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Don’t Cut Social Security, Double It
In the aftermath of the Great Recession, a debate over Social Security, is heating up. This debate raises fundamental questions about what kind of society Americans wish to live in. So far, the debate has been between those deficit busters who say Social Security must be trimmed back to reduce government indebtedness, and others who want to maintain it as is.
But the New America Foundation just released a study that I authored that proposes a different approach: doubling the current Social Security payout, and making it a true national retirement system. Creating a more robust system of "Social Security Plus" not only would be good for American retirees, but also would be good for the greater macro economy.
Here's the dilemma that the U.S. faces. Since WWII, retirement has been conceived as a "three-legged stool," with the three legs being Social Security, pensions, and personal savings centered around homeownership. But today most private sector employers have quit providing pensions, and state and local government's public pensions are drastically underfunded.
In addition, a collapsed housing and stock market, combined with increased inequality even before the Great Recession, have drastically reduced Americans' personal savings. In short, the "retirement stool" no longer is stable and secure, and suddenly Social Security, which always has been viewed as a supplement to private savings, is the only leg left for hundreds of millions of Americans.
Studies show that people in the bottom two income quartiles depend on Social Security for 84 percent of their retirement income, and even the second richest quartile depends on Social Security for 55 percent of its retirement income. Only the richest 25% of Americans don't rely heavily on Social Security.
But the real problem with Social Security is not, as its critics say, that it is underfunded. Contrary to gloomy predictions the program is on solid financial footing, with the Congressional Budget Office projecting that Social Security can pay all scheduled benefits out of its own tax revenue stream through at least 2037.
The bigger problem is that Social Security's payout is so meager, which is problematic since it has been thrust into this new role as a de facto national retirement plan. Currently it replaces only about 33 to 40 percent of a worker's average wage from the year prior to retirement (compared to Germany where it replaces 70 percent). That is simply not enough money to live on when it is your primary -- perhaps your only -- source of retirement income.
Doubling Social Security's individual payout would cost about $650 billion annually for the 51 million Americans who receive benefits. Here are some ways to pay for it.
First, lift Social Security's payroll cap that favors the wealthy. Currently Social Security only taxes wages up to $106,800 a year, and any income earned above that is not taxed. The net result is that poor, middle class, and even moderately upper middle class Americans are taxed 12.4 percent (split between employee and employer) on 100 percent of their income, but the wealthy pay a much lower percentage. Millionaire bankers effectively pay a paltry 1.2 percent.
Making all income levels pay the same percentage -- that's how Medicare works - is popular with Americans and would raise about $377 billion.
Second, with all Americans receiving Social Security Plus, employer-based pensions would be redundant so businesses no longer would need the substantial federal deductions they currently receive for providing employees' retirement plans. These deductions total a whopping $126 billion annually.
Those two alone would provide three-fourths of the revenue needed to double Social Security's payout. Other possible revenue streams exist, such as reducing or eliminating other unfair deductions in the tax code which currently allow the top 20 percent of income earners to reap generous deductions that most low and moderate income Americans cannot enjoy. These include deductions for private retirement savings, homeownership, health care and education. For example, individuals who have enough income to divert for savings or investment are allowed considerable tax deductions for their 401(k)s, IRAs and pensions. Similarly the homeownership deduction for mortgage interest only benefits people with sufficient income to buy a home. But the poor and working class rarely can take advantage of these since they don't make enough to itemize deductions.
These personal deductions were enacted by Congress in part as a means to incentivize savings. While a certain number of moderate income Americans benefit from these, if we enacted Social Security Plus they would no longer need to rely on these deductions as vehicles for retirement savings. Instead of buying a home as part of their retirement plan -- which as we have seen is a risky investment -- they could put their money into Social Security Plus. In 2010 the mortgage interest deduction alone will amount to about $108 billion.
We also could implement this in stages, targeting first those who are most in need. We also could allow active seniors who have not yet reached full retirement age to take a half-pension and work at half-time without losing their right to a full pension upon their retirement.
An expansion of Social Security -- one of the most successful and popular social programs in American history, currently celebrating its 75th year -- would be good for the macro-economy as well because it would act as an "automatic stabilizer" during economic downturns, keeping money in retirees' pockets and stimulating consumer demand. Benefits would be portable when changing from one job to another.
It also would help American businesses trying to compete with foreign companies that don't provide pensions to their employees, since those countries already have generous national retirement plans. And it would be broadly fair, since even those higher income Americans who are losing their tax deductions would see part of it returned to them in the form of a greater Social Security payout.
In short, Social Security Plus would provide a stable, secure retirement for every American and contribute greatly toward a solid foundation from which to build a strong and vibrant 21st century U.S. economy.
