Reagan, Clinton and Tip O’Neill were retirement thieves

Demand an End to the Taxation of Social Security Benefits

Social Security, the retirement program established by President Franklin D. Roosevelt and the Democrats in Congress in 1936 as a cornerstone of the New Deal programs that were put in place to help Americans struggling with the Great Depression, has been under attack by Republicans ever since it began.

In the early 1980s, they finally got their first chance to really take a whack at it. It was the first term of the administration of Ronald Reagan and thanks to medical advances that were allowing people to live much longer and to the Medicare and Medicaid programs or the mid 1960s that made those advances available to most Americans for the first time — the elderly, the disabled and the poor — the retirement program was under stress and heading towards being unable to meet its benefit payment obligations with just the payroll taxes being paid into the system by current workers and their employers.

If that sounds familiar, it should. Once again, this time because of even further improvements in longevity, combined with a declining US birthrate and the fact that since 2007 Baby Boomers, that wave of new Americans born after the end of WWII and through 1964, have been reaching retirement age and have begun receiving their Social Security benefits, the Social Security system is heading towards a financial crisis. It’s not bankruptcy as Republican scaremongers claim, but if nothing is done to bolster funding for the system, as of 2034 surplus funds deliberately built up in advance to finance Baby Boomer benefits will be exhausted, and the payroll taxes paid into the system by then-current workers and their employers will only be enough to fund 78% of promised benefits to those eligible for benefits at that time.

That would, or course, be a disaster for the nearly 80 million older and disabled Americans who will have reached retirement age by that time, but it’s a disaster that a mobilized public can avert by simply demanding that Congress take action and raise the necessary funds promptly to cover the difference. (More on that later in this piece, but suffice to say that our politicians have been dawdling on dealing with this for two decades.)

But first I want to address a more urgent problem: the theft of retiree benefits.

This theft began in 1983, when a compromise between President Reagan and House Speaker Tip O’Neill, the leader of the Democratic-led House of Representatives fixed that earlier Social Security funding crisis. As part of that fix, which included raising the age of so-called “full” retirement gradually from a current 65 to 66 and eventually 67, the elderly and disabled have been screwed out of their benefits, and the pain and suffering caused by that blow has only worsened over the years as cost-of-living adjustments in Social Security benefits have been consistently and deliberately been kept lower than the actual inflation in costs, especially for the elderly.

The dirty trick pulled on the nation’s retirees and disabled was that as part of the deal struck between Reagan and O’Neill, Social Security benefits, which were not taxed in the original program set up by FDR, suddenly became subject to tax.

Under the “reform” plan of 1983, suddenly any retirees who earned more than $25,000 a year (or $32,000 for a couple), found themselves having to pay income tax on 50% of their Social Security benefit income. In other words, more “well-off” retirees living grandly on more than $25,000 or retiree couples living the good life on more than $32,000 suddenly began having to pay taxes on 50% of their own benefits to help fund the system paying them those benefits!

Once that bridge of ripping off of the elderly and infirm had been crossed, along came President Bill Clinton, a wolf in sheep’s clothing who upped the ante. In 1993 he and a craven Democratic Congress pushed up the amount that “upper income” Social Security beneficiaries — those single retirees earning more than $34,000 a year and couples earning more than the princely sum of $44,000 — would have to pay taxes on to 85% of their benefits. That is, 15% of the benefit check would be tax free but the other 85% would be taxed at whatever the person’s tax rate was.

The impact of this second pocket-picking maneuver by Clinton was profound. In 1983, the initial tax on Social Security benefits only impacted 10% of the elderly and disabled. Under Clinton’s second purloining of retiree income, it has come to impact the income of 56% of retirees and the disabled — in other words the majority of beneficiaries in the Social Security program.

At this point, the easiest way for the government to improve the lives of America’s elderly and disabled would be to end this shameful taking of taxes away from their benefits. (Those beneficiaries earning lower incomes who are not subject to having their benefits taxed get subsidies in the form of the Earned Income Tax credit, and if their incomes are low enough, also get Supplemental Security Income assistance.)

If the purpose of Social Security benefits is to reduce poverty among the nation’s elderly — and in an age when private pensions are almost non-existent, with 90 percent of the elderly relying on Social Security for at least half their income and 50% relying on the program’s benefits for 90% or more of their income — it makes no sense whatever to take some of that meager amount back in the form of income taxes. In fact, it’s downright heartless.

All Americans should demand an end to that taxation on the elderly and infirm.

We should also demand an end to FICA taxes for Social Security being deducted from the paychecks of retirees on Social Security who keep working to make ends meet, which is currently the case. Okay, I understand if some wealthy executive or even some moderately well-paid university professor or physician, wants to keep working full-time after becoming eligible for Social Security benefits, and if that person’s earnings could count towards that “highest 35 earning years” in calculating their monthly benefit amount, it could make sense for them to continue paying the FICA tax on those earnings. But most of the elderly who work are just doing part-time work that will never contribute towards their receiving a higher benefit calculation — they’re just trying to make ends meet, and perhaps trying to stay busy and engaged in society. They should not be taxed for that as a way of helping to fund the very program that they are receiving benefits from. It shouldn’t be hard to set some high earnings level — perhaps $50,000 a year beyond one’s Social Security income — below which no FICA tax would be assessed on working Social Security beneficiaries.

