Let’s start with a couple of important facts. If we did not have Social Security, virtually every other retired person today would be in deep poverty, even–one might say–begging on the streets. Compared with 1959, when about 35% of those of retirement age were in deep poverty, today only 9% of Americans fall into that category.
The reason is that unemployment payments today average about $14,000, which is right at the poverty line, and slightly less for women, at $12,000, but other factors go into the calculation, so many hang in there, just above the poverty line. They survive…with few choices…without any extra comforts in life. But they survive.
Even so, for a variety of reasons, about 3.5 million Americans regularly fall between the cracks in the social system and end up in dire poverty. So, we’re not perfect but we’re trying. Some of us are. Others are not and they are the crux of the problem.
The Social Security system is basically a forced savings program, returned with a certain amount of guaranteed interest later in life, when the power to earn has diminished or disappeared. It doesn’t work exactly that way, but that is a shorthand way of reading what it does. It actually pays backwards. You pay in now for someone older and later someone younger than you will pay for you. It is not a retirement system. It is a guaranteed minimum income system.
Since the money is subtracted as a percentage of earnings during your working years, your Social Security payment is based on your peak earning years. If you earn less…which has been the case for the Average American since 1983….you will get a smaller payment. But more importantly, as American workers have earned less since 1983, the fund has less in it because we all put less in.
Beginning in 1983, with the Greenspan Commission, Social Security increased contributions from citizens and raised the eligibility age to 67. That would have made payments, including calculations for the baby-boomers and post baby-boomers, go out 75 years and remain solvent for that time. But because income for those paying in has gone down and because income for those making more than the minimum has gone up, the trend line began to go down. The solvency date began to shorten from the 2060s to 2036.
Then in 2008 we had a monumental economic crash and that dropped the value of everything down dramatically. Everything, that is, except Social Security, which…although it did not pay cost of living increases…continued to pay each recipient the exact amounts owed. This created an economic stabilizer, meaning that the fact of the regular government payments enabled regular spending patterns by the elderly to continue thus stabilizing a segment of the economy during the drastic downturn. This has been the case, by the way, in all countries with a strong social safety network.
But the shortfall in Social Security, while it is a fact, is not as serious as many would like you to think. For instance, everything will go along exactly as it does today until 2036. At that point, if we haven’t changed the inputs, the recipients at that time will only receive between 73% and 78% of the benefits equivalent to what Americans receive today.
The reason is that the projections have changed since 1983, in that income inequality, so called, where more money is earned by those not paying in to Social Security, is greater than the number of people who were projected to pay in. That, and the shortfall in revenues from the last couple of years where hundreds of billions of dollars of tax revenues have been lost because of the Bush Recession.
But that is only half the problem, and the best and easiest way to solve that problem is to raise the limit of approximately $106,000 on which people pay their Social Security taxes up to $250,000. This will provide sufficient revenue and will reflect the actual shift in earnings that has taken place since 1983. And of course the other part of raising revenues for Social Security is to get people working again so that the fund can start earning more money.
Since 1983, partly because of government policies and partly because of a shift in the composition of the workforce, a higher percentage of income has gone to the top 1% of all Americans. A segment of the workforce at the lower end of that top 1% are people who have technical and professional occupations whose incomes have grown as the jobs market has gone away from manufacturing to communications and other technical fields.
The top half of the top 1% has grown from a variety of other factors. The increases in tax cuts by the Bush Administration on top of the Reagan tax cuts plus the huge amounts of non-taxable corporate income through a variety of corporate loopholes have created massive amounts of wealth being shifted into top income categories.
Corporations have steadily increased the differential between CEO pay and the average worker’s pay from CEO pay of 100 and 200 times the average worker pay to as much as 400 and 500 times. CEOs in the health care industry earn an average of $14 million a year. Rick Scott, the current governor of Florida, after heading up a hospital group that paid the government $1.7 billion in fines for Medicare fraud, walked away with $100 million and used $8 million of it to buy a governorship in Florida.
While your gasoline prices went from $2.39 a gallon to over $4.00 a gallon, the CEO of EXXON walked away with a retirement bonus of $400 million dollars. Some hedge fund managers on Wall Street before the crash had incomes of over a billion dollars a year and were paying nominal capital gains taxes of 10-15% while the average American was paying 25% with no capital gains opportunities.
Another very important factor has been the outsourcing of jobs. Four million (4 million) jobs have been outsourced to China, India and elsewhere since the Bush Administration took office. Fewer American workers means lower incomes for those who remain and lower incomes adds to the shortfall in Social Security because a smaller paycheck means a smaller amount is deducted.
Labor unions have lost several hundred thousands of members because of anti-labor legislation and anti-labor Secretaries in the Department of Labor and because of the thousands of pro-business judges screened by the Federalist society for corporate leanings and appointed by the Bush Administration. Not to mention the literally brand-new consulting field of “union busting.”
Social Security is an important program. It pays out $676 billion in payments to the retired every year. And it takes in about that same amount. It is completely funded by amounts that individual citizens pay in each year, just as they pay in for unemployment insurance and Medicare premiums. The government pays nothing into it. It is your money, all of it.