- Posted in
31 Comments so far
Show AllSteven Hill's proposal makes eminent sense. Unfortunately, given the fact that his idea involves taxing the rich at a higher level than they are currently paying, it remains to be seen if the GOP and the Savage Mules, considering how often they bend to the ruling class in this country, would ever entertain the possibility of making Hill's radical suggestion a reality.
Another way of funding Social Security Plus would be in slashing the military budget by at least a third. But doing such a supposedly unpatriotic act in this country is a gesture that would, unfortunately, be tantamount to treason. To recall the words of one of the early American patriots [Patrick Henry], if this be treason, let us make the most of it.
Last month on the 75th anniversary of Social Security Obama told the world "the Republicans want to privatize Social Security" thereby prepping us for the kinder and gentler gutting of social security that his catfood commission will propose after the November election.
A president who really stood for hope and change would have announced that he would use the anniversary as a milestone to launch a push for enhanced Social Security benefits for all Americans.
Wow!! what an idea..give the money to people that need it.and will spend it,instead of the plutocrats and war ripoff artists...go democracy.
I can't add anything to an already excellent reply by "Erroll".
Great concept, but impossible to enact in our current plutocracy.
Great article...I've been saying Democrats need lessons in negotiation...when Republicans argue we must abolish Social Security, Democrats can't weakly say 'no don't privatize Social Security', they should say Republicans are in bed w/ Wall Street, we need to expand Social Security.
Social security is, to some, a bank vault to be raided and the proceeds handed over to, say, big pharma without the money ever going to seniors. This blatant raid is similar to income tax being a perpetual cash cow for the income tax industry, a useless tick sucking Uncle Sam's blood forever and ever.
"For example, individuals who have enough income to divert for savings or investment are allowed considerable tax deductions for their 401(k)s, IRAs and pensions. Similarly the homeownership deduction for mortgage interest only benefits people with sufficient income to buy a home. But the poor and working class rarely can take advantage of these since they don't make enough to itemize deductions. "
This isn't clear. Last time I checked, IRA and 401(k) deductions didn't require itemizing deductions, but were either on separate lines of the tax forms, or taken out before being counted as pay somehow. Am I wrong?
I do agree we need to increase Social Security, but let's not make erroneous assumptions as part of that ...
I am only familiar with the IRA deduction. It is quite clear. As Hill says (and you also), everyone who puts money in an IRA can deduct this from their taxes.
Whether you can itemize or not has nothing to do with income, it has to do with having itemizable deductions greater than the standard deduction. Usually, the interest on even a modest mortgage plus state and local taxes is higher than the standard deduction.
The mortgage interest deduction is hardly just a rich-persons benefit. In the rust belt, a house can be bought for $20-$50K and plenty of low-income people are paying mortgages. It is cheaper than paying rent.
I've said this before, and no doubt I'll be saying it again: Study the Retirement System of Canada.
It exists notwithstanding the same class warfare as in the USA. It pours oil on those troubled waters.
Except for the small guaranteed old-age benefit, (up to $500/month plus up to another $500 if you are poor). I don't see a lot of difference between the Canada system and US system.
I assume most of a Canadians gov.-provided retirement benefit comes from the CPP, which very similar to social security, except that perhaps, the employer and employee contributions actually go into a dedicated fund (correct?), while the US social security tax gets used as general revenue. Come to think of it, that alone might be a significant difference.
I don't think that Canada has, not yet anyway, the degree of aggressive war on the worker and the poor that is going on here in the US.
This needs to be parsed. First, you will receive CPP from those earnings upon which you paid insurance premiums, exactly like SS. Second, there is an Old Age Security pension based upon years of Canadian residence. The range that it covers is not relevant.
What is relevant is the sum of these two programs, and the relation of that sum to a minimum income referenced to poverty level. It is called the Guaranteed Income Supplement. If your CPP and OAS are less than the reference, you get topped up to the reference. The last time I looked, that was just over $15,000 annual. And almost no amount of that will go directly for medical expenses for seniors.
My point is the egalitarian philosophy of =human worth & dignity= displayed, versus an American view of any kind of scheme of guaranteed income for elderly: "Let them eat Draino and die".
Social Security has worked well for those of us who have managed to remain healthy until retirement, as well as to live for many years after this date.
It hasn't worked well for those who, for whatever reason, including health issues, either don't "last" long enough to retire, or if they do, to "enjoy" very many years of benefit from it.
Rather than doubling the benefits to the "lucky" ones, why not reduce the age for retirement to 60 (and eventually to 55) so those who would not otherwise benefit from SS, in spite of a lifetime of paying into the system, actually could. Same for Medicare.
A sliding scale for benefits, based on other sources of wealth (income) should also be part of the equation.
To avoid "gaming" the system, a 20 year limit on full payments should be implemented. When this period expires they should be reduced by 50%. Healthy people should be able to plan ahead for this.
