| Number 463 | September 22, 2010 |
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This Week: Social Security
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Greetings, When it comes to talking about Social Security reform, the great thing is that you can start just about anywhere you like and you'll discover some very revealing things about U.S. politics. This week I talk about how easy it would be to raise the revenue to address the long-term deficit projected for the program (yes, I said "easy"). I also talk about public opinion in regard to Social Security, where we find a huge gap between what people say they want and what they believe they're going to get. I also mention a little-reported but very dangerous process that is going on even as I type these words: The National Commission on Fiscal Responsibility and Reform, popularly known as the Obama deficit-reduction commission. That may be the biggest threat to Social Security yet. More to say on that in a future Nygaard Notes. Welcome, new readers! Nygaard |
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"Quote" of the Week:
"A vested interest in preserving and improving Social Security." That optimistic—and likely accurate—assessment comes from an article by Dave Lindorff on his website "This Can't Be Happening," entitled "Now Here's a Jobs Plan: Apply the FICA Tax to All Income Including Investment Income and Lower the Retirement Age."
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The apparent consensus in the mainstream as to the status of the Social Security program is reflected in a comment in a Washington Post story last month. Commenting on the almost-secret work of the "bipartisan deficit commission created by Obama"—called the National Commission on Fiscal Responsibility and Reform—the Post claimed that "forging a bipartisan compromise [on Social Security] is likely to require cost-cutting as well as higher taxes." Nothing of the sort is "required." There is a widespread popular desire among the people of the United States to maintain or increase benefit levels (which I discuss in the other article this week) , and this could be accomplished by tax increases alone. And it wouldn't be that painful, as I will attempt to explain right now. Every year the Social Security Trustees put out a report on the condition of the Social Security system. This year's report says that we could raise the payroll tax by one percentage point each for the employer and the employee (SS taxes are split 50/50 like this already), and that would make the program fully solvent through its 75 year projection period. Is one percentage point a lot? What would this mean for you and me? Three Bucks a Week for Minimum-Wage Workers Currently, we all pay 6.2 percent of our wages into the Social Security program, and our employer pays an equal share of 6.2 percent of our wages. An increase of one percentage point would bring that to 7.2 percent (actually 7.19 percent). Now it's time for some math. If you are a full-time minimum-wage worker, you earn $290 per week. At the current tax rate, you pay $17.98 of that in Social Security taxes, known officially as Old-Age, Survivors, and Disability Insurance (OASDI) taxes. If the tax went up to 7.2 percent, you would be paying $20.85 per week, which is $2.87 more each week than you're paying now. Over the course of a month, the increase would be $11.48. That's not an insignificant amount of money, but paying it would be a lot less of a problem for most of us than having our retirement pushed back by three years, or having our monthly benefits reduced by 5 percent, or 25 percent, or more (all of which have been seriously proposed). Most of us are not earning the minimum wage. What would the tax increase cost an "average" wage earner? Such a worker earns $639 per week, so she would pay an additional $6.33 per week. And the average household (not just an individual) earns a total of about $1,000 per week, says the Census, so they would pay an additional $9.90 per week. That is what would be required to keep Social Security in the black through the year 2085. And that's assuming that the nation does absolutely nothing else in the meantime, which is highly unlikely. What else might we do? One other thing we could do would be to raise the cap on taxable earnings back to where it used to be in the 1980s. Some people may know that the 6.2 percent tax on wages only applies to the first $106,800 earned each year (as of 2009). That is, the tax is "capped" at that level. Up until the 1980s, that "cap"—adjusted for inflation—meant that 90 percent of all the wages earned in the United States were taxed. Now it only takes in 83 percent of all wages. (That's because the rich got so much richer during this period that a lot more money went to members of the More-Than-$106,000-Per-Year Club.) Raising the cap on taxable wages back to 90 percent would mean that wages up to $213,000 this year would be taxed (Urban Institute figures). How much of a difference does this make? It depends on how you figure it, but this step might "eliminat[e] about 95 percent of the 75-year shortfall," says the National Academy of Social Insurance. Then, minimum-wage workers would only have to chip in an extra 14 cents a week, the average worker 32 cents, and the average household, one half-dollar per week to keep Social Security benefits where they are now. Would the average USAmerican be willing to do this? I think they would, and the next article explains why I think so. |
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To use the word "deficit" in relation to Social Security, in this age of deficit paranoia, is to set up an unfortunate train of thought. I think it's quite likely that a part of the motivation of those who speak constantly about a "crisis" in Social Security is precisely to set up such a train of thought. As this article will show, most USAmericans love the program and want to increase the size and scope of it. This longstanding support for the program is what has made so many people refer to Social Security as the "third rail" of U.S. politics. It's a reference to the third rail that runs alongside many railroad tracks and which provides electricity to power the train. Touching the third rail means instant electrocution and, until recently, sure political death was said to be in store for anyone who was foolish enough to touch Social Security. Those who hate the program—and many "conservatives" have always hated Social Security—thus were up against a big problem. How does one attack the most popular and well-managed public program in U.S. history? The strategy that has been in practice for decades has been to portray the program as having a large future deficit, which then allows people to say that there is a "looming crisis" facing the program. It's been a successful strategy. USA Today, in its July 20th edition, reported that "A USA TODAY/Gallup Poll finds that a majority of retirees say they expect their current benefits to be cut, a dramatic increase in the number who hold that view. And a record six of 10 non-retirees predict Social Security won't be able to pay them benefits when they stop working." A number of other polls have come up with similar results. Why would people think this? Social Security has never failed to make a payment in the 75 years it's been around, through times of war, recession, Democratic