Contrast this with the $700 billion laid out each year from your taxes for the Defense Department. This goes to two wars in far off lands. One in Iraq where the people never attacked us nor had any intention or even really thought about us until we attacked them supposedly to rid them of Saddam Hussein. We displaced about 5 million people, killed over 250,000 (up to as many as perhaps a million) destroyed the infrastructure of a county, lost $19 billion that we have no idea…none…where it went, and have spent over a trillion dollars. More importantly 4,600 young U.S. men and women were killed.
The second war in Afghanistan we fought because we were attacked here in the United States by 19 people, 17 of whom were not from Afghanistan at all but were Saudis. We bombed the hell out of them, then moved out and left Osama Bin Laden…the one guy we wanted to find, to escape to Pakistan. We have spent over a trillion on that war, turned the major agricultural product to opium, colluded with the worst kinds of warlords, and are still there…now talking about fixing up the country…after ten years!
Contrast all that waste…and much, much more….in the military budget with the fact that Social Security provides an extremely valuable benefit to Americans every single day. And, social security is legislated to be self-sufficient. It cannot borrow from the Federal government or anyone else to build the fund. The fund itself still grows. It grew in 2010 by another $2.7 trillion dollars and it will be $4.2 trillion in 2025.
Yes, because of the trajectory of fewer workers than people receiving benefits, it will eventually…sooner rather than later…need to be changed so that those people who have benefited from the changes in society that gave them more income—the top 1% have earned 55% of all income earned in the U.S. since 1983—will then have to pay a little more, 6% of perhaps $250,000 in income versus 6% of 106,000 now. And they will get more back, too, when they retire based on the Social Security formulas.
But this isn’t just a problem of Social Security. Most Americans have far too little set aside on which to retire. The average household has about $90,000 less than they need—in addition to Social Security—to retire on.
Many people were counting on the equity in their homes. That has dropped by half since 2008…thank George W. Bush, Dick Cheney, Christopher Cox and the entire Republican House of Representatives and Senate. And Alan Greenspan. They let the train…actually pushed the train…off the tracks and into the enormously corrupt Wall Street collapse.
Pensions have been cut in half since 1983. Only 20% of workers now get a fixed benefit pension, e.g., a monthly amount for life. And the average of that is only $10,000 a year.
To bring this up to the current situation, it proves that we do not need fewer unions. We need more and tougher unions. We need to come down on the side of the workers, on the side of the large body of American citizens, for a change and stop worrying about the corporations.
Corporations have never made more money than now in the entire history of this country than they do now, nor have they ever paid less in taxes. In 1950, corporations amounted to 32% of the revenue that supports this country. Today, they amount to 7%. Should we take it down to zero? Should we then outsource all the jobs to China…and just lie down and die so the CEOs of huge corporations can further enrich themselves?
The Republicans have continued to cut taxes on the wealthy. They have passed bills to give incentives to off shore jobs and offshore corporate headquarters. Those things, plus the free trade policies have killed jobs and cut government revenues to the bone…even before the Neocons worked with Wall Street to loot us of our 401Ks and our home equity.
This is why we have a shortfall in Social Security. Now it is time to send the bill in the direction of those who have had a free ride. They wont’ have to pay Social Security on their income over $250,000, or $300,000 or $500,000 or $1,000,000. Just on another $150,000 over what they now pay. And they’ll get it back when they retire. So it is not merely Social Security that is in trouble, it is all retirement plans and not only in the United States.
Some of these people will have plenty of retirement, but that isn’t the case for the average American. The lauded 401K which was the biggest scam ever perpetrated on the average worker has about $150,000 in the balance. The amount needed to retire is about 4 times that amount. And the lesson we have learned, has been learned all over the world.
Since 1981, the World Bank largely led by the United States has been pushing private pension plans, 401Ks of one sort or another all over the world. It is pretty clear why. They are making money on the investments. Which is probably why so many of the pension plans around the world are in trouble and why many countries are now switching to plans of one variety or another like our Social Security.
European plans are already much better systems. They have not had private plans simply because they were too volatile (401Ks in the U.S. are half what they were in 2007), are at their lowest value when needed most, and work from the wrong premise and need to be retooled completely.
The solution to the problem is this. Keep Social Security as it is. Raise the amount that people must pay to an income level of $250,000. Add a 401K or Roth type program but only starting all over again from scratch to redesign the 401K idea, which does not work. If it had worked, countries like Argentina and Hungary and others would not be switching back to a Social Security type plan.
If we simply restore our existing economy to the tax and policy rates of the Clinton Administration and create enough jobs to top out at 6% unemployment, we will be fine. Our problem is simple. Everyone wants a great society, but no one wants to pay for it. That has to stop so that we can put Americans back to work in the United States.
Every third person of retirement age relies on Social Security for all of his or her income. Six out of 10 people rely on Social Security for at least half of their income. Social Security does not add to the deficit. By law, it can not. Over 156 Americans pay into it, and this year that will amount to $707 billion.
We need Social Security and more. We don’t need to raise the age to 70. No country in the world has even considered raising to 68 until at least 2024 and perhaps later than that.
It is time to stop fooling around with pensions, and union busting and tax cuts for billionaires and get down to the business of creating jobs. The Populist plan will create 5 million jobs by borrowing $200 billion from government and returning it in less than five years. In that five years we will restore the entire infrastructure of the United States and create whole new industries where the jobs, the income, the taxes and the pensions will all stay right here in the U.S. of A.