IMO--far too many resources for Medicare are used in prolonging the lives of elderly patients beyond 80, when they could better be spent on younger citizens, who've had a far rougher time of it than most (early) "baby boomers" like myself.
Call me a "death panel" advocate if you wish.
Another method that could be used to detrmine Social Security payments is one based on the old "declining balance" method of calculating depreciation. This would cause Social Security checks to decrease exponentially once retirement is announced, at any time after age 55.
For new retirees, the maximum income could be based on income performance over the past decade.
The "decline rate" after the first year would be based on the number of quarters contributed--the more quarters, the lower the exponential factor or "decline rate".
For example--only 40 quarters of contributions to the system--your decline rate would be 6% annually. For 80 quarters, it would be 3% annually. For a more typical 120 quarters (30 years) it would be 2% annually.
Medicare, with it's generous medical disbursements for expensive operations to prolong the lives of the elderly has to be totally reconstructed to provide incentives for "preventive" care. Cheaper to send someone to a "fat farm" for a month even when they are still otherwise healthy, than to keep him/her alive as a vegetable for the same period in a hospital bed.
Too bad the vast majority of Americans don't understand the exponential function.
I say, "Set the old folks on ice flows." (It's less painful than your plan AVE_fan.)
Don't hold your breath, hell we can't even get our COLA for the first time since it was put into law. The powers to be said we were not owed, whens the last time they went shopping?
I sure hope folks read Greenwald's blog entry on this topic, which is under the title "In Defense of Alan Simpson." http://www.salon.com/news/opinion/glenn_greenwald/
At CD, it ought to be front and center and emblazoned with all sorts of icons to tell folks of its importantance. What is being done behind closed doors right now is an even greater act of betrayal by the Democrat Party than either givaways to Wall Street or health "insurers"!!!!!
Thank you karlof1. I am sending that link to a list of people.
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If this so-called Deficit Commission does what Mr. Greenwald predicts it will do WRT Social Security and Medicare - in the wake of $14 trillion in bailout blowjobs to the top one percent of this nation, in secret and after the November elections - then the commission members probably should plan =NOW= upon living deep underneath Cheyenne Mountain, Colorado [NORAD] for the rest of their natural lives, or plan to emigrate elsewhere as fast as possible, taking Barack Obama with you.
Have you ever seen a carpet warehouse which uses a special kind of lift truck attachment? It consists of a single, pointed, metal pole some 12 to 18 feet long. The lift truck-mounted pole is aimed at and guided into the center of a heavy roll of carpeting, for lifting and transporting. See the Internet for pictures.
The American poor stand a clear chance of being stripped, bent over forward, chained into the vulnerable-ass position, and skewered by such a device. The result would be a Death Scream Heard Around the World and -in this writers opinion- would have more potential than any other government action in the last 100 years to trigger a nationwide, armed rebellion of average Americans in order to throw off this "bought and paid for" farce of a government.
Be very clear. By making this blunt statement I am not =advocating= any violent overthrow of our government, nor =inciting= anyone to riot. I am suggesting to both the Executive and Congressional branches of government: STOP! Take a clear reading on the fury that is already gripping the American public; take a clear reading upon the walloping increase of persons who feel that democracy has been replaced in America by the political syphilis of fascism. This could be the classic straw that breaks the camel's back. Under those conditions of betrayal the People have a right to act in collective self defense against government, and to establish a new order.
Private pensions are subject to a lot of abuse by employers. People in my father's generation were very often laid off or fired just short of 20 or 25 or 30 years, just when one or another pension or pension hike was about to kick in.
Such abuse would have to become more common today, where longterm employee loyalty as such a reduced role in the labor market.
Americans saw what happened to personal savings in 2008: large corporations are gunning for Grandma's pennies, just as they have worked to corner and fleece small investors in the stock market.
The only real possible plans are very broad socialized programs, as on a state or federal level, or local groups that have the potential for substantial and substantiated loyalty between members, like churches and unions.
American culture has few of the latter organizations set to function in this way, but it might be something to grow towards.
When the Owners of America ordered their elected (sometimes) Whores to change Their Corporate Laws, to make it possible for them to close up shop and take the money and run, they faced no down side. We, however, were tossed out on the street.
Just to stick it to us further, they concluded that incidentals like food and medicine didn't figure into the inflation equation, thus they were able to use those Social Security 'earnings' for their obscenely profitable wars.
All Republicans, most Democrats, and all Religious Cult Freaks believe in the American Monopoly-Game creed: Control and Destroy. The more people they can destroy, the more important it makes them (in their perverted eyes).
After I pay $385 for our Medicare Supplement, and $700 plus a month for our donut-hole meds, I don't have enough left to pay for a grilled-cheese sandwich.
We have been Royally screwed (especially since the Voodoo-Economic system was instituted); our Social Security benefit should immediately be TRIPPLED.
