Social Security is one of the most important and popular government programs of all time. Not only has it been crucial as a foundation for US retirees and as the most effective anti-poverty program ever -- it also has been indispensable as "the policy cornerstone of a decades-old philosophy which deploys the 'visible hand' of government to foster a fair economy for all," according to author Steven Hill in his new book, Expand Social Security Now: How to Ensure Americans Get the Retirement They Deserve.
Social Security, which dates back to President Franklin Roosevelt's New Deal in the 1930s, has been beneficial not only for individual retirees, but also for US businesses and the broader macroeconomy. It acts as an "automatic stabilizer," says Hill, keeping money in people's pockets, which maintains levels of consumer spending during economic downturns. Yet despite its obvious value, Social Security has been under attack in recent years by many conservatives and small-government advocates, including both Republicans and Democrats, who have called for austerity-like cuts and "entitlement reform."
In this interview, Steven Hill explains why Social Security's critics are wrong -- Social Security does not need to be trimmed or privatized, instead it should be expanded. Hill calls for a doubling of the retirement monthly benefit, and shows how to pay for it (Hint: Tax fairness = retirement security = economic stability). Hill also comments on how key Democratic leaders, such as presidential frontrunner Hillary Clinton as well as Presidents Barack Obama and Bill Clinton, have not been great friends to Social Security. Yet today there is a resurgence within the Democratic Party calling for expansion, led by Senators Elizabeth Warren and Bernie Sanders.
Below is an interview with Hill (@StevenHill1776 on Twitter), who is a senior fellow at the New America Foundation and the Holtzbrinck fellow at the American Academy in Berlin.
Christian Coleman: Do you anticipate that Social Security will be a key issue in the 2016 general election?
Steven Hill: Yes, I believe that Social Security is going to play an important role in this year's elections, as it has in the past. Recall in the 2000 presidential race, when Al Gore campaigned on creating a Social Security lockbox. This year, already we have seen sparring in Senate races, especially in Democratic primaries, in Pennsylvania, Maryland, Illinois, New Hampshire and California. Candidates from the "Elizabeth Warren wing" of the Democratic Party have challenged other Democrats for supporting cuts to Social Security.
In his younger years, Trump called Social Security a Ponzi scheme and said it should be privatized, but the ever-mutable Trump has emerged as an entitlement maverick.
It wasn't widely noticed, but during the 2014 congressional elections, when Republicans were close to winning control of the US Senate, many of their candidates suddenly reversed course and spoke out against the idea of trimming Social Security benefits. They pulled a George W. Bush, emerging as the newest hybrid of "compassionate conservative," led by none other than Bush's old chief strategist Karl Rove. Rove ran ads in several key Senate races that accused the Democratic candidates of supporting a "controversial plan" to cut Social Security. In actual fact, the plan was the one promoted by the co-chairs of President Obama's wrong-headed commission to "fix" Social Security by, among other things, raising the retirement age. Rove ran ads, almost comical in their perfidy, citing Democrats' support for the Simpson-Bowles recommendations as a sign of selling out Social Security!
How about for the presidential election? Will Social Security be an issue there?
It already has been, in both the GOP and Democratic presidential campaigns. Sen. Bernie Sanders has rightfully criticized Hillary Clinton for her past waffling and unwillingness to support expansion of this important program. Sanders has been a terrific leader on this issue, both on the campaign trail as well as in the Senate, where he has introduced legislation to expand the program and make benefits more generous. Sanders has proposed to pay for expansion by eliminating the cap on the payroll tax on all income above $250,000. That way, as he says rightly, "millionaires and billionaires pay the same share as everyone else."
If Hillary Clinton is smart, she will push Trump on this issue by clearly and decisively calling for Social Security's expansion.
Donald Trump also has emerged as the only Republican candidate defending Social Security against "entitlement cuts." In his younger years, Trump called Social Security a Ponzi scheme and said it should be privatized, but the ever-mutable Trump has emerged as an entitlement maverick. More than any other candidate, he has helped push the political center on this issue in a new direction. In his latest incarnation, Trump is kind of an Eisenhower Republican on this issue, saying "It's not unreasonable for people who paid into a system for decades to expect to get their money's worth -- that's not an 'entitlement'; that's honoring a deal."
