Rethinking Social Security Reform

...U.S...

...DISSENT 1 Fall 1999 37 (2) Saving for the baby-boomers...

...Or the U.S...

...The more ground the left cedes on this front, the stronger the right will grow...

...Furthermore, the cautious and gradual nature of privatization proposals strongly suggests that would-be privatizers do not expect to control the debate for many, many years...

...Placing Social Security savings in the stock market or using them to repay federal debts are no substitutes for real investment...

...Public anxiety about the country's ability to cope with the retiring baby-boomers is both wide-spread and well-founded...

...Reforms" implemented then—a substantial hike in payroll taxes and numerous cuts in benefits—had the eventual effect of shifting more of the U.S...

...That future benefits will have to be paid out of future taxes, regardless of "saving" today, is a simple economic fact...

...For the past two years, many progressive organizations—alarmed by the privatization lobby—have been strongly defending the public pension system...

...It is not serendipity that the privatization push by such financial giants as State Street Corporation coincided with the rapid growth of the trust fund surpluses...

...and benefit cuts scheduled for future years could be restored in future years...

...BUT MOST important from the perspective of Social Security, a system of community clinics could transform the spending patterns of the elderly...

...government...

...Using these surpluses to fund public investments that would benefit wage-earners, their parents, and their children would seem a surefire agenda that could inspire wide public support...

...Despite the rhetoric of Social Security boosters, these surplus funds are not being "saved" for babyboomers or, as some would have it, "invested in the U.S...

...What sorts of real investments might improve current living standards and lighten the financial burden of retiring baby-boomers...

...What this means is that where the public is able to exert real political control—on the current structure of current programs—Social Security's supporters have won...

...Liberals at the time capitulated in the belief that they were buying long-term protection for Social Security...

...By law, Social Security's trustee's must report each year on the "long-term balance" of the system's finances...

...1 F EVER there were an opportunity for progressives to seize control of the policy agenda, if ever Beltway rhetoric seemed ready-made for co-optation by the liberal left, the Social Security crisis is it...

...Currently Medicare co-insurance, co-payments, pharmaceuticals, and other out-of-pocket costs represent an enormous drain on the budgets of elderly households...

...5) Fear of privatization...

...If they are hoping for a more liberal Congress in 2000 to use the surpluses wisely, shouldn't they begin making the case now, before the elections take place...

...In this, I think, they are already succeeding...

...A system of community-based clinics, by providing alternatives to private hospitals and HMOs, could loosen the grip of corporations on U.S...

...If progressives remain silent on the possibilities for collective provision and public investment, the right may lose an issue or two, but they will have won the war...

...ELLEN FRANK is associate professor of economics at Emmanuel College and a member of the editorial collective of Dollars and Sense magazine...

...Indeed, if current efforts to undermine the system are any guide to the future, they will not be kept...

...As a practical matter, this over-funding means not only that wages are being needlessly over-taxed but that the regressive payroll tax is financing a growing share of non-Social Security federal spending...

...In jumping to the system's defense, they have been ensnared by their own defensiveness...

...Perhaps other analysts can offer better and more imaginative uses of the Social Security surpluses...

...already devotes too much to the old and too little to the young, Social Security's hundred-plus billion dollar surpluses could be invested in the health and education of future workers today's children—whose skills and productivity will, after all, be required to support the elderly...

...If Social Security were restored to a pay-as-you-go basis—and there is no rational reason why it should not be—the tax rate on payroll could be cut by 25 percent, or eliminated altogether on the first $15,000 in wages with no impact at all on the ability of Social Security to pay benefits...

...No other ideas are now on the agenda...

...Any such cuts, with the payroll tax left intact in the name of "longterm balance," would dramatically shift the cost of federal government from the rich to the middle classes...

...Why Reform is Urgent The left's failure to take the initiative on Social Security stems in large part, of course, from the lack of strong organizations to push progressive causes...

...For at least another decade and perhaps for much of the next century, trillions in excess payroll tax revenues will fill Social Security coffers...

...Currently, 98 percent of the projected federal budget surplus for the next three years can be attributed to excess Social Security taxes...

...If progressives are choosing to ignore Social Security's over-funding in the hope that the money will be spent on progressive causes, isn't it time to say so...

...Thanks to the surpluses, Social Security's perennial opponents—small businesses opposed to the payroll tax and free-market libertarians opposed to social insurance—found a new and deep-pocketed ally in the financial service industry...

...Social Security is not under-funded...

...But in focusing on defense, they have overlooked a serious and immediate danger to liberal-left politics in the U.S.: the over-funding of Social Security...

