Don't Cut Social Security -- Double It
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Step 3. Cut or reduce other deductions that disproportionately benefit top income earners.
Other possible revenue streams should include ones that would reduce or eliminate unfair deductions in the tax code which currently allow the top 20 percent of income earners to reap generous deductions that barely help most low and moderate income Americans. These include deductions for private retirement savings, health care, homeownership and education.
Only higher income individuals have enough earnings to divert for savings or investments that allow them the luxury of enjoying considerable tax deductions for their 401(k)s, IRAs and pensions. The poor and middle class rarely can take advantage of these sorts of deductions because they don't make enough income to benefit from itemizing deductions on their tax returns. As Josh Freedman pointed out recently in The Atlantic , in 2011 less than 30 percent of all filers itemized their taxes , and more than 80 percent of the benefits from itemized deductions went to individuals in the highest income quintile.
The same goes for the much vaunted home mortgage interest deduction. Those with annual incomes over $100,000 dollars received nearly 75 percent of the benefit from the home mortgage interest deduction in total dollars. Most middle class individuals would not see any increase in their taxes if the mortgage interest deduction were eliminated. Instead of buying a home as part of their retirement plan -- which we now realize can be a risky undertaking -- more people could put their money into Social Security Plus. Eliminating the mortgage interest deduction would raise another $100 billion to pay for Social Security Plus, and eliminating the other deductions would bring us close to the $650 billion mark.
An expansion of Social Security not only would be good for America's retirees, it also would be good for the broader macroeconomy. It would act as an "automatic stabilizer" during economic downturns, keeping money in retirees' pockets and stimulating consumer demand, especially since low and middle income people are more likely to spend an extra dollar on goods and services than are affluent individuals. Social Security Plus also would help American businesses trying to compete with foreign companies that don't have to provide pensions to their employees, since those countries already have national retirement plans.
Moreover, unlike private pensions, Social Security benefits are portable when changing from one job to another. Every worker could contribute to her or his own retirement pension no matter where she or he worked. Those savings could be directed into a Social Security Plus system with investments restricted to Treasuries, instead of handing it over to mutual or pension fund managers who gamble on the volatile stock market with future retirees' money (there is no evidence that the typical investment fund manager consistently beats the average return on Treasuries). And this system would be broadly fair, since even those higher income Americans who are having some of their tax deductions reduced would see part of it returned to them in the form of a greater Social Security payout.
In short, Social Security Plus would provide a stable, secure retirement for every American and contribute greatly toward a solid foundation from which to build a strong and vibrant 21st century economy. All Americans should have retirement benefits they can count on, not the crumbling casino of retirement overseen by the same Wall Street bankers and financial managers who drove the U.S. economy off the cliff.
This article is adapted from the author's study for the New America Foundation.