I Had a Dream, in which FDR spoke to me: “Expand Social Security…as the core of a Portable Safety Net”
It was a dream like no other. It awoke me, I looked at the clock, 3:37 am. Here’s what President Roosevelt said to me:
“We have nothing to fear but ourselves — and our own timidity and indecisiveness…
“Let us not remain stuck to the flypaper of old ideas…
“Many Americans are being subjected to increasing pressure in their working lives. Fewer workers have a single employer or a regular workplace anymore, instead more of them have to juggle multiple employers and part-time jobs and ‘gigs.’ Many of the businesses providing these sorts of jobs are not required to provide healthcare, Social Security contributions or even offer compensation for workplace injuries.
“One crucial adaptation to these changing circumstances would be the creation of a portable safety net. That would make it possible for all workers to move from job to job while still retaining access to a basic support system. Every business would contribute on behalf of each worker a small ‘safety net fee,’ prorated to the number of hours worked for that business. The worker would then use those funds to purchase her or his benefits. The survival of the middle class may depend on our ability to design and enact such a system, which would replace the old New Deal support infrastructure that is slowly crumbling.
“Social Security — which is already gloriously portable — could play a key role in such a system. For decades it has been our nation’s most effective anti-poverty program. Without it, nearly half of US retirees would be living in poverty. Three-fourths of retirees depend on it heavily, particularly women and racial minorities.
“It’s also good for U.S. businesses and the broader national economy, since it acts as an ‘automatic stimulus’ during a weak economy that helps to maintain levels of consumer spending. During the 2008–09 economic crisis, when homeownership, private savings and the stock market collapsed, Social Security remained stable.
“The fear that Social Security will face a financial deficit sometime in the 2030s is overblown. Social Security has an established trust fund that, legally speaking, cannot spend more than it takes in. Any future shortfall could be made up from any number of revenue sources. It’s all a matter of budgetary priorities.
“In fact the real problem with Social Security is not a shortfall but that its payout is still so meager. Social Security is designed to replace only about 40 percent of a worker’s wages at retirement, yet retirement experts estimate you will need almost twice that amount to live decently. With the other components of the retirement system still looking wobbly, and with incomes low and inequality high, tens of millions of retirees won’t have much more than their monthly Social Security checks to live on.
“With Social Security currently being too stingy to function as the nation’s single pillar retirement system, the obvious solution is to expand it. There are numerous revenue streams that would allow the nation to not only shore up Social Security against any projected shortfalls, but also would allow the US to greatly increase the monthly payout for the 43 million Americans who receive retirement benefits.
“In fact, if we designed it correctly, we could double the monthly benefit for every retiree, creating a new system that should be called Social Security Plus. As demonstrated by the recently published book Expand Social Security Now: How to Ensure Americans Get the Retirement They Deserve, there is so much waste in the US tax system that if we simply closed many of the tax deductions and loopholes that disproportionately favor wealthier Americans, the nation could easily afford this.
“How much would it cost to double the monthly payout? Approximately $662 billion. That seems like a lot of money, but here’s how we could do it.
· Eliminate the unfair Social Security payroll cap. Currently any income above $118,500 is not taxed for Social Security purposes. The practical effect of the cap is that billionaire bankers and CEOs contribute a far lower percentage of their income for Social Security — much less than 1% — than their secretaries and chauffeurs, whose income is taxed at a rate of 6.2%.
“The old rationale for this discrepancy is that Social Security is not welfare, instead it is an earned benefit — the more you pay into it, the more you receive. The maximum amount that a Social Security beneficiary can receive is capped at around $2600, and so if the benefit is capped, so should be the payroll deduction, goes this line of thinking. If we are going to lift the payroll cap and tax wealthier Americans more, shouldn’t they also receive more of a payout?
“But that’s not how Medicare works, nor private company pensions, nor any other tax-funded government service. Wealthy people don’t receive more access to roads, schools, hospitals or airports just because they pay more in taxes. The rationale for treating Social Security so differently has never made much sense, and makes even less sense in this time of rampant inequality.
“So simply making the payroll contribution more fair and equal by requiring all income levels to contribute at the same rate of 6.2% on all of their earned wages would raise approximately $135 billion toward the targeted goal.
· Apply a Social Security tax to investment income. 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 another $50 billion more for doubling the Social Security payout.
· Eliminate tax shelters and loopholes for 1-percenter households and businesses. The loopholes to eliminate should include capital gains and other types of investment income, such as ‘carried interest’ and the truly outrageous ‘step-up in basis,’ which exclusively benefits inherited wealth. These function as direct federal subsidies to mostly affluent Americans. And they cost the national treasury some $350 billion per year, with the Congressional Budget Office estimating that a whopping 70 percent of this subsidy is “hoovered” (ha ha, new word I came up with) by Americans in the top 1 percent income bracket (and nearly 93 percent by the top 20 percent bracket).
“The ‘step-up in basis’ exemption is particularly repugnant. When a yacht, mansion or any other type of expensive asset is sold, the seller’s profit is subject to the capital gains taxation rate of 15–20 percent — already only about half the 39.6 percent tax rate that the wealthiest pay on their wage income. Normally, the amount subject to taxation is the difference between the sale price and the amount that the seller originally paid for that particular asset. But for inherited property, the difference is calculated using the date that the previous owner died and left it to the heirs. As a result, the appreciation in value is a lot less, and so are the capital gains taxes. Rather than a ‘step-up in basis,’ this dodge might more accurately be termed a ‘step-up in privilege.’ In 2015, this rule reduced federal revenues by an enormous $63 billion.
