by Steven Hill, New York Daily News, July 11, 2106
The ever-popular Social Security has had a number of saviors and destroyers over the years, but none of them more infamous than Monica Lewinsky. Eighteen years ago this month, special prosecutor Kenneth Starr was turning the screws on President Bill Clinton, with testimony from Lewinsky and others about salacious things like cigar tubes and sex stains on a blue dress.
One would have thought that Clinton’s repugnant personal behavior was the nadir of his presidency, but in fact Clinton was up to far worse in the Oval Office. Many people forget that Clinton, along with his then-Deputy Treasury Secretary Larry Summers, were at the very same time negotiating with Republican House Speaker Newt Gingrich, now a possible Donald Trump running mate, over a plan to “save” Social Security — one that included partial privatization.
The plan was meant to be another “grand bargain,” uniting centrists in both parties, like Clinton had done over NAFTA and welfare reform. But the deal imploded under the weight of the Lewinsky scandal. It’s crazy to say, but Lewinsky and that embarrassingly graphic national moment saved Social Security from a terrible fate.
Today, Social Security faces a different challenge. The criticism that the seminal government retirement program will go broke sometime during the 2030s is overblown. The real problem with Social Security is not a shortfall but that its payout is too meager. Social Security is designed to replace only about 35-40% of wages at retirement, yet most experts estimate you will need twice that amount to live decently. With the other components of the retirement system having collapsed — such as homeownership, private savings and company pensions — and with incomes low and inequality high, Social Security is too stingy to be the de facto national retirement system any longer.
The obvious solution is to expand it. There are numerous revenue streams that would allow the nation to not only shore it up against any projected shortfalls, but also would allow the U.S. to actually double — yes, double — the monthly payout for the 43 million Americans who receive retirement benefits. Here’s how we could pay for it.
First, we should eliminate the unfair Social Security payroll cap so that all income levels contribute at the same rate. Currently any wage 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 into the Social Security Trust Fund than their secretaries and chauffeurs. Making the payroll contributions fairer would raise approximately $135 billion annually towards expanding Social Security.
Second, investment income should be treated as wages for Social Security purposes. Many wealthy Americans make most of their money through investment income instead of from wages. Yet unlike the vast majority of US workers, 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 $75 billion annually for expanding Social Security.
Third, we should eliminate income tax shelters and loopholes for one-percenter households and businesses, including for capital gains and its twisted offspring like “carried interest” and the truly outrageous “step-up in basis,” which exclusively benefits inherited wealth. These deductions cost the national treasury hundreds of billions of dollars per year, yet they mostly benefit affluent people.
Fourth, the U.S. should redesign failed components of the current retirement system, including 401(k)s, IRAs and even homeownership deductions, which have failed to enhance the retirement security of most Americans. For example, of the $165 billion that the federal government spends subsidizing individual retirement savings, nearly 80% of it goes to the top 20% of income earners.
Many of the middle class and poor can’t take advantage of these deductions because they don’t earn enough income to save (for that reason, a universal 401(k), as has been proposed by President Obama, would be largely pointless). If we greatly expand the Social Security payout, these deductions won’t be necessary.
Just these four revenue streams would come close to raising the $662 billion necessary to double Social Security’s monthly benefit.
Other nations manage to provide retirement benefits at that level. Doing so would benefit the overall economy, as well as individual businesses, by acting as an “automatic stabilizer” to maintain levels of consumer spending during economic downturns. A new kind of deal for U.S. workers is possible because 18 years ago a tawdry sex scandal saved this crucial piece of our safety net from the shredder.
Hill is a senior fellow at the New America Foundation and author of “Expand Social Security Now: How to Ensure Americans Get the Retirement They Deserve.”