leadership, Republican leadership, and all sorts of other changing conditions. If these facts appeared in the media as often as the "looming crisis" comments, we might see very different Gallup Poll results. The average taxpayer might even be considered rational if she or he were to have faith in the ability of the federal government to effectively address the desire of its citizens for at least a modest level of income security. But, no. Deficit Talk is Evidence of Success The fact that we are even talking about a deficit for this program is testimony to how phenomenally well-run the program is. (At least in the fiscal sense; there are all sorts of problems with the program in terms of adequacy and eligibility, but that's another story.) Well-run programs plan as far ahead as possible so that they can anticipate potential problems and act to prevent them. Social Security is perhaps the best example of this known to humankind. I say this because there is no other program that I know of—public or private—which even attempts to budget out 75 years like Social Security does. It's kind of absurd, really, since we know so little about what is going to happen that far in the future, but the reason that Social Security does this is to allow us to make adjustments far in advance of upcoming problems. So the fact that we are even thinking that far ahead is testimony to the superb fiscal management of the program. It is really difficult to have a crisis with a program that looks this far ahead. And here's the irony of this good planning: It's one of the reasons that we hear so much talk about Social Security being in crisis. That's because things change over time. When you look far enough ahead you'll see problems with any program, and Social Security is no exception. The result is prominent commentators who leap on the chance to say, "See? Deficit! The sky is falling! Too bad we can't afford this program that you like so much." And we really do like it. News "consumers" wouldn't know this, but huge majorities of USAmericans (70 percent or so) would prefer to see tax increases instead of benefit cuts as a means of balancing the long-term Social Security budget. In a study that came out three months ago—"Understanding Public Opinion on Deficits and Social Security"—scholars Benjamin I. Page and Lawrence R. Jacobs argue that "Expert analysis of evidence from many sources makes clear that large majorities of Americans strongly support Social Security, oppose benefit cuts (even for the sake of deficit reduction), and prefer to strengthen Social Security finances by raising the payroll tax ‘cap' or otherwise using progressive taxes." I discussed in the previous article the idea that we could solve the projected Social Security budget shortfall entirely by increasing payroll taxes. That would be politically difficult, Page and Jacobs report, saying that "a majority (55%) in January 2010 told [pollsters] that they opposed raising the rate from 6.2% to 7.2%." Remember, however, that the current payroll tax rate is regressive. That is, people with lower incomes pay a higher percentage of their income in taxes than those with higher incomes (largely because higher incomes are exempt). So it may be understandable that low- and moderate-income people are reluctant to pay even more of a tax that they already think is unfair. But, wait! There are other ways to increase the revenue from taxes that are not politically difficult. "Most popular," say Page and Jacobs, "are options that involve progressive tax increases: either raising the payroll tax cap, or using estate tax receipts from large estates to help Social Security" (70 percent support this idea) "or using a new, 5% tax on families earning over $250,000 (69% in favor)." I guess I shouldn't say that these things are not politically difficult. Rich people have a lot of power, so these things would be quite difficult. Forget Benefit Cuts: Folks Want Benefit Increases In a 2008 study, scholars Fay Lomax Cook and Meredith B. Czaplewski report "Public support for [Social Security and Medicare] is often said to rest on two pillars of public opinion. The first pillar is a belief in the core purpose of the programs; the second pillar is the belief that the programs are affordable public expenditures." In regard to the first pillar, they find the same thing that Page and Jacobs find: "Overall, it appears that public support for the first pillar of support on Social Security is overwhelmingly consensual." And when they say "overwhelmingly," here are the numbers to which they are referring: "a resounding 92 percent of individuals between the ages of 18 and 29 support maintaining or increasing current levels of spending on Social Security. Similarly, 94 percent of individuals between the ages of 30-49, 98 percent between the ages of 50 and 64, and 97 percent of individuals aged 65 or older support maintaining current levels or increasing America's spending on Social Security." And it's not just the baby boomers, or Democrats, or "liberals" who say this. Cook and Czaplewski's research shows that "the overall patterns of support are very similar by party identification, ideology, and age," and "these patterns are consistent in support over time since 1984." A separate study, from earlier this year, adds that "African Americans are more likely than whites to believe that the Social Security system should ensure a minimum standard of living for all contributors." That may be due to the fact that "African Americans are more likely than whites to expect that Social Security will be their major source of income during retirement." Back to Cook and Czaplewski: "The second pillar of public opinion," they add—the one about affordability—"is weaker. The majority of Americans describe the financial situation of both Social Security and Medicare as either in crisis or serious trouble." In 2007, for instance, "66 percent of Americans thought that the program was either in a "crisis" or in "serious trouble." As recently as 2005 that number was "only" 52 percent. That shows what a blizzard of propaganda can do. If 9 out of 10 people love something, which makes direct attacks on the program difficult, the second choice for attack is to weaken support for the program by making people think it doesn't work. That means that it's time for: DEFICIT MANIA. And here I have to quote from a 1999 book by economists Dean Baker and Mark Weisbrot called "Social Security: The Phony Crisis." They said at the time that "Ironically, the only real threat to Social Security comes not from any fiscal or demographic constraints but from the political assaults on the program by would-be ‘reformers.' If not for these attacks, the probability that Social Security ‘will not be there' when anyone who is alive today retires would be about the same as the odds that the U.S. government will not be there. The latter event is, of course, a possibility, but not enough of a likelihood that most people would plan their retirement around it." Now, ten years later, Baker and Weisbrot point out that "The ‘reformers' have now returned in full force, this time posing as ‘deficit hawks." In a future Nygaard Notes—hopefully the next one—I'll talk a little bit about deficits, taxes, and the ongoing attempts to re-align the U.S. economy to make the rich even richer than they already are. A plan that has ominous implications for the rest of us. |