Which makes sense; opinion polls show that even 70 percent of Republicans and conservatives are in favor of Social Security. It's just odd that Clinton is so timid on this. Given the popularity of Social Security, it would seem that there are no political costs to being strongly in favor. If Hillary Clinton is smart, she will push Trump on this issue by clearly and decisively calling for Social Security's expansion. Instead, she now says (after being pushed by Sanders) that she is for expansion, but only for "those who need it most" (including women who are widows and workers who take career breaks to care of family members). But what about all the other hard-working Americans who don't have sufficient savings for their retirement years -- which it turns out is most of us! Her views have remained disturbingly opportunistic. "She was against Social Security expansion before she was for it," that kind of thing.
Secretary Clinton could certainly be vulnerable against Trump over this issue. While Trump has not spoken in favor of actual expansion, he could portray himself as sticking up for the little guy and gal, while taking aim at Hillary by attacking her high-priced lectures to Goldman Sachs and Wall Street. Secretary Clinton could deflect some of this criticism by championing a proposal like the one I have made in my book for "Social Security Plus" -- namely, a doubling of the monthly benefit for the nation's retirees. We can pay for it, as I demonstrate, by lifting the payroll cap and by closing many of the tax deductions and loopholes for capital gains and other forms of "welfare for the rich."
Did Presidents Clinton and Obama do enough to defend Social Security in the 1990s and 2010s, respectively?
No, they actually didn't. Along with other "very serious people" (or VSP's, as Paul Krugman likes to call them), both of them knelt at the altar of proposing cuts "to save Social Security." And because they turned out to be so feckless on this issue, no question that has made it more difficult for Hillary Clinton to find her political as well as her moral compass here.
For many years now, leading Democrats have shown a real lack of FDR-ness, or even JFK-ness "profiles in courage," when it comes to Social Security and the nation's retirement system. Many people forget that President Bill Clinton negotiated with Republican House Speaker Newt Gingrich over a plan to "save" Social Security that included partial privatization. That grand bargain imploded under the weight of the Monica Lewinsky scandal and Clinton's impeachment. It's crazy to say, but Monica Lewinsky and all the graphic tawdriness of that terribly embarrassing national moment probably saved Social Security. Thank you Monica!
Nevertheless, Bill Clinton's willingness to "go there" caused lasting harm because no Democratic president had ever before agreed that there was a Social Security "crisis" that needed to be "solved." Clinton's decision provided political cover for politicians of both parties, as well as for special interests like the Wall Street-made billionaire Pete Peterson, to advance schemes for cutting and restructuring the program.
The reality is that for many years the leaders of both major political parties have been presenting the same basic face, which is biased toward the affluent and skewed toward private savings.
That in turn led directly to President George W. Bush's Commission to Strengthen Social Security, which in fact was a commission trying to privatize Social Security by way of individual accounts -- an odd way to strengthen it by in effect wiping it out. So when President Barack Obama took office, the public discourse was already a punishing one. Obama, who was elected twice by voters who overwhelmingly support Social Security, appointed his ill-fated National Commission on Fiscal Responsibility and Reform in February 2010, with a charge to "address the growth of entitlement spending." But a big red flag warned of trouble ahead when he appointed his cochairs: the conservative North Carolina Democrat Erskine Bowles and the conservative Republican Alan Simpson, both known to be no friends of Social Security or Medicare. Bowles had deep ties to the financial industry, including being on the board of directors of investment bank Morgan Stanley (which received a $107 billion bailout from the Federal Reserve when it was on the brink of collapse in 2008). And the colorfully blunt Simpson had helped popularize the term "greedy geezers" to describe retired elderly who were allegedly stealing from young people; previously he had described Social Security as "a milk cow with 310 million tits."
Why would President Obama have selected them to be the co-chairs of what came to be known as the Simpson-Bowles Commission? It was a big blow to the overall retirement debate. To make matters worse, Obama then inexplicably proposed in his second term a reduction of benefits based on the co-chairs' revised cost-of-living formula. Obama only dropped this idea after a massive outcry from many Democrats and progressives. One day he will have to address his tainted legacy on Social Security, maybe in his memoirs. Perhaps with that in mind, somewhat bizarrely President Obama recently reversed himself and now is calling for an expansion of Social Security!
Three-quarters of Americans depend heavily on Social Security in their elderly years and nearly half would be living in poverty without it.
