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 in which Americans wish to live. 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 US faces. Since WW II, 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 percent 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 US economy.
Hands Off Social Security!
By Dick Meister, t r u t h o u t | Op-Ed
Republican leaders in Congress would have us believe that most Americans support cutting Social Security and Medicare payments as a way to cut the federal budget deficit. But don't you believe it.
As the AFL-CIO and other labor sources have discovered, that's at best a figment of the Republican imagination. Or, as is most likely, it's a bald-faced, political lie.
The proof came in a poll marking the 75th anniversary of Social Security this year. It was conducted by a prominent research organization, Greenberg Quilan Rosner, and commissioned by the nation's leading public employee unions, the Service Employees International and American Federation of State, County and Municipal Employees, joined by MoveOn.org and the Campaign for America's Future.
The poll was in response to Republican House Leader John Boehner's call for reducing the federal budget deficit by raising the Social Security retirement age to 70, while continuing President Bush's massive tax breaks for multibillion-dollar corporations and wealthy individuals.
Boehner got ready agreement from the Republican co-chairman of the presidential budget deficit commission, former Sen. Alan Simpson of Wyoming. Simpson described those opposing budget cuts as "greedy geezers," and low-income Americans generally as "lesser people." Simpson, appointed co-chairman by President Obama, says Social Security "is like a milk cow with 310 million tits."
Unfortunately, Republicans are not alone in their attacks on Social Security. Several key Democrats, including some of Obama's Democratic appointees to the budget deficit commission, also support raising the retirement age.
Mike Hall, a major AFL-CIO spokesman, sees the commission as " just a front group to cut Social Security."
It would make much more sense, of course, to reduce the deficit by increasing taxes on the wealthy at least to the level they were before Bush's tax cuts, rather than do it by raising the retirement age and making other financial cutbacks that hurt low- and middle-income Americans.
So, what did the poll show?
Most Democrats and independents responding wanted to end the Bush tax cuts that, if not repealed, will increase the deficit by an estimated $3.1 trillion over the next decade and reduce government revenue by more than $650 billion. That, obviously, would greatly curtail Social Security and other government programs for poor and middle-class Americans.
It shouldn't surprise anyone that most of the Republicans polled did not want to repeal the tax cuts and, thus, help government provide more services to those who need them, often badly need them.
Nevertheless, nearly 70 percent of the probable voters polled, whatever their political party, opposed cutting Social Security and Medicare to reduce the deficit.
What's more, two-thirds of the Republicans also opposed raising the retirement age, despite their general dislike of the Social Security system. Raising the retirement age from 67 to 70 obviously would greatly curtail Social Security and other government programs designed to help poor and middle-class Americans. But that apparently didn't disturb many of the Republicans polled. Most of them did not want to repeal the tax cuts under any circumstance.
The AFL-CIO concluded - and quite accurately, I think - that "those conservative politicians who want to use concern about deficits as an opening to go after Social Security or Medicare risk a backlash" from voters.
The poll made clear that relatively few people are buying the Republican claims that Social Security and Medicare outlays are a major cause of the continuing federal budget deficit. Too many people have too much sense to believe that.
But what did sensible voters see as the main causes of the deficit?
Nearly half of those polled blamed the costs of the wars in Iraq and Afghanistan.
About a third blamed the bailouts of big banks and the auto industry.
Nearly a third blamed lobbyists and special interests for getting unnecessary spending put into the budget.
Almost as many placed the major blame on President Obama's economic recovery or stimulus plan.
About one-fourth blamed the Bush tax cuts.
A relative few blamed the economic recession that reduced tax revenue and required costly government support for the unemployed. A relatively few others blamed the deficit on the cost of Medicare prescription drug benefits.
What it boils down to is this, as the AFL-CIO's James Parks said in a bit of public advice to GOP Congressman Boehner: "The public doesn't like your plan to cut their Social Security so your rich friends can get another tax break."
Anyone doubting the popularity and importance of Social Security need only consider a recent AARP survey that showed "exceedingly high" support for the program.
"Clearly," said AARP researcher Colette Thayer, "most Americans rely on Social Security and expect it to be a source of income in their retirement. In fact, it is the most commonly cited source of retirement income."
Whatever their ages, whether over 30 or under, the poll - just as others like them taken on the program's anniversary dates five, 15 and 25 years ago - shows that Social Security is one of the government's most important programs in that it provides essential retirement income to millions of Americans who would otherwise have little or no income.
The Campaign for America's Future and MoveOn.org, will be jointly campaigning for candidates in the coming midterm elections who'll pledge to block cuts in Social Security and Medicare and otherwise back the organizations' liberal agendas. The unions that helped them sponsor the poll will also be waging major campaigns, as will other AFL-CIO affiliates.
They're backing the kind of political candidates we should all back - and as strongly as we can. Our social security depends on it.
Dick Meister is a San Francisco-based writer who has covered labor and politics for a half-century as a reporter, editor, author and commentator. You can contact him through his website, www.dickmeister.com.