...Treasury securities are nothing more than a claim on future taxpayers, and there is no logical reason for taxpayers to tax themselves today in order to purchase a future claim on themselves...

...The left does not lack for bright ideas, and this list is not meant to be exhaustive...

...But like the public at large, many left-of-center writers and analysts seem immobilized by the myths and fears the right has promoted...

...Calls to replace Social Security with private accounts would hardly have unleashed such a frenzy of lobbying by financial firms were it not for projections of vast pools of federallycontrolled savings...

...Unless concrete proposals are placed on the table, the surpluses will fuel proposals from the right that, if enacted, would sharply exacerbate the regressiveness of the federal budget...

...The United States is poorly set-up to care for such a dependent population...

...Comparable justifications could be made in support of housing programs or any number of other worthwhile investments...

...Better submit, many believe, to regressive taxes and debt repayment than lose altogether the sole universal entitlement program in the U.S., a program that keeps millions of elderly and disabled from poverty...

...Fifteen years later, though, the privatizers and fear-mongers were back in force, their assaults on the system bolder, shrewder, and more ambitious than ever, even with the system in better long-term financial balance than it had ever been...

...The worst that privatizers can accomplish right now is to diminish public expectations of the federal government in the future...

...Cash benefits to all but the most affluent retirees will have to be substantially increased if the elderly are to obtain minimal health care and enjoy a decent standard of living...

...A well-funded system of clinics, by providing walk-in care not only to the aged, but also to the poor and uninsured, would reduce financial burdens on the Medicaid system...

...population will be retired...

...Social Security's surpluses present the nation with a unique opportunity to invest in resources that will benefit workers and their dependents...

...If that is the case, use Social Security surpluses to purchase open land for conservation and recreation...

...But Social Security's supporters are deluding themselves if they believe the fiction of long-term financial balance will placate the privatizers...

...Many argue that because the economy is producing at maximum capacity, there are too few unemployed workers available to embark on large-scale public investments...

...Most low-income workers now pay more in payroll tax than in federal income taxes...

...This is both mistaken and dangerous, because the arguments contrived to defend Social Security threaten the very idea of progressive government finance...

...Mark Weisbrot of the Preamble Institute wrote recently that "the effort to 'reform' Social Security has always been...an attack on the program, every bit as much as welfare reform was an attack on welfare...

...Treasury securities, the safest investment in the world...

...must invest in real assets that will prepare us for the baby-boom retirement...

...By stressing preventive care, community clinics might improve public health and reduce outlays on disabilities...

...4) Cutting taxes...

...The U.S...

...tax burden to low- and middle-income wageearners...

...If realpolitik favors tax cuts over spending, then progressives should advocate cuts in the payroll tax...

...Either Congress will vote to cut progressive levies or the surpluses will be turned over to the finance industry, purportedly to relieve the public of an onerous debt...

...In the name of "long-term balance," the Social Security system is collecting billions in excess revenues, derived from a tax that hits low- and middle-income wage-earners especially hard...

...Funds needed to pay benefits in future years will have to be raised in future years or benefits will have to be cut...

...Above all, of course, fear of privatization keeps progressives from taking the initiative on Social Security...

...Liberals and progressives secretly hope these excess funds will be spent on public investment or on cuts in regressive taxes...

...But Clinton proposed no actual programs to address these challenges...

...Social Security's bonds are non-negotiable...

...health policy...

...Indeed, plans to do this are already being laid...

...If Congress and the administration do not wish to budget funds for Social Security, they will simply cut benefits and avoid the need to redeem the bonds...

...Not only do we lack public services and facilities that vulnerable individuals require, we lack even the minimal legal supports that, in other countries, enable workers to care for the vulnerable...

...Congress requires Social Security to keep its books as if it were a private pre-funded pension program and not the public pay-asyougo-system that economists know it to be...

...Social Security is an immensely popular program, the aged an exceptionally popular cause, and the government is awash in Social Security revenues...

...3) Long-term financial balance...

...The point is an important one...

...1) The real funding crisis...

...While transferring tax receipts to the likes of Mobil Corporation is regressive, it could yield far greater long-term benefits than buying back federal bonds...

...40 DISSENT / Fall 1999...

...A progressive agenda for Social Security reform should emphasize four points: • Since Social Security taxes are paid only by working people, surplus Social Security funds should be expended on behalf of working people or should be returned to them...

...Lobbying by the fossil-fuel industry, with billions invested in oil fields and refineries, is a primary obstacle to dealing with climate change...

