Social Security: Just Fix it


Two-thirds of Americans believe Social Security is in a state of crisis. Many believe the bedrock retirement program, substituting in increasing proportion for private pensions, will not be there when they need to retire. The “crisis” is an actuarial projection requiring only the slightest tweak to fix, but the beliefs can become self fulfilling.
That’s because chicken-hearted politicians, in the debt and in the thrall of people who don’t need the program and never liked it, promote the myth of crisis and then jump all over it to weaken and eventually destroy Social Security. Leading the chorus of late is the Republican establishment candidate for president, Jeb Bush, who suggests the age for retirement with full Social Security benefits be raised again, this time to 70. He ventures this suggestion while worker productivity has risen dramatically, along with corporate profits, even as worker wages have stagnated and private pension plans have evaporated.

Meantime, a large number of Democrats are pushing hard for an expansion of Social Security benefits because the program is, for most retirees, the last guaranteed source of income available to them. The expansion proposal, while popular, has the feel of a rear-guard action designed only to defend Social Security against the cuts proposed by Republicans and publicly entertained as a possibility by President Obama.

Story continues below.

Like most arguments these days, this one seems to be carried by the side that has a single voice and a simple position. The voice is Fox News, and the position is that any tax increase, especially on wealthy Americans, is out of the question. The other side says that all options should be on the table — except some say that decreased benefits shouldn’t be.

So here is the theoretical problem, along with the possible solutions: Without major surprises in employment rates or worker earnings, the Social Security Trust Fund will be broke by 2033, and then-current income for Social Security will support something less than 80 per cent of promised benefits.

We could: a) raise FICA taxes for everyone; b) means test for benefits, so that people above a certain income level will have paid into the system but won’t pull anything out; c) cut benefits, as with a change in the cost-of-living adjustment; d) raise the retirement age again; or e) raise or eliminate the cap on income, forcing higher income earners to pay taxes on more of their money.

Story continues below.

Democrats tend to favor option E. People making more than $118,500 per year don’t pay on income beyond that level, so eliminating the income limit would amount to a flat tax. So conservatives like it? No, conservatives object. Let’s examine the objections:

Story continues below.

Opponents of lifting the cap point out that inequity has been part of the system from its inception. Thus, apparently, they believe inequity should be part of the system.

Eliminating the cap would, they argue, make Social Security look less like an investment and more like “welfare.” So what?

Story continues below.

Raising the cap to cover 90 per cent of income wouldn’t fix the actuarial outlook for Social Security; you’d still need to raise FICA taxes on lower income earners. But covering 100 per cent would fix it, so this sounds more like an argument for a truly flat FICA tax.

Raising the limit is a tax increase. Yes. And?

There are others, but they are even sillier.

Liberals object to the solutions offered by the right wing. Particularly offensive to liberals is the claim that Social Security needs to be “saved” by privatizing it. They’ve pushed a swimmer’s head under water, and now they propose to save him by offering him a glass of water.

Story continues below.

What about means testing the program? That would turn an arguably regressive system into a progressive one, so liberals should like it, right? They do not. The problem is the same problem that made the system regressive to start with — the greed of the well-to-do. If they are required to contribute to the program, even on only a portion of their swollen income, but then not get the benefits they don’t need, then you can count on them to call for the program’s end. They hold most of the political cards.

bernie sanders
Senator Sanders, passionate about
fixing Social Security…to a point…

Sen. Bernie Sanders, the independent from Vermont who is running for the Democratic presidential nomination, probably has the best idea. Nothing unusual there. He proposes both to lift the “max tax” cap, flattening the system and shoring it up, and to increase benefits, which needs to be done.

Even Sanders’ bill, though, would not alter the regressive nature of the benefits, as opposed to the taxes. Social Security pays benefits based on the highest income over 35 years of contributions into the system. So the person who has struggled the most, earning the least, gets the least out of the system, while a billionaire gets the most.

Let’s take a couple of cases. Alex inherits a liquor store. The market for booze is good, especially when times are otherwise bad. He expands the business into a small chain and winds up with an income of $350,000 a year. Easily able to do so, he waits until he’s 70 to collect his benefits, which then amount to upwards of $43,000 per year.

Meanwhile, Tom is a concrete finisher who poured the slabs on which those liquor stores were built. He did that until he was 38, when his knees and back gave out. After that he tied and sold fishing flies, making an average of $13,000 per year to supplement his wife’s salary. She was a practical nurse. He takes his benefits at 62 because he needs them and because his diabetes — he lived on cheap food — has curtailed his life expectancy. He gets $9,000 a year.

Some kind of country.

Story continues below.