A Proposal To Rescue Social Security In The True Spirit Of FDR's New Deal
But we do assert that the ambition of the individual to obtain for him and his a proper security, a reasonable leisure, and a decent living throughout life, is an ambition to be preferred to the appetite for great wealth and great power. - Franklin Delano Roosevelt, 1935 State of the Union Address.
Unfortunately, during the ensuing 72 years since that speech and the enactment of FDR's New Deal, Social Security has become a "Third Rail" in presidential politics. Candidates for the presidency from both parties continuously avoid stating specifics on the issue. Everyone has ideas but no one is willing to commit. While the candidates are eager to say what they are against (i.e. tax increases, decreasing benefits, increasing the retirement age), most fail or are afraid to state an affirmative plan. Thus the favorite phrase candidates use to avoid the Third Rail of Social Security has become: "everything is on the table."
Everything may be on the table, but it seems that few are willing to take a seat.
The Social Security and Medicare Board of Trustees issued the following statement this year:
We are increasingly concerned about inaction on the financial challenges facing the Social Security and Medicare programs. The longer we wait to address these challenges, the more limited will be the options available, the greater will be the required adjustments, and the more severe the potential detrimental economic impact on our nation.
So as the candidates of both parties worry more about getting elected than solving the serious problems of our Nation, perhaps it has fallen on all of us to come up with solutions.
Consider the following simple plan to rescue Social Security:
1. Revenue side: Reverse the payroll tax scheme. Instead of the payroll tax being capped at $97,500.00 per year of personal income, exempt up to $97,500.00 per year. Then apply the payroll tax to ALL income above $97,500.00 per year.
2. Expenditure Side:
a) Cap the maximum monthly payment amount for Social Security recipients who are fortunate enough to not require the safety net that was meant to be Social Security; and
b) Apply a "means test" so that the amount being paid to any qualified recipient can be adjusted based upon their current assets - no matter what economic class or strata they might have been in prior to retirement.
This plan is simple and fair, but unfortunately, also would be outrageously difficult to accomplish politically. In the same breath, it just might be a popular idea to the United States' voters.
The crux of the revenue side of this plan is that every single taxpayer who pays payroll taxes and makes less than $195,000.00 per year gets a tax cut.
The current Social Security system requires individuals to pay 6.2% of their personal income as payroll tax on total income earned up to $97,500.00 per year.
In this proposal, only income above $97,500.00 will be taxed. Therefore, a person making $150,000.00 will not have a payroll tax on the first $97,500.00 - only the amount above - $52,500.00. Therefore, a tax cut.
However, for those people who make above $195,000.00 per year (double the current $97,500.00 cap), for example, a $53.4 million bonus - the payroll tax will apply to every single dollar earned above $97,500.00 without limit. So in the case of Lloyd Blankfein, instead of paying 6.2% of $97,500.00, he would pay 6.2% of $53.4 million, minus $97,500.00 - or, 6.2% of $53.3025 million. Rather than paying $6,045.00 in payroll taxes, Mr. Blankfein would pay $3,304,755.00.
The outcry of the upper class to such a proposal would likely be near 140 dB. Their main argument: This plan is pure income redistribution.
The response: Yes. Yes it is. And so is the current Social Security system. But unlike the current system, this plan is fair.
Under the current Social Security system, payroll taxes collected today are turned around and paid to current retirees. As such, people making $97,500.00 per year and less are paying the Social Security benefits to people who are now receiving them. There is no "lock box." There is no separate account that people today pay into and will then be able to receive benefits from later when they retire.
This plan says, rather than having lower and middleclass people pay for our current Social Security recipients, let those who make $97,500.00 per year or more pay it.
Pure income redistribution. Just like now.
Under the current Social Security system, the amount an individual receives upon retirement is directly based upon the amount that individual earned (and paid into the system) during their working career. Therefore, if a person makes very little money at work, they get a small Social Security check when they retire. Conversely, a person who makes a large income gets a big Social Security payment per month upon retirement.
Doesn't that seem counterintuitive to the whole idea of a retirement safety net?
Yes, it is important to reward individuals who contribute to the economy.
In building toward this end we do not destroy ambition, nor do we seek to divide our wealth into equal shares on stated occasions. We continue to recognize the greater ability of some to earn more than others. - President Roosevelt, 1935 State of the Union Address.
However, these are not the people that NEED Social Security (in most cases - see the "Means Test" below). As such, this plan includes a cap on the monthly amount a person can receive from Social Security after retirement. The superrich don't actually need it - and Social Security revenues could be better used for those who do.
The Means Test
The very idea of a safety net is to assist people who are in a position in which they cannot assist themselves. As such, a means test is essential to a fair and humane administration of the Social Security system.
We find our population suffering from old inequalities, little changed by past sporadic remedies. In spite of our efforts and in spite of our talk we have not weeded out the overpriviledged and we have not effectively lifted up the underpriviledged. Both of these manifestations of injustice have retarded happiness.
- Franklin Delano Roosevelt.
At the time of retirement, people in this country often find themselves in vastly different places, financially. The number of variables that contribute to the variations is innumerable. And, despite the claims of those on the Right, they are not all due to a person's work ethic.
There are millions who work hard for very little. There are some who work very little and have much. The means test is a way to even out such problems.
Under the means test, a person may apply for an increase in Social Security payments. That person must show lack of assets - no matter how much income they earned while working. As such, the poorest teacher, farmer and the once wealthy entrepreneur who fell on bad times would all have the opportunity to receive a larger Social Security check. Based only upon current need - not income over life.
This would be a very difficult plan to accomplish politically, indeed! The very people that would get the proposed payroll tax increases are those who contribute the most to political campaigns; those who would get a tax cut under this plan, are often unable to donate to political campaigns.
From the same FDR Address:
We have, however, a clear mandate from the people, that Americans must forswear that conception of the acquisition of wealth which, through excessive profits, creates undue private power over private affairs and, to our misfortune, over public affairs as well.
Consistently running for office instead of fulfilling the one the candidates currently have or once had is what now contributes to the failure to rectify injustices and "retard" common happiness. The very people (contributors) who facilitate elections or reelections will likely scoff at this proposal.
I ask the candidates from both parties: are those the only people you actually serve?
Please, come to the table. Stop leaving every idea on it while swiftly walking away.