obamacare, health care still doesn’t cover about 11 percent of the US population. But European nations spend about 6-12 percent of GDP (depending on the country) and cover 100 percent of their populations.19 Americans also spend at least six times more per capita for child care (depending on the country), and while university tuition is skyrocketing in the United States, in most European nations it is still quite inexpensive, only a few hundred dollars per year.20
The Swedish Social Insurance Agency publishes a brochure that captures the prevailing philosophy: “Social insurance is founded on the idea of people helping each other through a kind of social safety net, which is in place from birth to retirement.”21 Netherlands Labor Party leader Wouter Bos has argued that Europe’s social state is based on “enlightened self-interest” since “we all run the same risks, so we might as well collectively insure ourselves against those risks.”22 This is a philosophy with broad agreement across the political spectrum; even conservatives and the so-called far right agree, forming the basis for a “European consensus.”
So enacting a version of Social Security Plus is not as untested as it may at first appear. In many nations around the world, more comprehensive social support systems aid families and individuals and cushion vulnerable populations against economic dislocation. Nevertheless, in the United States we continue stumbling forward with our more ad hoc, decentralized, and inefficient systems, in which some people get the support they need and others don’t. And the support systems are so poorly designed that the national price tag is often exorbitantly expensive. The more deregulated US system is known for allowing individuals to keep more of their paycheck—presidents from Ronald Reagan to George W. Bush were famous for declaring, “We let you keep your own money”—and leaves it up to Americans’ discretion whether to prepare for the long run by saving money and handling the costs of retirement, or to spend it all in the short run. But in an age of globalized capitalism and increasing economic insecurity, benefits like an adequate retirement, as well as health care, child care, sick leave, education, housing, and more, are no longer discretionary—they are necessary in order to enjoy a basic level of security and comfort. What this points to is that in today’s insecure age, a middle-class standard of living is not only about income levels or economic growth rates, but also about adequate support institutions and social insurance for individuals and families.
Japan, Canada, and countries in Europe and elsewhere have already established various vehicles to ensure their health, productivity, and quality of life that will serve them well in the new, high-tech economy. While all of these nations, like the United States, rely on powerful capitalist engines as the core wealth generator of their economies, the presence of a more robust social insurance infrastructure is the reason that these other nations have a higher level of economic security for its people than does the United States. The US is the outlier among developed nations; our “ownership society” should be called an “on-your-own” society because many people are truly left on their own.
The security of social insurance in turn stimulates consumer spending, which in turn creates jobs, which in turn acts as an automatic stabilizer during downturns. It unleashes a virtuous feedback loop, based on these necessary components of a modern capitalist economy today. A more comprehensive social insurance system allows these other countries’ to achieve one of America’s chief principles, namely, “life, liberty, and the pursuit of happiness,” with results that are vastly different from the American “pull yourself up by your bootstraps” society. Expanding Social Security would be an important step toward providing for all Americans the type of efficiencies that modern capitalist economies need in order to provide retirement security.
One can anticipate various objections, criticisms, and even fear of creating a Social Security Plus system. “It has never been tried before” (at least not in the United States), “it’s socialism” (even though 70 percent of Republicans support Social Security), “it’s already going bankrupt” (nonsense), and “where would we find the money?” (how about from all the hundreds of billions of dollars in tax loopholes that predominantly favor wealthier Americans?). Already there exists a concerted and well-funded effort to convince Americans that Social Security is broken and that we need to cut it back and even privatize it “in order to save it.” So I’m very aware that some Americans, both leaders and everyday citizens who have grown so suspicious of government, will reject out of hand the notion of doubling the monthly benefit.
But what can’t be denied, as this book has demonstrated, is that the “three-legged stool” of retirement security in the United States has become wobbly and unstable. Two of the legs—private, employer-based retirement plans, and private savings based on homeownership—have nearly collapsed. Combine that with vast increases in inequality, flat wages, and a decline in personal savings in the years even before the Great Recession, and Social Security is now the only leg standing for tens of millions of Americans. An expansion of Social Security—one of the most successful and popular government programs in US history—into a more robust retirement system that doubles the current payout to individuals would build upon the most stable components of the current system.
The president and Congress, in their budgetary duties, and the US Federal Reserve bank in its financial oversight capacity, have all the levers they need to ensure financial viability. This is a matter of politics, not economics. It is clear that the best way to stabilize and strengthen the retirement system, as well as the broader national economy itself, is to expand Social Security, bringing the American retirement system more in line with those in other developed societies. This can be accomplished by making the Social Security payroll tax fairer and more universally applied, by eliminating deductions for businesses that provide retirement plans (since that would be unnecessary with Social Security Plus), and by rolling back or limiting various tax-favored loopholes and deductions that massively favor wealthier Americans. Multiple mechanisms and plans are possible toward those goals.
More broadly, the United States must begin to view universal social insurance as a critical pillar of support for Americans and their families, as well as for US businesses that currently miss out on the competitive advantages that would come if retirement and health-care systems were not substantially employer based. The United States was once noted for its capacity for economic, political, and social innovation; in the aftermath of World War II, we created a land of broadly shared prosperity and opportunity, and starting in the 1960s began extending access to racial minorities, women, the LGBT community, and more. We have to rediscover our genius for that kind of innovation. We have to recognize that it is possible to create an affordable retirement system that is both decent and stable. This is not rocket science; it’s a matter of political will, not a failure of design.
Retirement experts like Laurence Kotlikoff, Philip Moeller, and Paul Solman, in their best-selling “advice” book Get What’s Yours: The Secret to Maxing Out Your Social Security, have provided a nice handbook on how to boost your Social Security benefit, using clever schemes like “file and suspend,” “spousal benefits,” and other brainy ploys.23 But wouldn’t it be better to have a retirement system that provides adequate income for seniors without having an accountant’s insider knowledge of the byzantine rules and tricks? The enormous gap between what is needed and what is being proposed by the politicians and professionals is glaring evidence that we need a completely new and pragmatic approach.
As we have seen, we don’t need to cut Social Security, or trim it, or pare it back, or privatize it, or raise the retirement age, or use chained CPI (consumer price index) to reduce the annual cost-of-living allowance. Even maintaining the status quo is woefully inadequate at this point. We need to expand Social Security, and we need to do it now. That is the only sensible solution to the retirement crisis. And we have a roadmap for how to get there:
TAX FAIRNESS = RETIREMENT SECURITY = ECONOMIC STABILITY
Any movement that seeks to enact expansion of Social Security must link that to a call for tax fairness, since that is the most salient source of the revenue needed to pay for the Plus system. By reallocating federal tax and expenditure priorities that currently provide huge financial advantages to a small number of better-off people and concentrating them instead on the vast majority of Americans, we can create a retirement system that will work for all of us, instead of some of us.
The creation of expanded Social Security Plus would provide a secure and comfortable retirement for every American, and contribute greatly toward a solid foundation from which to build a strong and vibrant twenty-first-century economy. Our retirees, our families, our businesses, and our communities deserve no less.