Social Security is on the Table

By George P. Brockway, originally published February 8, 1993

1993-2-8 Social Security on the TableTHEY SAY THAT Social Security is on the table. I hope the table is spacious and sturdy, for Social Security is like the proverbial horse designed by a committee. It is part employment tax, part endowment, part life insurance, part social welfare. It doesn’t fulfill any of these functions well, especially since it embodies a scheme of family values that would ordinarily be thought archaic even by members of the 1992 Republican Platform Committee.

The best thing to do with Social Security is start over again. All citizens should without question be entitled (that’s right, “entitled”) to decent protection of their dependents and a decent retirement. Since everyone should be covered and the claims can be closely anticipated, it is foolish to try to build up trust funds of one kind or another. The benefits or entitlements should be treated as ordinary expenses of government and paid for out of current income taxes, not out of taxes on employment.

Actually, of course, that is already the case. In 1992 the Social Security tax brought in $126 billion more than had to be paid out. The 1993 surplus is estimated to be $131 billion, and the surplus is expected to continue to increase for another decade or more. These billions of dollars make up the Social Security Trust Fund, but they aren’t stuffed in a bank vault somewhere, as our gold reserves used to be at Fort Knox. Instead, the Fund buys U.S. Treasury bonds, and the money thus lent to the government is used to pay bills.

Twenty or 30 years from now[1], when the baby boomers are enjoying their golden years, the smaller succeeding generation, though paying the same Social Security tax rate, will not pay in enough to cover their parents’ entitlements. So the Trust Fund will annually redeem some of its Treasury bonds. And where will the Treasury get the money to meet its obligation? Out of current taxes. Where else?

As the detective stories say, follow the money. When you do, you will see that under the present system the Federal government collects 38 per cent of its revenues by a grossly regressive tax that takes 15.3 per cent of her pay from the mite of a widow housekeeper but only 0.6 per cent (or less) of the pay of the millionaire executive who employs her, and nothing at all from those whose sole quasi-economic function is to clip coupons and cash dividend checks. Furthermore, you will see that the surpluses generated by this regressive tax will not in the slightest lighten the burden of future generations.

What can be done about this? Probably nothing. A couple of years ago New York’s Senator Pat Moynihan tried to get the Social Security tax lowered to a rate that would simply cover the outlays. He said, in what still seems to me a measured observation, that if the Democratically controlled Congress failed to adopt the proposal, it would be difficult to see what the party stood for. He got nowhere (although the publicity he generated probably derailed President Bush’s drive for a reduced capital gains tax). Indeed, the Senator was accused of planning the rape of generations yet unborn, of financial ignorance, and of much else.

Moynihan is now chairman of the Senate Finance Committee, the third or fourth most powerful man in the country when it comes to taxes, but I doubt that he will have more success with his proposal than he did earlier. And I’m sadly certain that he would have no success whatever, even if he was of a mind to, in persuading the good citizens of the Republic of the virtues of my proposal. So I retreat to a prepared position with suggestions for treating the sores exposed by Nannygate, bearing in mind the fact that we’re talking about provisions of the law that ‘are violated at least three-quarters of the time by otherwise law-abiding citizens-provisions, moreover, that everyone who thinks about them for even a minute recognizes as unjust.

Consider first the case of a nanny (I thought the word went out when Peter Pan grew up) or a cleaning lady (as the job description used to have it) who is a married woman, perhaps a widow, perhaps a senior citizen. The odds are that she will be or is entitled to Social Security benefits as her husband’s spouse. In addition to her regular income tax, 15.3 per cent of her earnings will be collected by the Internal Revenue Service simply to swell the Social Security Trust Fund. She will almost certainly receive no retirement benefit or social welfare or anything except what she would have received if she hadn’t done a lick of work in her life.

That’s where the family values I mentioned at the outset come in. A man and his wife are not individuals but a couple in the eyes of the Social Security system. After the principal bread winner retires, the couple gets one and a half times his benefit. In the statistically unlikely case that the wife is the principal breadwinner, the couple’s entitlement will be based on her earnings. Because the Social Security tax is levied only on the first $57,600 of a person’s income, it may happen that both husband and wife have paid the maximum tax. If so, the benefits will be paid on the husband’s tax even where the wife’s total earnings are many times greater. That, I imagine, will one day be the case of corporate lawyer Zoe Baird and her academic husband.