“Step-up in basis is one of the 10 largest federal tax expenditures in the entire individual and corporate income tax system. And most of it is pocketed by the wealthiest of Americans. Of course none of the investment income received from the sale of these inherited assets is taxed for Social Security purposes. If it were, at the usual 6.2 percent Social Security tax rate that all workers pay, it would generate another $19 billion for the Trust Fund.
“President Barack Obama has done nothing to close these loopholes while president, and Hillary Clinton has been mostly silent. Ironically, Donald Trump has been more outspoken about the unfairness of this system than most Democratic leaders, I am ashamed to say. To his credit, Mr. Trump defended Social Security against budget cuts during the GOP presidential debates and primaries.
· Eliminate the tax exclusion that private 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 private companies, even though only a small minority of Americans — about 15% of private-sector workers — have pensions today. By implementing Social Security Plus, which would double the monthly benefit and make Social Security the de facto national retirement plan, employers would be liberated from having to provide 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. That will raise another $100 billion that can be used for Social Security Plus.
“At this point, we have found over $600 billion in funding for Social Security Plus, nearly reaching our mark for doubling the monthly retirement benefit. So let’s keep going and look for more sources of revenue for our increasingly expanded and financially sound national retirement plan.
· Scrap other retirement tax breaks that disproportionately benefit wealthier Americans over middle class and poor Americans. Savings vehicles such as 401(k)s and IRAs have tragically failed to help most retirees for a very simple reason — you can’t put very much into your 401(k) if your wages are too low to save. And with aggregate wages in the US staying flat for the last three decades, the reality is that most middle- and poorer-class Americans haven’t been able to sock that much away. Consequently, of the $165 billion that the federal government spends subsidizing individual retirement savings, nearly 80 percent goes to the top 20 percent of income earners. President Obama has proposed a universal 401(k), in which workers with no savings plan will be enrolled automatically in a 401(k) plan. But it seems pointless when wages are so low that the vast majority of middle class and poor Americans can’t accumulate sufficient savings. Most Americans would be far better off if we scrapped the 401(k) and IRA subsidies, and instead doubled the Social Security monthly benefit.
“The same is true for federal underwriting of homeownership, which totaled $154 billion in 2014. 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” (yes, ha ha) up a massive 86 percent of it. And the federal tax deduction allowed to homeowners to mitigate the cost of paying state and local property taxes 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 that federal subsidy.
“Just to make sure everyone understands whom the tax code favors today — much different than in my day — 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 amounts to another giant subsidy amounting to $52 billion. And here’s the real kicker: these three subsidies for homeownership, which mostly benefit higher-income people — cost the federal treasury nearly four times the $42 billion that the Department of Housing and Urban Development spends on all affordable housing programs for low-income people. Renters and most low-income Americans don’t benefit at all from the subsidies, and while some middle-income people benefit, the total amount of their deductions is pitifully small. They would benefit a lot more from a doubling of their Social Security payout.
“Critics of Social Security have derogatorily labeled it an ‘entitlement,’ but in reality these tax-code favoritisms are nothing more than entitlements for wealthier people at the expense of everyone else. The affluent recipients of federal largess are the true ‘welfare queens,’ since these subsidies are mostly not available to middle- and lower-income Americans.
“If we combine those budgetary add-backs with our previous savings, we now have reached nearly $900 billion, well over the $662 billion we need in order to enact Social Security Plus. And note that we were able to do this without spending a dime more in government money or national wealth than what is already spent on the retirement system, or on subsidizing better-off Americans. We are just shifting existing expenditures that right now benefit a small number of people, and redirecting these resources toward the vast majority of people.
“We just celebrated Social Security’s 81st birthday (its birth date was August 14, 1935 — see our photo above — hi Bob, hi Frances!), and I’m proud to say it remains one of the most popular government programs ever. As the United States revamps its safety net for the 21st century, we can accomplish much by making it fully portable, pro-rated and universal. And we can pay for a good chunk of that by enacting a tax fairness that ensures that all Americans contribute their fair share to the nation’s bounty and security. It would be a better fit for the type of high-tech digital economy that is slowly taking root, in which more Americans are working part-time for multiple employers. The end result would bring the US in line with the national retirement systems of many other advanced democracies — if those nations can manage to provide retirement benefits at a higher support level, there is no reason the great United States of America can’t figure this out too.
“We have nothing to fear but ourselves — and our fear of progress.
“As the old New Deal society that I and others created slowly fades, substantial expansion of Social Security benefits would provide a new kind of deal for U.S. workers.
“Uhhh…don’t get me started on Donald Trump…good luck!”
I awoke from the dream, bathed in sweat, thinking Wow, hella that. I gotta quit eating so much of the ‘Gwyneth Paltrow Detox Diet’ so late at night, right before bed…
[Steven Hill (www.Steven-Hill.com) is the author of the recently published Expand Social Security Now: How to Ensure Americans Get the Retirement They Deserve (www.ExpandSocialSecurity.net). Join him on Twitter @StevenHill1776]