Attacks on Social Security are coming thick and fast. It’s time for Americans of all ages who aren’t independently wealthy and don’t need to worry about a serious, career halting disability or surviving in old age to rally and fight back.
The latest attack is the Trump Administration’s so-called “Eagle” plan, appropriately named for the national bird that Benjamin Franklin rightly objected to because of its known proclivity for stealing captured fish from the smaller Osprey and other competitors. (Franklin preferred the wild turkey, a wily and beautiful creature, for the role.)
The “Eagle” plan for allegedly aiding struggling workers during this epic recession or depression that we are plunging headlong into would, instead of just handing money to unemployed workers, allow them — even encourage them — to borrow from their own retirement pension, their future Social Security benefit. Desperate unemployed workers could, under this devious scheme, take an advance of up to $10,000 on future benefits they would otherwise start receiving once they reach 62, or whatever age they decided to start collecting benefits (hopefully age 70 when they are at their maximum amount!). The downside is that they would then be delayed in getting those earned benefits until the benefits they would forgo repaid the $10,000 they had borrowed during this crisis.
The problem is that the people most likely to take advantage of this “offer” would be those at the lowest income level — people who have no savings to fall back on and will be desperate for assistance. And these are the same people who are most likely to start collecting their Social Security benefits at age 62, when the average benefit check collected is about $1000 a month.
What those people will find, when they try to file for those benefits on reaching that age is that they’ll have to wait 10 months — almost a year — until the US Treasury has recouped that $10,000 that they borrowed earlier. And that’s assuming that the Republican vultures in Congress, in passing this “Eagle” ripoff, don’t include interest or inflation in calculating the repayment due. (It’s hard to imagine that these suck-ups to Wall Street banking interests would want to be offering the working poor an interest-free advance of $10,000 for years!).
So what we have is a Trump administration proposal to force workers themselves to pay for their own recession financial rescue, while Congress and the Federal Reserve shovel trillions of dollars worth of bailout funds to banks, airlines, cruise ships, oil companies, arms makers and other “critical” industries, so the fat and filthy rich don’t need to see their coupons get clipped.
There’s also a bill, authored by Sen. Mitt Romney (R-Utah) and supported by at least three Democrats (Joe Mancin of W. Virginia, Doug Jones of Alabama) and Krysten Sinema of Arizona) called the Time to Rescue United States Trusts or TRUST (sic!) Act, which would do something similar, but offering struggling workers just a $5000 loan. That bill makes it clear that there would be interest included in the payback which would be required in full before a retiree could start collecting benefits. Even at the proposed 1.5% interest rate, if a person aged 40 took the bait and borrowed the $5000, the payback amount due at age 62 would be $6286. For someone expecting to get $1000 a month on retirement at 62, that would mean having to wait more than half a year to start getting benefit checks.
Trump’s treacherous idea
But that’s only the start. Trump also wants to cancel the payroll tax called FICA and not just for employees but for employers, for a year. That would significantly damage the Social Security system, which already, thanks to all the layoffs from this new recession, is likely to run out the Trust Fund that allows it to continue paying promised benefits to Social Security beneficiaries earlier before the population bulge of Baby Boomers moves through retirement age and into the Great Beyond.
Meanwhile, it must be said that Joe Biden, the at this point presumptive Democratic nominee for the presidential race, has a long history of supporting cuts in Social Security in deals with Republicans — deals that for the most part collapsed because of popular outrage, but deals that Biden has bragged about openly, though now he professes to be a strong defender of the program.
A short bit of history: Back in the early 1980s at the start of the Reagan administration, Social Security came with a year or two of running short of the needed funds from current workers’ payroll tax payments to cover benefit payouts to current retirees. (That, contrary to common folk wisdom, is how the Social Security system has worked from its founding in 1936 — not as an annuity but as an intergenerational transfer through payroll taxation of workers and their employers for older retired workers.)
