by Steven Hill, American Prospect, May 12, 2016
Proposals abound to overhaul the Social Security system via means-testing, raising the retirement age, or price adjustments. But the real solution to a fairer, more stable retirement system is Social Security expansion.
(Excerpt from the author’s new book, “Expand Social Security Now: How to Ensure Americans Get the Retirement They Deserve,” published by Beacon Press)
Increasing numbers of workers now find themselves on shaky ground, turned into freelancers, temps, contractors, and part timers. Even many professional jobs are experiencing this precarious shift. Within a decade, it’s been estimated that nearly half of the 145 million working Americans could be impacted, turned into so-called “independent workers” with little job security, insufficient safety-net supports, and poor wages.
Add to that new anti-worker methods such as “just-in-time” scheduling and the steamroller of automation, robots, and artificial intelligence already replacing millions of workers and projected to “obsolesce” millions more, and suddenly things don’t look so economically set for a lot of Americans.
Now an insidious mash-up of Silicon Valley technology and Wall Street greed has thrust upon us the latest economic trend: the so-called “sharing economy,” with companies that offer short-term freelancer employment with low pay, no safety net, and a need to be in constant job search mode, looking for the next gig. One Uber driver with whom I spoke laughed bitterly when I mentioned the term “sharing economy.” “More like the ‘share the crumbs’ economy,” he said.
It’s an alarming transformation. The U.S. middle class, one of America’s greatest inventions and a gift to the world, is in danger. The future is anything but secure. Set to replace the crumbling New Deal society is a darker world in which workers can be hired and fired by the touch of an app—turned on and off like a water spigot.
These changes mark one of the great social and economic transformations of the postwar era. A seismic shake to the supportive edifice for American workers has cracked and is beginning to crumble for all but the better-off. Not since the Great Depression have we been so in need of a system of retirement security that acts as both a buffer for individuals and families from the sudden shocks of economic downturns and bursting asset bubbles, but that also acts as an automatic stabilizer and stimulus capable of steadying the broader macroeconomy. At the very time when Americans most need a stable retirement system, it is more threatened than ever.
So yes, our economy is changing, and yes, Social Security must change with the times. But the change that must occur is not cutting it back, quite the contrary. We have to expand Social Security and create a robust, single-pillar retirement system for every worker, one that is portable from job to job. And one that functions even for those workers who have multiple employers.
So the safety net has to work for these new types of workers, and for many different classifications of workers. That’s what the need is, and an expanded Social Security could best provide the retirement portion of this new kind of safety net for this new kind of economy. No other system or method—not 401(k)s, IRAs, the remnants of company pensions, the loopholes of tax deductions and deferrals, or any other current method, even if scaled up—are capable of playing this role. Only Social Security can do it. And yet Social Security’s payout to each individual is so meager that, unless it is expanded, it will not be robust enough to play this central role as the nation’s de facto national retirement system.
Social Security Plus—the Only Solution Left Untried
Winston Churchill allegedly once said, “You can always count on Americans to do the right thing—after they have tried everything else.” We’ve tried just about everything else to create a secure retirement system for seniors, and to stabilize this part of the consumer demand that drives our economy. What we haven’t yet tried is Social Security Plus.
Late 19th-century German leader Otto von Bismarck first pioneered the idea of old-age government pensions, and it has since become a staple around the world. A universal social support system, whether in Europe, Canada, Japan, or Australia, is guided by a philosophy that values the creation of “social insurance” that helps individuals and families prepare for their future, including retirement. In fact, the various social insurance systems force individuals to prepare, paycheck by paycheck, by deducting from workers and businesses the funds necessary to better secure their futures. Universal social insurance means everyone pools their money, which is a crucial step that allows better planning and the creation of more efficient and less expensive support systems. Consequently, European systems of health care, child care, senior care, housing, and education cost much less per capita compared to U.S. systems, because the efficiencies that can be designed into universal systems make them much more economical and cost-effective.
For example, the United States spends over 17 percent of gross domestic product (GDP)—about $2.9 trillion, or $9,255 per person—on a decentralized hodgepodge health-care system that is very expensive to administer and operate. Even after the improvements of Obamacare, health care still doesn’t cover about 11 percent of the U.S. population. But European nations spend about 6 percent to 12 percent of GDP (depending on the country) and cover 100 percent of their populations. Americans also spend at least six times more per capita for child care (depending on the country), and while university tuition is skyrocketing in the United States, in most European nations it is still quite inexpensive, only a few hundred dollars per year.
The Swedish Social Insurance Agency publishes a brochure that captures the prevailing philosophy: “Social insurance is founded on the idea of people helping each other through a kind of social safety net, which is in place from birth to retirement.” Netherlands Labor Party leader Wouter Bos has argued that Europe’s social state is based on “enlightened self-interest” since “we all run the same risks, so we might as well collectively insure ourselves against those risks.” This is a philosophy with broad agreement across the political spectrum; even conservatives and the so-called far right agree, forming the basis for a “European consensus.”
So enacting a version of Social Security Plus is not as untested as it may at first appear. In many nations around the world, more comprehensive social support systems aid families and individuals and cushion vulnerable populations against economic dislocation. Nevertheless, in the United States we continue stumbling forward with our more ad hoc, decentralized, and inefficient systems, in which some people get the support they need and others don’t. And the support systems are so poorly designed that the national price tag is often exorbitantly expensive. The more deregulated U.S. system is known for allowing individuals to keep more of their paycheck—presidents from Ronald Reagan to George W. Bush were famous for declaring, “We let you keep your own money”—and leaves it up to Americans’ discretion whether to prepare for the long run by saving money and handling the costs of retirement, or to spend it all in the short run.