...Under the bestcase assumptions, it will accumulate assets as far as the trustee's can project...

...could develop subsidized child and elder care facilities, facilities that future workers will inevitably need to care for a growing dependent population...

...Social Security funds could subsidize development of clean automobile engines...

...Even if Congress —this year or the next—were to funnel Social Security surpluses into individual stock market funds and legislate future cuts in future benefits, there would be no immediate impact on today's beneficiaries...

...If these patterns of medical spending persist unabated over the next ten years, the financial needs of retirees—on top of Medicare spending itself—will become insupportable...

...Constructing affordable housing for retirees and their families, developing community centers for old and young alike, building networks of community health clinics, expanding public transport systems: investments of this sort would relieve the aged of the need to purchase private transport, housing, and other services...

...Progressives are also leery of calling attention to Social Security's extravagant funding level, for fear that taxes will be cut and the government deprived of revenue to pay for programs the left 38 DISSENT / Fall 1999 supports...

...Using Social Security funds to deal today with environmental destruction and global warming—which takes a harsh toll on the very old—will substantially improve the quality of life for the aged...

...If the $72,600 cap on taxed earnings were lifted, the payroll tax rate could be reduced by nearly 40 percent...

...The last attack on Social Security's "long-term balance" was organized in the 1980s by the conservative Peter Peterson and the Concord Coalition...

...Under the trustee's worst-case assumptions, the system will collect superfluous taxes for at least another 15 years...

...Even extreme libertarians like Milton Friedman are not currently advocating any cuts in benefits scheduled for current or soon-to-be retirees...

...This is not intended as an argument for health clinics, per se...

...Such investments would have multiple DISSENT / Fall 1999 39 payoffs...

...government bonds may be a legitimate investment for a bank, but they are not a legitimate investment for the U.S...

...Or, rather than give the surpluses to Wall Street (to repay debt), why not use funds to compensate the oil industry for losses as sustainable energy sources come on line...

...2) Investments to support future workers...

...If developed over the next five to ten years, a network of clinics could relieve strains on the Medicare system and free up funds to address, finally, the financially ruinous drug and catastrophic care issues...

...Most want the surpluses used, as Clinton put it in his mid-session review, "to meet the great challenges facing our country—caring for our parents, caring for our children...

...An Agenda for Reform Demographers estimate that, sometime early in the 21st century, one-fifth of the U.S...

...If the surpluses continue to mount and no proposals to use them are offered from the left, one of two things will happen...

...it is vastly over-funded and will remain over-funded for years to come...

...But the growing trust fund surpluses give new life to these attacks...

...4) Funding the public sector...

...The Social Security surplus is fueling an intense drive to cut income taxes, estate taxes, and taxes on capital gains...

...All privatization proposals now on the table foresee gradual reductions in guaranteed benefits, beginning several years from now and affecting only those who are years away from retirement...

...Consider just one possible example— community health clinics...

...And those to Clinton's left have offered no suggestions as to what might be done with Social Security's embarrassment of riches...

...The U.S...

...To anti-government conservatives, these surpluses are a provocation—all but begging to be given away as upper-income tax cuts or corporate welfare...

...3) Investment in real resources...

...Adding paper promises to the Social Security trust fund in no way eases the coming retirement burden —unless savings made today are invested in real resources that can be drawn upon by future workers and retirees...

...Lest readers object that the U.S...

...Left analysts have so frequently repeated the mantra "there is no Social Security funding crisis," that the hundreds of billions pouring into the trust funds have gone unnoticed...

...all such schemes should be rejected...

...Yet progressives, thus far, have let the opportunity pass them by...

...1) Investments to reduce future cash needs...

...But pretending the surpluses don't exist is a dangerous game...

...Bonds issued to Social Security are merely promises that need not be kept...

...iN OR DO these bonds represent, as some argue, a binding obligation of present to future generations...

...But neither these nor other ideas will get a hearing until progressive organizations begin to raise them...

...Funds collected for Social Security this year are spent this year— whether on war, tax cuts, or debt reduction...

...The central point is that public investments, insofar as they provide alternatives to cash outlays on private goods and services, can actually reduce the need for large cash transfers to the elderly in the future...

...Defenders of the status quo often hold that over-funding preserves the appearance of longterm balance and this illusion, in turn, keeps the system's foes at bay...

...Treasury spends or otherwise disposes of Social Security's excess moneys as they come in...

...But this fear is exaggerated...

...The system's administrators can redeem them for cash only if Congress allocates cash for this purpose...