Reagan, who had always opposed the program, realized that his voter base mostly was older people living on Social Security and changed his tune quickly, striking a deal with House Speaker Tip O’Neill to boost funding beyond what was needed to pay each year’s benefits as the system had always been doing until increased longevity and smaller family sizes suddenly made that impossible.
Looking forward, Social Security actuaries knew that the problem would only get worse as the huge population of people born in the era after the end of World War II through the mid 1960s (the Baby Boom years), began to retire in 2008. The fix involved a bunch of changes: gradually increasing the full retirement age, adding a partial income tax on benefit payments, and gradually increasing the FICA tax rate. These changes were designed to create a huge surplus, ultimately reaching almost $3 trillion, which was to cover payments to the Baby Boom retirees until the system got back into balance.
It was good as far as a bi-partisan reform goes, but it was not enough. It turned out that further medical advances continued to increase the longevity of Americans beyond anyone’s wildest dreams, and families kept having fewer kids —sometimes couples opted for none at all. So there were ever fewer workers paying into the system.
So now we’re looking at the trust fund running out too soon. If nothing were done and the fund were exhausted say sometime around 2030, current workers’ FICA taxes would only cover 79% of promised benefits, leaving the elderly struggling to survive — the more so because greedy modern employers don’t offer real pensions, and many don’t even contribute to or even offer employee tax-deferred retirement savings plans called 401(k)s.
The Republican plan (and let’s be honest here — Democrats like Joe Biden and Barack Obama have both supported it in principle, so it’s really a bi-partisan scheme) has been to “solve” that problem not by killing Social Security outright, or even by letting it run out of Trust Fund money, but by further weakening the program politically by letting people think it will go bust and getting them to support some kind of privatization where they’ll have to make up the difference by enforced personal savings. It’s a terrible idea that will leave people at the mercy of the same stock and bond markets that are about to collapse on us in this coming depression.
Not paying payroll taxes for a year might sound like a nice way for those of us still working to save a nice 6.2 percent on our paychecks, or in the case of our employers, on our total payroll tax, for the year, but that “savings,” like the Eagle plan’s borrowings, will come out of workers’ future retirement benefits — as it will push forward the year that the Trust Fund runs out, reportedly by as much as a year.
Fixing Social Security’s funding isn’t hard, but delaying makes it ever harder
What they don’t tell us is that in reality Social Security’s anticipated shortfall can still be eliminated relatively easily. If the cap on income subject to the FICA tax — currently set at $132,900 — was eliminated, so that all income was subject to the tax, and if a tax was also added to “unearned” income from short term investments in stocks and bonds, there would be no shortfall at all in funding Social Security into the indefinite future.
Of course, the rich would hate this idea but so what? My daughter never liked to take vitamins. Did that mean I shouldn’t make her take them as a kid? Of course not! The rich don’t like to pay property taxes on their mansions either. So what? We make them do it even if they don’t send their kids to public school. Screw ‘em. Pay the tax!
It should be noted that, first of all, the idea of subjecting all income — even million-dollar salaries — to the FICA tax on employer and employee — is not that far out. The 1.2% Medicare tax is on all income already. Second, a major reason Social Security is running down the Trust Fund too fast is that the bosses have been so greedy over recent decades. Originally all income was subject to the FICA tax. But the Reagan-O’Neill reform was passed by Congress, raising that tax, Congress put a cap on the income subject to it, to assuage the grumbling rich, who now saw it as an annoying “burden” on their wealth accumulation.
Still, the wage gap between rich and poor was so much less back in the ‘80s, that only 10 percent of all wage income subject to income taxation was over the new cap on FICA taxation. But as the income gap widened, by 2016 fully 16 percent of income was above the FICA taxation cap , according to Sarah Rawlings, a program associate with the Center for Economic and Policy Research. The amount of income escaping FICA taxation has risen further since then.
For years now, Congress has been doing nothing to fix Social Security. The politicians keep warning it has to be fixed or it will “run out of money” and that retirees will get hit with a 21% cut in benefits. It’s increasingly appears that they’re droning on about it so people will come to accept that dire outcome as inevitable, like the arrival of a deadly hurricane.
