In my car last night I heard two interviews with people on both side of the privatizing Social Security debate. One speaker was from the libertarian Cato Institute, the other from the liberal New America Foundation.
The debate was about the “ownership society.” It seems to me that we’ve lost site of what Social Security was designed to be. The White House perspective is reflected in a comment on my post Wednesday. The writer, who I assume supports Social Security privatization, says “It’s my money! I earned it. I want to keep it.”
All the talk from the White House is about better returns and owning your money. The idea of a social contract that calls for all of us to look out for one another is dormant. Some have argued that Social Security was never meant to be a retirement plan but a retirement insurance program. I agree.
Democrats need to resurrect, in my humble opinion, a values-based argument for Social Security, instead of focusing the argument that privatization itself will do nothing to prevent bankrupting the system and will raise the national debt. That’s true and shouldn’t be ignored. Thankfully, at least my hometown newspaper, The Washington Post, is not letting readers forget that.
But this is an issue where Democrats can argue values. Social Security was never meant as a forced retirement program. It was a social contract that required every worker to put something in the kitty for those who can’t save for retirement. Proponents of privatization argue that the problem is people won’t save for retirement. Consistent with the “authoritative father” model of right wingers, this argument says that people who don’t make the right investment decisions should suffer the consequences.
There are plenty of people who recklessly spend today instead of save for tomorrow, and they are poor as well as rich. Fortunately, the latter have a lot more latitude. If you’re rich enough, there’s likely to be something left to get you through to old age. The poor won’t, of course.
But the poor — and much of the middle class — can’t save without tremendous — and it a nurturing society, untenable — sacrifices. In the worst cases, that might mean not eating. But even many middle class families will be forced to make painful decisions, such as do I save for retirement or send my kids to college?
Anyone who lives on Social Security alone is not living the high life, so it’s hard for me to imagine that there are many people who are thinking that through their productive working years they can spend freely because they’ll be on easy street with Social Security.
But what of the social contract to support those who supported us all these years? I’m thinking about the people who clean our houses, mow our lawns, serve us food and all the other jobs that do not provide a living wage, let alone offer enough to save for retirement. Until we’re willing to pay $10 for a McDonalds’s hamburger, $40 for a shirt, $200 to clean our homes, etc., they will never be able to save adequately for retirement. Social Security taxes seem a small price to pay to avoid having, as was the case just 40 or 50 years ago, 50% of the elderly being poor. (Today, it’s about 10%.) Yes, it is our money, but it’s our society, and I’d like to think it is compassionate and caring for those who’ve done the work that made the lives of those better off much easier and affordable.
I think two easy and fair ways to secure the viability of Social Security. One is to tax wages above $90,000 a year. (The former is considered by some sympathetic folks to be a bad idea politically.)
If you live to the average life expectancy, you will get back more than you put in, after inflation, and then some. But all that changes if you eliminate the cap. All of a sudden, a worker earning $120,000 is paying almost $15,000 into Social Security (compared to $10,000 with the cap), and the most he will ever get under current law is about $1300 a month. That means, in short, that he will have to be alive and retired for as long as he was working at high wages, in order to get his money back. (Both figures are in current dollars, so don’t need to be adjusted.)
I’m not in the business of feeling sorry for people who earn more than $100,000 a year, but about one-fifth of households earn more than the current FICA ceiling (although if the earnings are from two people and/or from investment income they might not be affected by removing the cap), and the experience with the estate tax shows that people can believe they will be affected by a tax even if the chances are remote. The last thing we need is a backlash from the mid- to upper-middle class.
The other viable reform is to means test benefits. With means testing, anyone who already has a retirement income above a certain amount would see their Social Security benefits decline to another level at which a person would get no benefits. To those who say “It’s my money,” as the Decembrist post states, it’s a relatively young age (I believe the early to mid-70’s) that most people exhaust the funds and accrued interest they put into Social Security. I haven’t easily found how different levels of income come out on this, but the more you encourage people to put money into private account, the more you limit how much they can benefit. What happens when the money runs out? Should people save with the assumption they live to 100. What if they plan on dying at 85 but live to 90?
The administration makes the most out of anecdotes and examples. I’d like to see Democrats parade out individuals who’ve worked hard all their lives but have little to show for it in their retirement years and who must now depend on Social Security. And the question Democrats should ask during every media interview and at every press event is what happens if private retirement investment fails? I’d ask how Enron employees feel about private investments for retirement? What does the GOP suggest we do with people whose private retirement plans fail? The federal organization that insures corporate pension plans (but not 401k plans) is now in debt. What do we do with such people? Let them starve?
It seems the response to “ownership” is “collective responsibility.”
And it wouldn’t be a bad idea if Democrats, at every opportunity, would say there wouldn’t be a problem with Social Security if it weren’t for Bush’s tax cuts because right now, we’re taking more money from the Social Security trust fund to pay for general budget items. Democrats, I think, have bought into the idea that the only way to avoid debt is to cut expenses. Such a move is sure to harm those who can least afford it.