Unfortunately, the reality is that for many years the leaders of both major political parties have been presenting the same basic face, which is biased toward the affluent and skewed toward private savings, rather doubling down on the type of "wage insurance" that has been so successful -- Social Security. With private company pensions all but gone, why not expand what has worked so well -- Social Security -- rather than what has failed -- 401(k)s, IRAs and other private savings vehicles that have not benefited most Americans for the simple fact that most people don't earn enough income to save? Without the party of FDR to defend it -- and unfortunately, the Democrats are no longer that -- the New Deal policy infrastructure has been severely weakened. It is the height of a sad kind of irony -- and a reflection of the strange odyssey of the Democratic Party -- that the bombastic Trump has been a more staunch supporter of safeguarding entitlement programs for retirees than either President Obama or Bill or Hillary Clinton. With economic populist positions like this one and others, as well as the vibrancy of the immigration and terrorism issue that we saw revealed in the Brexit vote over the UK leaving the European Union, I think Trump could end up being a much tougher opponent for Hillary Clinton than many people realize.
OK, so if we can get Trump Republicans and Clinton Democrats to agree to expand Social Security, how should we do it? What would expanded Social Security look like?
It's really not that complicated. In fact, not only can we expand Social Security, but we can double its monthly benefit by making our Social Security fairer, more innovative and more stable. I call this upgraded version Social Security Plus.
By applying Social Security rules on investment income -- which is how Medicare is partly funded -- we would raise billions of dollars more.
The real challenge for the nation's retirement system is not bankruptcy, as its critics say -- it's the fact that Social Security was designed to replace only about 35 percent of wages at retirement. Yet most experts estimate you will need twice that amount to live decently in your post-employment years. And private retirement pensions as well as personal savings centered on homeownership -- the other two legs of the wobbly three-legged stool of retirement -- essentially have collapsed for most Americans. All that most people have now, for the most part, is Social Security. Three-quarters of Americans depend heavily on Social Security in their elderly years and nearly half would be living in poverty without it. It is particularly important to women and racial minorities, providing 90 percent or more of income for 55 percent of elderly Latino beneficiaries, 49 percent of Black people and 42 percent of Asian Americans.
Despite its central role as our country's de facto national retirement system, we don't recognize it as such, and so don't realize that the current monthly benefit is insufficient. And given that seniors are one of the nation's most active bloc of consumers, spending their retirement on the services and goods they need to live, that has a direct impact on lowering the aggregate consumer demand that is the main driver of the nation's macroeconomy.
The solution, as only Sanders has been pointing out, is to expand Social Security. But even Sanders' proposal would add only about $68 per month per beneficiary -- better than nothing, but not good enough to make a significant difference. What the US really should do is to double Social Security's individual monthly payout for the 43 million Americans who receive retirement benefits. That would bring the US retirement system more in alignment with the national retirement systems used in many other developed countries, such as Netherlands, Denmark, France, Sweden and others.
How much would it cost to double the monthly benefit? Approximately $662 billion. That seems like a lot of money, but it's achievable. Here's how.
The US could achieve this by, first, eliminating the unfair Social Security payroll cap which taxes wealthy people at a much lower rate than middle-and working-class Americans. That one step would raise approximately $135 billion towards our goal.
Second, many wealthy Americans make a lot of their money through investment income instead of from wages. Yet they make zero Social Security contributions based on that income. By applying Social Security rules on this investment income -- which is how Medicare is partly funded -- we would raise billions of dollars more.
Third, we should eliminate tax shelters and loopholes for one-percenter households and businesses, including for capital gains, investment income, and their twisted offspring like "carried interest" and the truly outrageous "step-up in basis," which exclusively benefits inherited wealth. These whoppers vastly benefit mostly affluent Americans, functioning as a direct federal subsidy for them. And it costs the national treasury some $350 billion per year.
Ironically, once again Donald Trump has been the most outspoken about these rip-offs, prompting The New York Times to write that Trump had "done more to put a stake in the heart of the carried-interest tax loophole than the Obama administration has in the last six and a half years." ... Trump previously announced that one thing he would do if elected is close the carried-interest loophole. "The hedge fund guys didn't build this country," says Trump. "These are guys that shift paper around and they get lucky.... The hedge fund guys are getting away with murder." We'll see if he continues this kind of economic populist rhetoric in the coming months.