It’s not inevitable.
Meanwhile, Congress has been stealing from retirees by continuing to require the Social Security Administration to use an inflation index that screws older people year after year by understating the inflation in those things that the elderly spend most of their money on. That index, called the CPI-W, is a “basket” of goods and services that urban workers are found in an annual survey to typically buy.
But Social Security recipients aren’t “urban workers.” The 62 million people who receive Social Security benefits, more than half of whom rely on their benefit checks to cover more than half of their annual living expenses, and 45% of whom, living alone, require on them for 90% of their living expenses, have a very different “market basked” of goods and services they need to pay for, and those items have been rising in cost at a far faster rate than most other things.
In fact, the Bureau of Labor Statistics actually has a Consumer Price Index for the elderly, called the CPI-E. According to the Senior League, if the Social Security Administration had switched to using he CPI-E to adjust Social Security Benefits since 2000, elderly retirees today would be receiving benefit checks that would be 30% higher than they are today. That’s a lot of money that’s been getting withheld from the nation’s retirees by Congressional unwillingness to deal honestly with its elderly and disabled voters.
It’s time to change all this. Not just for current retirees and disabled people, but for all Americans.
Don’t listen to efforts to make this a generational war
Conservatives and Libertarians are fond of saying that Social Security is a generational conflict, with “greedy seniors” trying to steal money from their children and grandchildren. That of course is nonsense. I’ve never met a middle-aged person or younger millennial who has complained that their parent or grandparent gets “too much money” from Social Security. Why would they? If mom and dad, or grandma and grandpa don’t have enough money to live on, it would be the kids or grandkids who would have to take care of them. With adequate Social Security benefits the elderly can pretty much get by on their own, as they do in more enlightened countries around the world that offer adequate benefits in their retirement schemes.
The US should do the same.
The time for all of us to start fighting for that is now! And not just to protect Social Security for us all, but to expand it so that instead of providing just a bare subsistence benefit, it become a real pension that people can live on, as it is in many other developed countries.
That means organizing, and voting, against any candidate for office — Republican or Democrat — who talks about making Social Security “needs-based,” about further raising the retirement age, about significantly raising the FICA tax on workers (raising it on employers would be good idea, though!), about reducing benefits paid especially for individual retirees making less than $50,00 a year or couples making less than $100,000 a year, about, who doesn’t support switching to a CPI measure based on what the elderly spend as a measure for adjusting benefit levels each year, who doesn’t support ending the cap on income subject to the FICA tax, and who doesn’t pledge to permanently fix Social Security’s funding in the next Congress.
And it means demanding all those promises from candidate Joe Biden, and holding him to it if he manages to win election, lest he revert to form and start trying for a “grand bargain” with Republicans that would hang Social Security out to dry.
To get involved contact or learn more here are some resources:
Special note to those nearing age 62: I know this will be hard, especially if you’re currently jobless, but hear me out. Do NOT file for Social Security unless you are desperate for cash. Every year you can manage to delay filing for your benefits until reaching 70 will boost your eventual benefit amount by about 8% a year — a total of 74% over 8 years, and that higher amount will be adjusted for inflation and paid for the rest of your life. If you’re going to get just $800 a month at 62, that means by waiting until 66, you’ll get $1067 a month, and if can wait until 70 you’ll get $1408.00 (not counting inflation adjustments over that period). Unless you don’t expect to live very long, if you have some savings or money in an IRA or 401(k), draw on that money to avoid tapping your SS benefits early. Those benefits will be worth much more to you later! (This is especially important advice if you are the higher earner in a married couple, because if you die, your spouse will get your higher benefit amount as a “survivor benefit,” instead of his or her own lower benefit amount.) By the way, if you are able to work for those extra eight years, and are earning significantly more than you were earning in, say your or 40s in any of them, you’ll raise your benefit check size even further.