Likewise, some may argue that wealthy people, for whom Social Security benefit checks are just play money, should be taxed on their benefits to help pay for the program. I don’t have a problem with that notion either. Again, it would be easy to set some level — perhaps $80,000 for an individual or $120,000 for a retired couple — after which Social Security income would be taxed. But it clearly should be set at a level that only affects well off retirees, not people who are struggling to get by as is the case today.

These are demands that everyone in America should support. Retirees clearly want it. So do people nearing retirement. And younger people, who want the best for their parents and grandparents, and who certainly don’t want to have to support their elders while they are also saddled with the cost of raising kids of their own or paying off their college debts, should support them too.

Once we’ve won this battle over the taxing of Social Security benefits, which is premised upon a return to the basic concept behind Social Security, which was to alleviate poverty among the elderly and disabled, we can turn to the necessary bolstering of the Social Security system for everyone. We need to ensure that those working and paying into the system now can rest assured that it will be there in full for them when they reach old age. Currently over a third of millennials, thanks to scare stories from conservative politicians, shameless ad campaigns by financial advisory firms and mass media propaganda, say they don’t believe Social Security will be there for them when they get old.

The first step in easing those fears and fixing the system is to act now, and to get rid of the politicians in Congress — mostly Republicans — who have been stalling and delaying, causing the price of fixing the system before 2034 to rise by the year in hopes that it will eventually be so high that the system will collapse, leaving us all to the tender mercies of the Darwinian capitalist system as it was before 1936.

Nobody, Republican or Democrat, who doesn’t agree to a fix of Social Security’s future funding in the next Congress that gets seated January 3, should be returned to office. Period.

And no fix they come up with should come out of the pockets of workers or retirees.

So where do we get the money? Actually it’s still not that hard to find. The first thing is to eliminate entirely the cap in income — currently $128,400 per year — after which no FICA tax is owed. Let the rich pay the full 6.2% on all income they earn into the system. While we’re at it, let’s also put a FICA tax on so-called “unearned income” from non-retirement investments (not IRAa and 401(k) funds — and also a small tax — say 0.5% — on high-speed computerized and day-traded stocks and bonds. These measures alone would probably solve the problem with Social Security’s long-term funding, but we could also raise benefits to allow our elderly and disabled to live better.

How? Well, if you think about it, there is absolutely no reason why the employer share of the FICA tax has to be equal to the share paid by their workers. In Europe, where government social security pensions are generally much more generous, often intentionally designed to allow retirees to maintain their standard of living after retiring from their jobs, it is common for employers to pay substantially more in payroll taxes into the system than do their employees. Just adding another 2% to the payroll tax paid by employers in the US for each worker’s salary would most of the way towards keeping Social Security adequately funded until the last Baby Boomer has departed this world (about 2064 when the last Boomers born in 1964 will be turning 100). Allowance could be made for the self-employed and for small businesses with only a few employees so they wouldn’t get hit with those increases. (Years ago, self-employed people didn’t pay the employer share, or didn’t pay it in full. That approach should be re-adopted, especially given the trend among large employers to turn their employees into “independent contractors” without benefits.)

We need to do all this so that our kids and grandkids can have confidence that when they reach retirement the Social Security program that they are currently paying taxes for will be there for them, and that it will be adequate for them to survive on.

Social Security  is not the “ponzi scheme” that conservatives love to call it, nor is it an annuity where you pay in money and then get it back with interest. Rather it is and has been from day one a contract between generations in which the current working population pays for the benefits of current retirees, expecting future worker to pay for their own retirement benefits. The only problem, totally unintended but unavoidable and to some extent unanticipated, is that we’re all living longer as time goes by, partly thanks to improving medical science and increased access to medical care, and in part because we, as a people, are living better than we lived in the past. And we’re having fewer children. But we still have that contract and need to stand by it. That requires the young to keep supporting a program that is paying benefits to their parents and grandparents, and for the elderly to keep supporting a program that will be taking care of their offspring when they reach retirement age.

It’s that simple.

The only problem is a political class that cares more about the welfare of Wall Street and the rich who pay for their political campaigns and election or re-election than they do for the people they ostensibly represent: the people of the United States.

That needs to change.

 

           Full disclosure: The author is 69 and will begin collecting his full Social Security benefit in April of next year. He has two children who are currently paying plenty in taxes for their own retirement. While he has no intention of retiring at 70, he wants to insure that his and his wife’s and his friends’ and relatives’ Social Security benefits are secure and that all our kids will also have full Social Security benefits available to them decades from now when they become eligible for them