Let's Save SS, But NOT Bush's Way!
As a starter I'd just like to clarify that most of the information for the first 5 points that follow comes from an opinion column in the NY Times entitled How to Save Social Security which ran October 2, 2004. The rest of the information is culled from various sources, to include my head (yes, granted, we're in murky terrain there, sorry.) I will state that the idea to hold a weekly bake sale at local supermarkets to generate funds for SS was definitely MY idea, if any copyright considerations should arise at any point in the future.
Let's hit the main problem here: Bush and his minions (henceforth Bushies), and a long list of
neo-conservatives and libertarians who feel that Santa blessed them for Christmas by giving them the country, are ideologically opposed to raising taxes in any form. Starting from that line of thinking the only way to save SS is to cut the program's benefits, to include payouts. SS could be propped up by diverting funds from other government programs, but that's not likely to happen as the only government agency that comes out ahead moneywise these days is the
Department of Defense, and the Bushies are loath to cut money there, it's not a manly thing to do, and if they did sending it on to old people, widows, and parentless children seems like such a wimpish thing to do, definitely not in the conservative spirit of things. Let us keep in mind the startlingly obvious, i.e. those who benefit most by a decrease in taxes are those who pay the most taxes. Let's be clear though, they pay more in terms of the overall amount, but as a rule they pay less on the basis of a percentage of their income and they also have less reason to care one way or the other whether SS will be there for them or not when they retire. Therefore
undoing tax cuts by reimposing them also isn't in the republican spirit of things.
Now here's an interesting tidbit: If Bush's current tax cuts were locked in over the next 75 years, the loss in revenue would cost about three times what it would take to "fix" SS. And who benefits most from from cutting taxes on unearned income, as opposed to the "earned" income you make by busting your butt getting up early in the morning and doing a job? Well, if you have a lot of investments which reap dividends, accrue value which you later take by selling the investment, or you make a lot of interest, you love G.W. Bush and his tax plan as your unearned income is taxed much less than it was before. The other good deal for the well-off from the Bushies is the repeal of the estate tax, which some clever PR person working for those who wanted to do away with the estate tax converted into the "death tax" --- made it seem like it applies to all of us since we all die, though few of us own estates. If the estate tax were retained mind you, this tax applies to only about 5% of the American people, though hope seems to spring eternal for many of us) and the revenues from it were directed into SS, 1/3 of the SS gap would disappear.
Ok, here's a message you've not been hearing much of, for no politicians seem to be addressing what could be done to save SS, and the news media seems to not have heard of anything that would: We can fix SS so it pretty much exists in 50 years as it does now. To get SS fixed will require small cuts in benefits and minimal tax increases. The idea is to generate the necessary revenue across an array of options such that the rich aren't being soaked to fix the system (you see, I don't hate the rich) and ultimately the elderly, widows, and parentless kids are not left with a disemboweled program. Here are some proposals to take under consideration:
1. Link benefits to increased life expectancy. The age at which you can collect full benefits is presently 66, going up to 67 in 2022. Continually raising the age for full benefits isn't practical or fair. To accurately reflect life expectancy the costs for SS should be routinely updated, say every ten years, and the responsibility for funding the extra costs shared
between the retirees and workers through small automatic reductions in future benefits and a minimal increase in the payroll tax.
For an average 35-year old today, the benefit cut in 2036 would be the equivalent of about $300/year. For workers, the tax increase would start 10 years from now and rise each decade. By 2036 the rate would be 12.7%, up from 12.4% today.
Doing this would close about one-third of the SS long-term financing gap.
2. Link life expectancy to income levels. Fact: the rich live longer than the poor, and the difference is growing. It may not be fair, but it is what it is. So this means that those with the highest incomes get the largest share benefits checks, and for longer periods of time.
High-earning workers get 15 cents in benefits for every dollar of earnings, reducing that to 10 cents per dollar would make the program more progressive.
Doing this would close the SS imbalance by 10%.
3. Slowly change the point at which SS taxes are no longer paid. In 1983 SS reform capped payments to SS at $87,900, i.e. if you made anything above this cap you didn't have to pay SS taxes on that money. In 1983 only 10% of wage earners made this much money, today it's 15%. If the wage base were increased over 40 years so that the inflation adjusted wage level were at the 1983 level, some 10% of the SS shortfall would disappear.
