Nov 06

Social Security: A View from the Ground

On October 21, I wrote a piece titled “Social Security: The Truth” saying (among other points) that raising the cap is the simple way to solve whatever problems SS may face in the future. Kathlena Contreras wrote a comment that mentioned other problems with SS. Her comment deserves expansion. In this guest piece, Ms. Contreras discusses the key problems beyond the cap and how those problems can be fixed. Without further ado, here’s Kathlena Contreras’ piece.

Social Security: A View from the Ground

How did the lyrics go in that song from The Who? —Meet the new boss/Same as the old boss.

Well, here we are, new Administration, new Congress, same old song. The Old Boss wanted to privatize Social Security. The New Boss wants to reform it.

Now, I’m not arguing that Social Security (SS) doesn’t need a makeover. When it was first created, there were something like 6 or 7 workers to every SS recipient. That number is now down in the neighborhood of 2 workers for every recipient. You don’t even need to run the numbers to see that that isn’t sustainable. For decades, it’s been a vital program for millions, and with some realistic changes, it could serve for decades more. What to do?

Privatize it? Get it on the Wall Street gravy train, where returns are better than what the SS trust receives? I have to admit, I was once in favor of that proposal. After all, my employer was taking a big chunk of money out of my paycheck, and I was worried I’d never see it as a retiree. Take the money out of my paycheck, but let me decide how to invest it!

A couple of stock market crashes later, and I’ve changed my mind. In the dot-com crash, my 401k dropped back to what it had been worth five years previous. The Meltdown of ’07 cemented my change of heart, when my 401k dropped to less than what it had been worth ten years earlier, despite the fact that my money resided in a relatively conservative, balanced fund. Conventional wisdom says that stocks are the best vehicle for long-term growth. Twice in ten years all gains were wiped out. Twice. From where I’m sitting, the stock market isn’t working according to conventional wisdom. I would’ve been better off putting my money in a jar buried in the backyard. Clearly, privatization isn’t the way to go.

Fast-forward to 2013. Frothing at the mouth over the national debt, never mind that we’re still, out here in the real world, in the worst downturn since the Great Depression. People can’t find jobs. If they do find a job, it’s a low-paying one. When people aren’t getting a decent (if any) paycheck, they also aren’t paying taxes. No one should be surprised that revenue is down and expenditures are up. But look! the deficit hawks say. Look at how much SS costs! We have to do something about it, before we drown in red ink!

Wel-l-l-l, not so fast. First of all, SS doesn’t come out of the regular budget. Remember that SS trust fund that doesn’t provide glittery Wall Street returns? Right. Trust fund. It’s money already set aside to pay SS benefits. It has nothing to do with the deficit. But it’s paying out more than it’s taking in, so that imbalance does have to be addressed. But how?

Here are the most talked-about solutions: Raise the age at which people can collect benefits. Reduce cost-of-living increases. Increase SS payroll taxes. The problem is, all these solutions hit hardest the people who least can afford them. They also suffer from what I call middle-class complacency, that is, the notion that everyone is just like the people coming up with the fixes. In order, let me explain my objections to these popular talking points.

  1.  Raise the benefits age— Not everyone works a desk job. If you work in a physical job, like construction worker or firefighter or floor nurse, I’m here to tell you, you’ll be lucky to work until you’re 60, much less 70. What are people who work such jobs supposed to do between the time they physically wear out and the day they can collect SS? Work as a greeter in Walmart? The way our decision-makers are behaving these days, they’re probably hoping these people will die, then they won’t have to be paid at all.
  2. Reduce cost of living increases— Fine, if you have another source of income, like an investment or two. What happens if you’ve been working for half the median income all your life? Your SS benefits are already meager. Now they won’t even keep up with inflation?
  3. Increase SS taxes— SS taxes, as they’re now structured, are already extremely regressive. Workers pay them basically from the first dollar made, regardless of how low their wages. On the other hand, someone making north of $100,000 per year gets a tax holiday when s/he hits the cap.

Which leads me to the solution whose Name Must Never be Spoken: remove the cap.

Ever notice how you almost never hear that one discussed? Why is that? Is it because the people making the laws are the ones who might lose that cool tax holiday about halfway through the year or so? Make the taxation structure fairer, while saving the program? Horrors!

Oh, and while we’re at it, we could do some means-testing, too. Someone who worked all his life as a janitor or a retail worker for a little over the minimum wage would get full SS benefits. The lawyer or anesthesiologist or engineer who had enough income to invest would get less. If they didn’t or couldn’t invest, that’s different. Who cares if they put all their money back into the economy buying houses and toys and meals in fine restaurants? (Or, heaven forbid, paying the medical bills their insurance didn’t cover. But that’s another issue.) The fact is, they don’t have a retirement nest egg now, so let them collect their SS benefits.

And by the way, I really wish our elected officials would quit calling programs like Social Security “entitlements.” This is just another sneaky way of making something good sound bad. Social Security isn’t an “entitlement” in their usage of the word. In fact, it’s something we do because we’re a civilized society, and most societies, civilized and otherwise, don’t let their elderly starve in the streets.


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    • Mary Ann Conley on November 9, 2013 at 15:21

    I have certainly been enlightened by this discussion and now feel that I have a position to take re SS. Thank you Don and Kathy!

    • Mary Ann Conley on November 9, 2013 at 16:03

    Just curious. What would be the arguments against removing the cap?

      • Don Bay on November 9, 2013 at 16:41

      There are no valid arguments against removing the cap. The wealthy, who get a vacation from the cap at some point during the year while the overwhelming majority have to pay all year, whine that removing the cap would mean they have to pay for those who don’t have their advantage. Put bluntly, the wealthy don’t want to have to pay for those other little folks who don’t earn as much. It’s called stinginess or even greed. The wealthy want to keep their perquisites and they don’t care that the cap is unfair to all but them. Raise the cap to last dollar earned so all pay their fair share. In fact, to be really fair, the cap should cover investment income, too!

      1. Raise the cap to last dollar earned so all pay their fair share. In fact, to be really fair, the cap should cover investment income, too!

        I totally agree, but good luck with that. 🙁

          • Don Bay on November 10, 2013 at 10:51

          Mea culpa. Until Kathlena said something about the unfairness of investment gains not being subject to the cap as well as salaries, I had assumed that only salaries were income. Wrong! Investments produce income if the investors have made good investments. If it is like the Great Recession we are still in, some investments produce losses. If that is the case, then they will not be producing income. Investments, by their nature, are a risk and the investor should bear the loss as well as the gain. A date set by the IRS — presumably the calendar year — will determine if there is a gain or a loss. If there is a gain, then the gain will be subject to the FICA tax; if the investment produces a loss, then no tax. Simple.

          How many taxpayers are there like me who ASSUME that all wage earners get a salary? That is a faulty assumption. Many wage earners get more income than just salaries. Many wage earners do not have investments that produce extra income. Who are the ones who have extra money that they can invest? Who are the ones who have lots of money in investments? Those whose investments earn them money should pay the tax on those extra earnings. Fair is fair. Those investment gains should be subject to the tax. Let’s make Social Security fair. Tax all income. It’s the price of being civilized.

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