using the chained CPI inflation measure to cheat elderly Americans out of the benefits they were promised. In two
I’ve explained the perversity of the current debate about Social
Security. The tax-favored private components of America’s mixed
private-public retirement system — programs like employer pensions,
401Ks and IRAs — are inefficient, volatile and subject to manipulation
by overcompensated, fee-extracting money managers. In contrast, the
Social Security program is simple and efficient, and has low overhead
costs. And yet the bipartisan establishment, including many
“progressive” Democrats as well as Republicans, wants to cut Social
Security — the part that works — and expand tax-favored private savings,
the inefficient, unstable and inequitable part.
While cutting
Social Security makes no sense at all in terms of economics or public
policy, it makes excellent sense in terms of the selfish class interests
of the super-rich. They have extracted about half the gains from
economic growth in the U.S. in the last half-century and recycle some of
their profits to fund politicians, and lobbyists, as well as mercenary
propagandists who pose as neutral think tank experts. Social Security’s
contribution to the retirement income of the rich is negligible, while
the top 20 percent receives around 80 percent of the income from
tax-favored private retirement savings accounts like 401Ks. Naturally
many of America’s oligarchs want the public discussion to be solely
about cutting Social Security benefits for the bottom 80 percent, rather
than 401Ks for the top 20 percent. To paraphrase Leona Helmsley, Social
Security is for the little people. And if we cannot afford all of our
present public-plus-private retirement system … well, as the saying in
Tsarist Russia had it, let any shortage be shared among the peasants.
Elite
discourse on this subject is radically at odds with public opinion.
According to a February 2013 Pew poll, only 10 percent of Americans want
to cut Social Security while
41 percent want to increase Social Security benefits.
It’s time to change the public conversation about retirement security
in America to reflect the beliefs and interests of the struggling many,
not the fortunate few. We need to change the subject from cutting Social
Security while subsidizing luxury retirements for the elite to cutting
retirement subsidies for upper-income groups while expanding Social
Security benefits for the majority of American retirees.
The
simplest way to expand Social Security would be simply to expand the
present Social Security program: Old Age and Survivors Insurance (OASI).
But OASI is paid for solely by the payroll tax, a regressive tax that
falls most heavily on lower-income workers. Today individuals pay the
payroll tax only on wages up to$113,700. Raising the payroll tax cap
could contribute to reducing the shortfall between payroll tax revenues
and promised Social Security benefits that is expected to open up in the
2030s. Lifting the cap entirely might eliminate the shortfall entirely.
But
even if the present system’s future funding needs are met, Social
Security as it now exists is inadequate to compensate for the rapid
disappearance of traditional pensions and the failure of 401Ks, IRA(s)
and other tax-expenditure-subsidized private retirement savings. And
Social Security is not very generous, by international standards. In the
Natixis Global Retirement Index, the U.S. ranks 19th — behind countries
like Slovakia and the Czech Republic. The gross replacement rate for
the average earner (how much pre-retirement income is replaced by public
or publicly mandated benefits) is only around 40 percent, while the
average in the European Union is more than 60 percent.
In response
to the failure of the private retirement system, we should go beyond
merely maintaining the public share of retirement income to expanding
it. In
a new paper,
“Expanded Social Security: A Plan to Increase Retirement Security for
All Americans,” Steven Hill, Robert Hiltonsmith, Joshua Freedman and I
propose boosting public benefits from 40 percent to 60 percent of
pre-retirement income for the medium earner, making reliance on failed
and inequitable private savings programs less necessary. We would do so
by fully funding the existing OASI program, which would be renamed
Social Security A, and adding an additional universal, flat benefit
called Social Security B.
As a thought experiment, we calculated
how big Social Security B would have to be in 2035, if Social Security A
and B combined were to add up to 60 percent of pre-retirement income
for the average earner instead of today’s 40 percent for today’s Social
Security alone (the thought experiment is not wholly realistic, as it
leaves out transitions from the present system and other complications).
Strikingly, the inflation-adjusted number that resulted from this
back-of-the-napkin thought experiment, $11,699 a year, is very close to
what a poverty-level, universal basic income for the elderly would be;
in 2013 the
official poverty level for a single individual is $11,490.
Because
Social Security B, like Social Security A, would be universal, all
economic classes would benefit, although in diminishing degrees as their
other sources of retirement income rose. While the biggest winners
would be low earners, who would enjoy nearly 100 percent pre-retirement
replacement rates from public funding in the new system, high earners
would benefit somewhat as well.
To
pay for the two components of Expanded Social Security — fully funded
Social Security A and the new flat benefit, Social Security B — we would
have to raise an additional 5 percent of GDP a year in taxation. While
that sounds like a lot, the only relevant number is the percent of GDP
that would be disbursed to retirees by all government-sponsored programs
— a category in which we include defined benefit pensions, 401Ks and
IRAs as well as today’s Social Security program. Under our scenario, in
2035 a slightly lower portion of the economy would be devoted to
government-backed public and private retirement plans than would be the
case if our present system continues unchanged.The funding of Expanded
Social Security would also be far more progressive than today’s system.
The
present OASI program, although it is funded by a regressive payroll
tax, is moderately redistributive in its benefits formula. The
additional Social Security B benefit we propose would be a universal
basic income for the elderly paid for by taxes other than payroll taxes,
such as general revenues, or a dedicated tax, such as a portion of a
new federal value-added tax. Either general revenues or a VAT from which
necessities were exempted would be far more progressive than the
payroll tax, increasing the progressivity of the new two-tier Social
Security system on the revenue side. While our plan devotes no more
money to spending on retirement, as a share of the overall American
economy, than does the present system, the well-off minority of American
would take a big hit, notwithstanding the small benefit they derive
from Social Security B.If the present system continues, then
tax-sheltered private savings plans will pay out more in retirement
income in 2035 (7.5 percent) than unreformed Social Security (5.6
percent). Most of that 7.5 percent will go to the affluent and the rich.
What
possible public interest can there be in having all American taxpayers
subsidize the retirement savings of the rich? If any tax-favored private
savings plans are to exist at all, there should be strict contribution
limits — say, $5,000 per year — to prevent the rich from squirreling
away money and benefiting from compound interest at the taxpayer’s
expense. The wealthy supporters of Social Security cuts say Americans
should compensate by saving more. Well, let the rich set an example by
saving more if they want to, once we take away most of their retirement
savings tax breaks.
Needless
to say, in today’s money-soaked Washington the chances that our
Expanded Social Security plan will be enacted are slim to none. Our
purpose in putting forth this plan is to change the debate by moving the
goal posts. Today the “progressive” position is merely paying for
promised benefits; the “conservative” position is abolishing Social
Security completely; and the “moderate” or “centrist” position is
cutting Social Security.
In the new debate — foreshadowed not only by our plan, but by influential thinkers like
Josh Barro,
Matthew Yglesias and
Duncan Black,
who might not endorse our particular proposal — the new “progressive”
position, as it were, would be dramatically expanding Social Security;
paying all promised benefits would be the new “center”; and cutting
Social Security, by means of a higher retirement age, means-testing, or
using inflation to rob seniors of promised benefits (“chained CPI),
would be the right-most position. President Obama, in reportedly
proposing to cut benefits for the elderly with chained CPI, should be
careful, or he will end up looking as right-wing in retrospect as
President Clinton does now for signing rather than vetoing the Defense
of Marriage Act.
Until now, the debate about the future of Social
Security has been rigged by the rich and right wing and their minions.
It’s time for a genuine debate to begin.
This is the third in a three-part series. Read parts I and II.
No comments:
Post a Comment