For the Bairds the situation is merely ridiculous. They will not have to rely on Social Security in their retirement; and given the lack of much progressivity in the present income tax, they are taxed little enough as it is. The cases of the cleaning lady and the nanny are of a different order. There are undoubtedly many who love babies and even some who like housework and enjoy the gossip that often goes with it. But the great majority of women who do this sort of work do it because they need the money. For them the Social Security tax is a cruel hoax. It would be surprising if most did not pressure their employers to join them in breaking the law. Once Social Security is on the operating table, it shouldn’t be too difficult to remove this diverticulum, preferably by increasing the benefits payable to a second wage earner in a family.

Now consider the kid next door who mows your lawn or baby-sits for you. While we’re at it, let’s consider all part time workers under the age of, say, 21. Suppose that instead of filling out forms and withholding taxes and all that, you gave such claimants, along with their pay, a voucher worth approximately 15 per cent of the money due. You’d buy the vouchers at the local post office, where they would be available in several convenient denominations. Banks and even grocery stores might want to sell the vouchers as a public service. The vouchers would earn interest in the same way and at the same rate as series E bonds, with these provisos: They would have to be used to finance some approved form of education, and they would have to be cashed before the holder’s 26th birthday. The vouchers would be required for all paid work by youths that is, no records would have to be kept to see whether the present $50 minimum was reached.

I MENTION VOUCHERS because that is a popular word today in educational circles, but stamps would be better. You are probably too young to remember the Postal Savings stamps one used to be able to buy at the post office or the Defense Stamps of World War-II, but I’m sure you can imagine how easy stamps would be to handle. Each worker would be given a little booklet with spaces to stick them on and instructions on their use.

Not only would this scheme free employers of annoying paperwork, it would free the government of expensive record keeping. Moreover, it would be largely self-enforcing. The present system is widely evaded because the supposed beneficiaries are unlikely to get any benefit from the Social Security taxes they pay as teenagers. Upon retirement, their benefits will be calculated on their highest 35 years of earnings. Under my proposal, young workers would get the benefits almost immediately, and those benefits would go for a purpose most employers strongly approve of. The nation would give up the relatively small taxes it now collects and will get in return a much larger contribution toward a cause its future depends on. Last but not least, good citizens who hire teenagers will both feel a public pressure to pay the tax and be relieved of the guilty conscience and anger that go with breaking a bad law.

Finally, let’s look at the COLA problem that at this writing is still teetering on the edge of the table. Cost-of-living adjustments, or COLAS, seem to derange the minds of many worriers about the deficit. Bankers are peculiarly susceptible, perhaps, because they enjoy the most refreshing COLA of them all. They don’t call theirs a COLA, of course. They call it an inflation premium. The interest they charge you for a loan is, they figure, made up of two parts-the real interest and a premium to offset inflation. Well, my Social Security benefit is also made up of two parts-the base benefit and the cost-of-living adjustment. Same thing exactly, except for the amount of money involved.

The Social Security COLA last year came to about $12 billion, while the Banker’s COLA came to about $800 billion. The Banker’s COLA was, in fact, more than double the budget deficit that upsets bankers so. And mark this: Inflation last year ran at a rate of 3.1 per cent, costing the economy about $186 billion. The Banker’s COLA that theoretically makes up for inflation happens to have cost the economy 4.2 times as much. If there had been no Banker’s COLA, there would have been no inflation.

On the other hand, if there were to be no Social Security COLA next year, some 500,000 senior citizens would be pushed down below the poverty line. The same fate would await hundreds of thousands more in every subsequent year that the Social Security COLAS were frozen. Very few retired people can survive on Social Security alone, yet for many millions it is the difference between modest comfort and penury.

In the past 10 years (as the Federal Reserve Board was being congratulated for inducing two recessions in fear of inflation), the cost of living has increased 47.2 per cent. Without the COLAS, a 1O-year retirement (the present expectancy) inexorably becomes very bleak indeed.

Well, it’s fine to have Social Security on the table. But if your problem is reducing the deficit, the way to do something about it is by increasing the taxes of those who benefited from the ’81 and ’86 tax breaks. Or, as Jeff Faux, president of the Economic Policy Institute, put it: “Send the bill to those who went to the party.”

The New Leader

[1] This article is being loaded into the blog 21 years after it was originally published

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