House Republicans unveiled their budget strategy this week and it was…dramatic. I don’t have my arms around most of it yet (and I may never need to since House budget resolutions are notoriously wacky and are usually dramatically revised when they settle into negotiations with the Senate). But I did a little reading today about the plan for stabilizing Social Security, largely because I was pretty sure they were going to do something unsavory to it. It seems like Republicans don’t like Social Security. I’m not sure why, exactly. Maybe because it’s a tax and they hate taxes? Maybe because it amounts to a forced savings plan for all workers and they think workers would be better off doing their own savings for retirement instead of relying on the government to do it? Maybe because it was FDR’s idea and they want him to be wrong? I just don’t know.
There’s no doubt that Social Security is very expensive but it (almost) pays for itself. Everyone who works puts money into Social Security. The government hands that money over to people who can’t work anymore – the elderly and the disabled. And the social compact is that the government will use your money now for others with the promise that they’ll use the next generation’s money to support you. It’s been going on since 1935 and it works pretty well. It’s not perfect but it’s been more durable than it was intended to be and, for many Americans, it’s the only retirement savings plan they have.
You hear a lot about long-term solvency of the program because there are lots of elderly and disabled people who are entitled to their benefits (because they paid into the system already, doncha know) and the revenue from Social Security taxes is lagging a bit behind expected payouts. There have been a number of solutions proposed to this problem, including the one the House Budget Committee gave us this week. It’s eye crossing in its complexity and deals with lots of math related to age of benefit collection, income level, benefits to be payed out and possibly a partridge in a pear tree. I got a headache and had to lie down midway through the article.
I’m certain that lots of smart people were involved in coming up with all the calculations for this plan and I bet they did their very best to come up with a plan that was all things to all people but really? I think it’s missing a big point. Economist Robert Reich has a plan that solves all the problems of solvency without cutting benefits to anyone or raising the retirement age or raising the percentage of income individuals pay into Social Security. All we need to do is apply the same percentage of taxation to MORE of income.
See, here’s something kind of sneaky about Social Security taxes. You only pay them on the first $106,000 of income. So, if you earn, say, $212,000 per year, you stop paying Social Security taxes in June. It’s like a nice little mid-year pay bump to people who make anything above $106K. Unfortunately, the way income is distributed now the current cap is insufficient to cover the needed revenue for benefits outlay. According to Reich, raising the cap from $106K to $180K would fix it. And Reich is at least as smart as the people who worked on the budget. Probably smarter.He’s figured out how to be an economist AND be entertaining, after all. That’s no easy feat. There’s a reason economics is called “the dismal science”.
Now, there are those who say we should leave the rich alone and let them keep more of their money to stimulate the economy and yadda yadda yadda. But think about it this way: a minimum wage employee pays Social Security taxes on 100% of their income. A Beverly Hills plastic surgeon clearing a million dollars only pays Social Security taxes on 1/10th of their income. Would paying an additional $4,588 (6.2% of the 74K additional income subject to withholding) hurt the plastic surgeon’s standard of living? It would probably hurt less than than reducing benefits to lower-income workers, especially those who lacked the mean for other retirement savings. A millionaire who has to wait an additional 6 months for a new Mercedes tugs my heart strings a lot less than a retiree trying to figure out how to survive on the $1,009 a month a person who earned $43,000 per year as a worker would be entitled to if they retire in 2050 under this new proposal. $12,108 per year. The poverty line for an individual over 65 is $10,286. So that person will be above the poverty line, but only just. The retired millionaire is probably sill a millionaire.
Maybe I’m a big sap, but I don’t mind paying Social Security taxes because I think they go to a good cause. Even if if I earned $200,000 or $500,000 or $1 million, I’d be ok with paying Social Security on all of it. And the reason I’m ok with it is because I know that it isn’t just about me and how much money I take home in my paycheck. It’s also about Maria who cleans my office and once told a colleague of mine that she couldn’t afford health insurance for her child. If she can’t take care of her current needs, how can we expect her to be saving significantly for the future? She’s an hourly wage-earner, apparently with no benefits and probably without an employer-sponsored retirement plan. Social Security is her best option. I can’t think of a good reason to take even part of it away from her, even if it means a few dollars out of my own pocket every week.
(Oh, and one more thing that I have to add here because I love “teh gays” and I’ve gotta point out injustices they face: if my husband pre-deceases me, I’m entitled to his Social Security benefits. If my lovely reader C’s (Holla Ohio!) partner pre-deceases him, he gets bupkes because federal law prohibits recognition of same-sex partnerships, even if a state recognizes them as marriage, so no Social Security survivor benefits to the widowed spouse. Sucks, doesn’t it?)