A tectonic shift is occurring in the US body politic. Ignore the media-driven sideshow about the 2014 contest for control of the House or about the screwed-up Obamacare insurance-market website. The real political battle is over Social Security and Medicare, and there the story is a historic turn from fighting against Washington efforts to cut those programs to demanding that both be expanded.
A coalition of progressive groups and other organizations, including of groups like the National Committee to Preserve Social Security and Medicare, NOW, Paralyzed Veterans of America, Generations United, NARFE and SocialSecurity Works, last week protested outside the White House against a proposal, still included in the proposed Obama 2014 budget, to cut back on the inflation adjustment to Social Security, effectively assuring a gradual, but significant reduction in benefits in future years for elderly retirees and the disabled.
Meanwhile, a group of US senators and representatives, including Sen. Bernie Sanders, an independent socialist from Vermont, Sen. Elizabeth Warren (D-MA), Sen. Tom Harkin (D-IA), Sen. Sherrod Brown (D-OH), Sen. Mark Begich )D-AK) and Sen. Bryan Shatz (D-HI), is calling for eliminating the cap on income subject to Social Security taxation, so that all Americans, including millionaires and billionaires, pay the full FICA tax on their income, a move which would effectively end any talk of the Social Security program “running out of money.”
It’s about time.
As Sen. Warren put it in a recent statement on the Senate floor, “We should be talking about expanding Social Security benefits – not cutting them…. Social Security is incredibly effective, it is incredibly popular, and the calls for strengthening it are growing louder every day.”
While Democratic party leaders like House Minority Leader Nancy Pelosi (D-CA) and President Obama, have offered to cut Social Security benefits by, for example, adopting a new stingier means of calculating inflation called the “Chained CPI), polls show that Americans consistently and resoundingly support not just protecting Social Security but expanding its currently meager benefits.
A recent poll, for instance, by Public Policy Polling, released on Nov. 20, found that voters, by an “overwhelming margin,” support expanded Social Security benefits, not cuts in the 77-year-old New Deal program. Fully 65% of those polled supported expanding benefits, while on nine out of 10 questions about cutting Social Security benefits, the “no cuts” position won by over 70%, with only one question showing the “no-cuts” position winning by “just” 66%.
Clearly, the public and the political parties, including the Democratic Party, are sharply at odds.
Social Security’s critics -- primarily corporate America and the politicians and “think” tanks it bankrolls -- argue that the US “can’t afford” even the current Social Security program. As Peter Peterson, the dour Wall Street billionaire and founder of the Blackstone Group, likes to put it, the program, along with Medicare, is “bankrupting” the country, and unless “entitlements” are cut America will go bust. Some like to point to the 12.4% FICA payroll tax that workers and employers have to pay on a 50/50 basis to fund Social Security, and argue that it imposes an intolerable burden on American business and cannot be raised without further damaging the US economy.
Nonsense. It’s not that high at all.
It’s time to inject so reality here. If a 12.4% FICA tax to fund Social Security is so punishingly high, how to explain countries like France, Germany, Sweden, and Finland, where the social security system taxation levels are far higher, yet the standard of living, and even the competitiveness of the countries’ economies, are better than in the US?
Take Finland, a country I visited just recently. Finland’s workers and employers pay in a total of 23% of payroll towards funding the country’s retirement system. Workers pay 6%, and employers pay 17%. That money funds a retirement pension that is designed to give all workers a benefit level equal to at least 60% of what they were earning at the time they retired. It’s called “consumption smoothing,” meaning that people should not have to lower their living standard upon retiring.
As Mikko Kautto, the head of research for the Centre for Pensions, explained it to me in an interview, “In the early 1990s, Finland began preparing in earnest for the large aging population we saw coming.” He explained that studies by the Centre showed that most retirees would need about 60% of their final pre-retirement income to maintain their standard of living in retirement, and that “consumption smoothing” became the stated goal of the program. (Sixty percent replacement is ample in Finland because certain costs are low. Health care, including long-term care, is essentially free, and children who go to college pay no tuition and in fact receive a €450 ($600) monthly stipend for living costs.)
Finland has not suffered overmuch for this decision to essentially have the state be responsible for essentially 100% of retirement costs (Finn’s have no need to take individual risk by putting money into 401(k) type funds and then play the stock market in hopes of possibly having enough assets to fund their retirement as Americans must do). Its citizens, who get six weeks paid vacation, paid maternity/paternity leave, free health care and free college and who arguably have the best public education system in the world, live better than we Americans do, and their industries -- telecom, automotive, machinery, forest products and paper -- manage to compete quite well on the world markets, giving the country a trade balance the US can only dream of.
Clearly high taxes for supporting retirees and the poor and disabled is not crippling Finland.
While I cannot claim to be an expert on the retirement systems of other nations, it is worth mentioning that the payroll tax rates of other major developed economies like France, Germany and Sweden, are all significantly higher than the US, and yet their economies are all outperforming ours, including in the area of global competitiveness. Sweden’s retirement system taxes, paid by the employer, total over 31% of payroll. In France workers contribute 13.4% of each paycheck to fund the national retirement scheme, with employers paying another 18.2% of payroll, for a total of 31.6%. Even in Germany, workers and employers each pay 9.95% of payroll in to the retirement fund -- and yet Germany still manages to be the second largest net exporter in the world after China, outstripping the US this year, and, unlike the US, Germany boasts a consistently positive trade balance. Clearly, using a payroll tax to fund a decent retirement program does not mean destroying competitiveness or crippling business.
What does separate the US from these other developed nations is the staggering amount -- 53% of the discretionary federal budget -- that the US spends on war and the military. Finland, in comparison, spends just 3.4% of its federal budget on its military, the same as Germany. France, one of the larger military spenders, devotes 5.4% of its budget to its military.
The answer then it clear. If the US, where Social Security on average only provides a meager 30% of pre-retirement income to retirees, is to expand benefits, the money will have to come from a combination of higher taxes on employers, and from dramatic cuts in US military spending.
Despite all the pro-war propaganda, and the scare stories about terrorism put out by the government and the corporate media, Americans get this. A poll conducted earlier this year by The Hill, found that 49% of Americans supported cutting military spending to reduce the nation’s budget deficit, while only 23% favored cutting Social Security and Medicare. Meanwhile 69% said they opposed cuts in those two programs.
And cutting military spending is, in fact, what Sen. Sanders is calling for in his proposal to defend and expand Social Security: full FICA taxation on all income, not just the first 113,400 of income, and several hundred billion dollars a year in cuts in the military budget. Others are demanding even bigger military budget cuts, of as much as 25-50% of the current $1 trillion a year level of spending on war and preparations for war. (Even a 50% cut in the US military budget would still leave this country spending more than several of the next-largest spenders, like Russia and China, combined.)
As the politics of Social Security and Medicare move away from rear-guard defensive action to prevent cuts, to a positive struggle to expand both programs, it is important that Americans become aware of how things work in the rest of the developed world. That way, the scare-mongers like Peterson and his ilk cannot get away with fake claims that a decent retirement and health care for all will “bankrupt” the US, or “destroy” the American economy.