Fourth, we can raise another $100 billion by eliminating the tax exclusions that employers receive for sponsoring their company's retirement plans. Not many people realize it, but every tax-paying American subsidizes the retirement plans provided by companies, even though a small minority of Americans -- disproportionately the better off -- benefit from them. By implementing Social Security Plus, which would double the monthly benefit, employers would be liberated from the responsibility of providing retirement for their employees. So they will not need the substantial taxpayer-funded subsidies they receive from the federal government for their company's retirement plan.
We have nearly reached $662 billion. Finally, the US also should redesign certain components of the current US retirement system, including 401(k)s, IRAs, private pensions and even homeownership, which have failed to enhance the retirement security of most Americans because these deductions also vastly benefit the most well-off Americans. For example, of the $165 billion that the federal government spends subsidizing individual retirement savings, nearly 80 percent of it goes to the top 20 percent of income earners. The middle class and poor can rarely take advantage of these deductions because they don't earn enough income to participate. These "subsidies for the affluent" were designed as retirement savings vehicles, but once we double the Social Security pension annuity, these deductions won't be necessary anymore.
The same is true for federal underwriting of homeownership. The federal subsidy for the home mortgage interest deduction amounts to around $70 billion per year, with Americans in the top 10 percent income bracket hoovering a whopping 86 percent of this federal subsidy. And the federal tax deduction allowed to homeowners to mitigate the cost of state and local property taxes they pay on their houses cost the federal budget another $32 billion in 2014. A study by the Congressional Budget Office found that Americans in the upper 20 percent income bracket reaped 80 percent of this federal subsidy. And just to make sure everyone understands who the tax code favors, homeowners also do not have to pay taxes on up to $250,000 of their capital gains profits when they sell their home, which doubles to $500,000 for married taxpayers. That exclusion amounted to a federal subsidy to the tune of another $52 billion in 2014. Together, these three federal subsidies for homeownership total $154 billion -- and for the most part they subsidize higher-income taxpayers.
In comparison, the US Department of Housing and Urban Development, which administers the government's largest affordable housing programs for low-income people, spent barely a quarter of that $154 billion, about $42 billion in 2014. Renters and most low-income people don't benefit at all, and while some middle-income people benefit, the total amount of their deductions and subsidies are comparatively small. They would be far better off if we doubled their Social Security monthly benefit.
This tax fairness not only would create a more secure retirement, it also would act as an automatic stabilizer, ensuring that retirees will have a decent income even during downturns.
If we combine those budgetary add-backs with our previous savings, we now have reached nearly $900 billion, well over the $662 billion level we needed to reach in order to enact Social Security Plus and double this highly popular national retirement system's payout. Just a few revenue streams would raise more than enough revenue for forging Social Security Plus, which would provide a stable, secure retirement for every American. That's even enough revenue to take a major step toward covering the predicted Social Security shortfall in the 2030s, as well as the impending gap in funding for Social Security's disability fund. And we can do this without spending a dime more in government money or national wealth than what is already being spent on the retirement system or subsidizing the wealthy. We are just shifting expenditures that right now benefit a small number of individuals and special interests as a result of how the tax code is structured, and refocusing these resources on the vast majority of Americans.
This kind of tax fairness not only would create a more secure retirement, it also would act as an automatic stabilizer, ensuring that retirees will have a decent income even during downturns. Moreover, this kind of system of Social Security Plus would better fit the type of high-tech digital economy that is slowly taking root. More and more Americans have been forced into becoming contractors, freelancers and temps, and so Social Security Plus would form a core part of the portable, universal safety net that is so badly needed for the many Americans today who are working part-time for multiple employers. So quite literally, tax fairness = retirement security = economic stability.
In the upcoming elections, candidates from both major parties should be held accountable for their views and proposals about this most sacred of US institutions. Now is the time to try and make this a front-burner issue. Nearly every American has a stake in how this battle turns out. Important organizations like Social Security Works, Progressive Change Campaign Committee and others already are fighting on the front lines for Social Security expansion. But they need assistance. They need activists and the resources to push this issue to the forefront. The future of our nation and the type of society we are going to live in is at stake, and no candidate should be able to waffle or wiggle out of telling us where she or he stands.