4. Wages above the wage cap should also be taxed. This would seemingly be in contradiction to #3, but not so. The idea is that wages above $90,000 (this is the level for wages as of this year) would continue to be taxed, but at a lower rate than for wages below $90K. The original argument for the cap was that benefits from SS would max out regardless of how much was contributed, therefore high-earning contributors should have their contributions capped. But contributions to SS not only pay into benefits but towards an overall debt incurred for past and present recipients and the burden of alleviating that debt should be shared by everyone. Taxing wages above the cap at 3 to 4%, matched by employers, would correct about 1/3 of the SS imbalance.
5. Bring state and local workers into the system. Some 4 million state and local government employees do not contribute to the SS system. This was true of federal employees as well until 1983. Bringing state and local workers into the system would decrease the SS debt by 10%, and a small increase in the SS payroll tax, about 0.2%, would cover costs for the new members into the future.
6. Selectively increase SS benefits for seniors per the consumer price index (CPI). Presently this is done by pegging SS benefits to increase in wages. Retain the present system for low to middle income recipients and shift to the CPI for high-income recipients.
Some additional potential revenue generators:
1. Raise gas taxes by 5 cents a gallon. Yeah, who needs to pay more at the pump? Well in this case you're paying more for yourself and your present and future family so in a way it's forced savings. Yes, it's a regressive tax, but it falls more on people who tend to drive (the poor don't drive as much as those better off), especially those with large vehicles who guzzle LOTs of fuel. It also works as a part of a comprehensive energy policy to help wean this country off of foreign oil.
2. Impose a 1% national "sin" tax. This which would generate revenues on cigarettes and all other tobacco products, alcohol, Starbucks coffee (ok, not just Starbucks), and pastries. Ok, the last one is a bit "out there", but we no more "need" to eat cake than we need to smoke or
drink. Again the money would go for a legitimately good cause and given our general low level of consumption of these things, be barely felt in our pocketbooks (well, for most of us anyway.)
3. Invest in the market! Gosh, isn't that what Bush wants to do? Well yes, but he wants tens of millions of busy Americans, many of whom are pretty ignorant about investing, to become reasonably adept at investing for their futures. Frankly that's an unreasonable expectation, ESPECIALLY from a president who was clearly a poor investor in anything other than politics, where it has been our misfortune that the man's apparently very adept and quite lucky.
Now there's no reason that the government shouldn't take on the risk of investing, with a few rule changes. The SS administration is currently restricted to buying government bonds for the trust fund. The problem with this is that the money then goes into the government tills and can be used for whatever congress decides to, with the understanding that down stream that money will have to be paid back with interest. If the government were allowed to invest in private investment instruments it would:
1. Take on the risk of the investments, which minimizes the potential impact for the average Jane and Joe.
2. Significantly reduce the fees paid to private investment managers as they would be dealing with just the government, not millions of Americans from whom they can charge fees that cut into the overall individual returns on the investments (this has been a huge problem in Chile and Britain, two countries with a privatized retirement system.)
3. The trust fund money is no longer touchable by congress. Putting the money in private accounts takes the funds from selling bonds out of the reach of politicians as the money invested for SS would have to stay in the accounts it was funneled into.
4. Renders some poetic justice of a sort: The big claim by many privatization proponents is that the market won't go down such that millions of people will lose their retirement money. Ok, great, have the government invest in a fund tied to the S&P 500 or the Dow Jones, i.e. when the market goes up so does the fund as the fund is invested in a represtenative sample (and a large one at that) of the stocks that make up the DJ or S&P. If the advice is good enough for the American people why shouldn't it be good enough for the government as a whole? I know this is more complicated with an entity the size of the U.S. govt, but it's doable and it brings the much vaunted (as per the republicans and libertarians) stock market into the mix but with some protections to keep people from losing their investments or getting screwed if they happen to look to retire at a down point in the market. The system can be set up such that a certain minimum amount is always avaiable for investors who retire and have to tap into this money in their retirement.
There you have it, Ruminating Dude's recommendations for saving SS, which should and can be available for everyone regardless of their age in another 50 to 100 years if we were only willing to make the sacrifices NOW needed to keep the program healthy, but G.W. and the republicans don't want you to feel any pain, your kids and theirs are supposed to feel it for you.