You got it, Steven! Cut the defense budget. Use the money for single payer and other legitimate expenditures like infrastructure and education. Everyone pay into Social Security on all income. Make Social Security payents livable. Free companies from pension plans and medical plans.
Social Security Plus -- sounds like a nice plan -- just like Medicare for All. To me those two programs sound like freedom. I am a 1099 worker and two things I don't have are health insurance and the ability to ever retire. I used to think I would be very much alone in these two arenas. But 2007 forward have given me a lot of company.
In any case, though, how do you even start to get to these two desperately needed programs without leadership at the top of the pile, namely the President of the United States. I have respect for Carter, but he wasn't a real leader. And no one could call the jokers that came after him leaders. Reagan, Clinton, Bush I and II, and Obama -- greedy and/or power-hungry puppets, not a streak of leadership in any of them.
We also won't have any of these programs as long as we're afraid of our government.
Pressure from the bottom of the pile - serious pressure - is what is needed. Looking for "leadership at the top of the pile" that would ever do anything for the working class people is a self-contradicting and fatally flawed idea.
"I am a 1099 worker and two things I don't have are health insurance and the ability to ever retire. I used to think I would be very much alone in these two arenas. But 2007 forward have given me a lot of company." -- Samalabear
I am in the exact same position -- and I see and feel NO relief in the coming years.
Deja vu. Didn't they post this article last month at some point under a different title?
http://www.commondreams.org/headline/2010/08/18
Stop "borrowing" money from the social security trust fund. Cut out the expensive wars and most of our 725 military bases around the world. Initiate a REAL plan for an energy program away from oil. Tax greedy millionaires and billionaires.Then we'll live happily ever after
Heck yeah double it...it's not like the USDollar is worth anything anyway.
whocares;)
John Wolfe has continually pledged to protect your Social Security benefits from any Democrat or Republican who would deign to get his or her hands on it, whether from Wall Street or Washington.
The media rarely report that Social Security has collected well over 2 Trillion more dollars than it has paid out in benefits. And Social Security means more than just old age protection, as it pays pensions to disabled workers and supports the minor dependents of the disabled and deceased. Given that the media are owned by Disney(ABC), General Electric(NBC), Viacom(CBS), and Fox's Rupert Murdoch, it is little wonder that we hear only lies about Social Security's imminent demise.The Chicken Noodle Network(CNN) is no better. Contrary to reports in the corporate media, Social Security is a solvent and broad- based program that works well and has administrative costs of less than 1%.
Of course, these media jackals and their Wall Street allies would love to get their greedy hand on Social Security, so that they could charge the old and infirm 2 or 3 percent for every transaction and churn their accounts to their profit. But, had we had adopted Wall Street's privatization plan of 1999, where would the elderly be now? On January 14,2000, the Dow Jones Industrial Average stood at 11,722. Today it is about 10,400. So, in 11 1/2 years, the D.J.I.A. has declined by 14% in actual numbers, but by more than 34%, if one factors inflation into the equation.
Does that sound like a winning formula for a happy and stable retirement?
If Social Security recipients began losing money because of bad investment advice or a bad economy, then their plunge into poverty would force the states and federal government to increase welfare and food stamp budgets. The children of the elderly would face added financial burdens. Right now, the poverty rate among the elderly is only 9%. Without a stable Social Security system, it would be about 45%.
Social Security contributions are assessed at a flat rate on all earned income below $106,000.00. It is not welfare. We pay for it. It has worked well for years. Government administrative costs are much lower than businesses', as the costs of advertising and 100 milion dollar executive salaries will never become a factor in the costs of providing Social Security. Wall Street hates Social Security because it is a working demonstration of how people can unite as a single co-op, free of Wall Street control or profit, and effectively solve a problem by themselves. There is nothing wrong with private pensions. They may or may not work well, given their tremendous operating overhead.
As a candidate for the United States Congress, Third District of Tennessee, I challenge each of my opponents to state unequivocally that he or she will never privatize Social Security. I ask them to stipulate that Social Security has a surplus of well over 2 Trillion Dollars and will be solvent until 2037, even if we do nothing. Because Social Security contributions are on budget, I ask my opponents to further stipulate that this massive Social Security surplus has served to stabilize the national debt and thereby reduced the government's borrowing costs.
See votejohnwolfe.com for more information.
As a retired business owner, when I started a project and it became underfunded, I chipped in more funds. We should do that here as well, by removing the cap and extending the tax to ALL income, including that from investments.
And then guess what: no more SSI shortages!
SSI has become a needed social effort that gives us old geezers a bit to live on. We paid in and we should get the coverage we paid for. And it is silly to force old folks to remain in the work force for two extra years taking a job that could be passed to a younger person.
Jack Lohman ...
http://MoneyedPoliticians.net