Cut? Hell, No! DOUBLE Social Security

Steven Hill has done the kind of thinking that long ago should have originated in the Democratic Party or in the Progressive community. When the Right bellows “Cut, Cut, Cut”, the Left should propose in the alternative, “No, Double, Expand”. If a compromise is to be made between “Cut” and “Double” then it would be to keep things as they are. Instead, nowadays, the Left is quick to argue, “Let’s cut it less than you want to”, thus resulting in some cuts. Hill makes a strong case for expanding Social Security,

An expansion of the Social Security retirement system
— one of the most successful and popular social
programs in American history — that converts it into a
more robust retirement system would build upon the most
stable component of the current system. Social Security
already provides the major means of support for two-
thirds of America’s retirees. Since its New Deal
inception in the 1930s, and gradual expansion in
subsequent decades, Social Security has become a
mainstay of retirement security, firmly rooted in
America’s cultural and economic landscape (as leaders
like President George W. Bush discovered when he tried
to privatize it).

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 payouts are so
meager — far too low for the program’s new role as
America’s de facto national retirement system. It only
replaces about 33 to 40 percent of a retiree’s average
final wage, which is simply not enough money to live on
when it is your primary — perhaps your only — source
of retirement income.

The gritty reality that the Obama administration and
House Republicans must face is that the vast majority
of America’s retirees cannot afford to watch them hack
off part of the only leg that remains of the three-
legged stool. Quite the contrary, we should make that
leg more robust by doubling the current Social Security
payout, and turning it into a true national retirement
system called “Social Security Plus.” Doing so not only
would be good for American retirees, but also would be
good for the greater macro economy.

Doubling Social Security’s individual payout would cost
about $650 billion annually for the approximately 53
million Americans who receive benefits. Here’s how to
pay for it.

Step 1. 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 —
which is how Medicare works — is popular with
Americans according to opinion polls, and would raise
about $377 billion toward the $650 billion needed to
double the Social Security payout. As a candidate in
2008, Barack Obama stated that he supported raising the
cap on the Social Security tax to help fund the
program.

Step 2. Cut out the business deduction for employees’
retirement plans.

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
substantial $126 billion annually.

These two steps alone would provide three-fourths of
the revenue needed to double Social Security’s payout.

Step 3. Cut or reduce other deductions that
disproportionately benefit top income earners.

Other possible revenue streams should include ones that
would reduce or eliminate unfair deductions in the tax
code which currently allow the top 20 percent of income
earners to reap generous deductions that barely help
most low and moderate income Americans. These include
deductions for private retirement savings, health care,
homeownership and education.

Only higher income individuals have enough earnings to
divert for savings or investments that allow them the
luxury of enjoying considerable tax deductions for
their 401(k)s, IRAs and pensions. The poor and middle
class rarely can take advantage of these sorts of
deductions because they don’t make enough income to
benefit from itemizing deductions on their tax returns.
As Josh Freedman pointed out recently in The Atlantic,
in 2011 less than 30 percent of all filers itemized
their taxes, and more than 80 percent of the benefits
from itemized deductions went to individuals in the
highest income quintile.

The same goes for the much vaunted home mortgage
interest deduction. Those with annual incomes over
$100,000 dollars received nearly 75 percent of the
benefit from the home mortgage interest deduction in
total dollars. Most middle class individuals would not
see any increase in their taxes if the mortgage
interest deduction were eliminated. Instead of buying a
home as part of their retirement plan — which we now
realize can be a risky undertaking — more people could
put their money into Social Security Plus. Eliminating
the mortgage interest deduction would raise another
$100 billion to pay for Social Security Plus, and
eliminating the other deductions would bring us close
to the $650 billion mark.

An expansion of Social Security not only would be good
for America’s retirees, it also would be good for the
broader macroeconomy. It would act as an “automatic
stabilizer” during economic downturns, keeping money in
retirees’ pockets and stimulating consumer demand,
especially since low and middle income people are more
likely to spend an extra dollar on goods and services
than are affluent individuals. Social Security Plus
also would help American businesses trying to compete
with foreign companies that don’t have to provide
pensions to their employees, since those countries
already have national retirement plans.

Moreover, unlike private pensions, Social Security
benefits are portable when changing from one job to
another. Every worker could contribute to her or his
own retirement pension no matter where she or he
worked. Those savings could be directed into a Social
Security Plus system with investments restricted to
Treasuries, instead of handing it over to mutual or
pension fund managers who gamble on the volatile stock
market with future retirees’ money (there is no
evidence that the typical investment fund manager
consistently beats the average return on Treasuries).
And this system would be broadly fair, since even those
higher income Americans who are having some of their
tax deductions reduced 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 economy. All Americans
should have retirement benefits they can count on, not
the crumbling casino of retirement overseen by the same
Wall Street bankers and financial managers who drove
the U.S. economy off the cliff.

The complete article is available at: http://www.theatlantic.com/politics/archive/2012/12/dont-cut-social-security-double-it/266095/

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s