But in an age of globalized capitalism and increasing economic insecurity, benefits like an adequate retirement, as well as health care, child care, sick leave, education, housing, and more, are no longer discretionary—they are necessary in order to enjoy a basic level of security and comfort. What this points to is that in today’s insecure age, a middle-class standard of living is not only about income levels or economic growth rates, but also about adequate support institutions and social insurance for individuals and families.
Japan, Canada, and countries in Europe and elsewhere have already established various vehicles to ensure their health, productivity, and quality of life that will serve them well in the new, high-tech economy. While all of these nations, like the United States, rely on powerful capitalist engines as the core wealth generator of their economies, the presence of a more robust social insurance infrastructure is the reason that these other nations have a higher level of economic security for their people than does the United States. The U.S. is the outlier among developed nations; our “ownership society” should be called an “on-your-own” society because many people are truly left on their own.
The security of social insurance in turn stimulates consumer spending, which in turn creates jobs, which in turn acts as an automatic stabilizer during downturns. It unleashes a virtuous feedback loop, based on these necessary components of a modern capitalist economy today. A more comprehensive social insurance system allows these other countries to achieve one of America’s chief principles, namely, “life, liberty, and the pursuit of happiness,” with results that are vastly different from the American “pull yourself up by your bootstraps” society. Expanding Social Security would be an important step toward providing for all Americans the type of efficiencies that modern capitalist economies need in order to provide retirement security.
One can anticipate various objections, criticisms, and even fear of creating a Social Security Plus system. “It has never been tried before” (at least not in the United States), “it’s socialism” (even though 70 percent of Republicans support Social Security), “it’s already going bankrupt” (nonsense), and “where would we find the money?” (how about from all the hundreds of billions of dollars in tax loopholes that predominantly favor wealthier Americans?). Already there exists a concerted and well-funded effort to convince Americans that Social Security is broken and that we need to cut it back and even privatize it “in order to save it.” So I’m very aware that some Americans, both leaders and everyday citizens who have grown so suspicious of government, will reject out of hand the notion of doubling the monthly benefit.
But what can’t be denied is that the “three-legged stool” of retirement security in the United States has become wobbly and unstable. Two of the legs—private, employer-based retirement plans, and private savings based on homeownership—have nearly collapsed. Combine that with vast increases in inequality, flat wages, and a decline in personal savings in the years even before the Great Recession, and Social Security is now the only leg standing for tens of millions of Americans. An expansion of Social Security—one of the most successful and popular government programs in U.S. history—into a more robust retirement system that doubles the current payout to individuals would build upon the most stable components of the current system.
The president and Congress, in their budgetary duties, and the U.S. Federal Reserve bank in its financial oversight capacity, have all the levers they need to ensure financial viability. This is a matter of politics, not economics. It is clear that the best way to stabilize and strengthen the retirement system, as well as the broader national economy itself, is to expand Social Security, bringing the American retirement system more in line with those in other developed societies. This can be accomplished by making the Social Security payroll tax fairer and more universally applied, by eliminating deductions for businesses that provide retirement plans (since that would be unnecessary with Social Security Plus), and by rolling back or limiting various tax-favored loopholes and deductions that massively favor wealthier Americans. Multiple mechanisms and plans are possible toward those goals.
More broadly, the United States must begin to view universal social insurance as a critical pillar of support for Americans and their families, as well as for U.S. businesses that currently miss out on the competitive advantages that would come if retirement and health-care systems were not substantially employer-based. The United States was once noted for its capacity for economic, political, and social innovation; in the aftermath of World War II, we created a land of broadly shared prosperity and opportunity, and starting in the 1960s began extending access to racial minorities, women, the LGBT community, and more. We have to rediscover our genius for that kind of innovation. We have to recognize that it is possible to create an affordable retirement system that is both decent and stable. This is not rocket science; it’s a matter of political will, not a failure of design.
Retirement experts like Laurence Kotlikoff, Philip Moeller, and Paul Solman, in their best-selling “advice” book Get What’s Yours: The Secret to Maxing Out Your Social Security, have provided a nice handbook on how to boost your Social Security benefit, using clever schemes like “file and suspend,” “spousal benefits,” and other brainy ploys. But wouldn’t it be better to have a retirement system that provides adequate income for seniors without having an accountant’s insider knowledge of the byzantine rules and tricks? The enormous gap between what is needed and what is being proposed by the politicians and professionals is glaring evidence that we need a completely new and pragmatic approach.
We don’t need to cut Social Security, or trim it, or pare it back, or privatize it, or raise the retirement age, or use chained CPI (consumer price index) to reduce the annual cost-of-living allowance. Even maintaining the status quo is woefully inadequate at this point. We need to expand Social Security, and we need to do itnow. That is the only sensible solution to the retirement crisis. And we have a roadmap for how to get there: Tax fairness equals retirement security, which equals economic stability.
Any movement that seeks to enact expansion of Social Security must link that to a call for tax fairness, since that is the most salient source of the revenue needed to pay for the Plus system. By re-allocating federal tax and expenditure priorities that currently provide huge financial advantages to a small number of better-off people and concentrating them instead on the vast majority of Americans, we can create a retirement system that will work for all of us, instead of some of us.
The creation of expanded Social Security Plus would provide a secure and comfortable retirement for every American, and contribute greatly toward a solid foundation from which to build a strong and vibrant 21st-century economy. Our retirees, our families, our businesses, and our communities deserve no less.
Reprinted with permission from Beacon Press.