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Unless Social Security Is Expanded with Increased Funding, We Face An Unprecedented Crisis of Millions of Baby Boomers In Poverty

Trillions needed to maintain lifestyle could come from closing one tax loophole.
 
 
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A majority of Americans, especially women and people of color, will spend their final years living in poverty in coming decades unless Social Security is improved and expanded—not cut back as Republicans and President Obama seek—and there are many fair ways to accomplish that, experts told a congressional briefing last week.

“Don’t listen to anyone inside the Beltway,” said longtime Democratic pollster Celinda Lake. She said she’s surveyed voters in every state and found Americans take a completely different view than Washington’s political leadership. “Real people are wildly in favor of Social Security, wildly supportive of it. And this is a voting issue in 2014.”

Lake’s remarks came after a series of stunning presentations describing why the country was on the brink of a staggering retirement crisis unlike anything Americans have heard about from debt-obsessed Republicans or the White House. The takeaway is that there needs to be a new and entirely different political discussion—and congressional response—about what Social Security provides after a lifetime of work or an unexpected tragedy, so millions of Americans don't become desperately poor.

“There is a retirement income crisis. It’s huge. Two-thirds of working Americans cannot maintain their standard of living in retirement—and that assumes they work until 65,” said Syracuse University’s Eric Kingson, co-director of Social Security Works, which convened the day-long session with Sen. Tom Harkin, D-Iowa. “Somewhere in the discussion about Social Security we forget that its purpose is to assist the American people… The end is the kind of society we want; the kind of support we want.”

Kingson and dozen other experts presented detailed plans on how Social Security can be modernized to better reflect real costs of living for the people it’s intended to help, from tens of millions of seniors, to students who lose a parent while in school. They pointed to a handful of tax breaks—used by wealthier people—that can be adjusted over time not to just stop benefit cuts, which is what Republicans and Obama seek, but to expand Social Security so that no one falls below the federal poverty line—as is now the case.

“The consequence of cutting Social Security benefits, coupled with the near-doubling of the senior population by 2030, would generate a tsunami of seniors living in poverty. And the leading edge of that tsunami would be women, and particularly women of color,” said Dan Adcock, policy director of the National Committee to Preserve Social Security and Medicare. “And that’s because women live longer than men, which means they are more likely to outlive their retirement savings. In addition, women are less likely to receive a pension. And if they do receive a pension, it’s less than what men receive.”

Another overlooked point was that benefits have been repeatedly cut back during the past 30 years, which was when Congress last took a detailed look at the program. That type of downward adjustment is what Obama and Republicans have endorsed in ongoing 2014 federal budget negotiations, although a handful of Democratic and Independent senators, notably Vermont’s Bernie Sanders and Iowa’s Tom Harkin, have firmly rejected that proposal. Senate Majority Leader Harry Reid also said there will be no trading future cutbacks for Social Security recipients in a 2014 budget deal, but even his forceful rebuttal did not note that these earned benefits have been repeatedly cut back.

“We’ve seen substantial reduction in benefits,” said Dean Baker, an economist and co-founder of the Center for Economic and Policy Research, describing how benefits have been parred back since Congress' last major revision of the law in 1983. “They come to a reduction of about 25 percent from what they were back in 1983. The idea that we have not seen a big hit to benefits is flat-out wrong.”

Baker described four ways Congress has chipped away at Social Security benefits, now averaging $1,261 a month for an individual before taxes and other expenses, such as Medicare premiums. Congress has delayed cost-of-living increases. It set those increases below the real inflation rate. It raised income taxes on Social Security and raised the age when full retirement benefits can start. It did other things too, such as cutting benefits to students who lose a parent while they are in college.

Which Trillions Matter More?

These past cuts did not happen in a vacuum, and they are not the only deeply troubling trends that have added up to a nationwide economic crisis.

Congress made Social Security 25 percent less generous than it was in 1983, Baker said. But the housing market’s recent collapse and uneven recovery wiped out the retirement savings for most Americans, he said, because home values have fallen by an average of 40 percent for all but the top fifth of income earners. In other words, most people have lost their life savings in the real estate market crash. “Their average equity is what they owe for the rest of their mortgages,” Baker said, “meaning if they paid off their loans they’d be left with nothing to live on but their Social Security.”

But housing market collapse wasn’t the worst economic hit foisted on Americans by Wall Street. Starting in the 1980s, investment firms pushed business owners to drop employee pensions—where retirees are paid most of their salaries—and instead drove employees into managing their own retirement savings, a lower cost to businesses. At the same time that trend began, wages for workers, not their productivity, started going flat—which is where they’ve been for decades.

From a retirement security perspective, Americans were told to become their own money managers, even as they had less money to manage. Wall Street, which collects fees on the estimated $100 billion a year placed in retirement accounts, created a bonanza for itself based on deluding the public that their IRAs and 401 Ks would adequately provide for their retirements.

The experts all told those at the Capitol Hill briefing that replacing pensions with investment accounts, for all but the wealthiest Americans, would not keep people from sliding down the economic ladder and becoming much poorer as they get old. Historically, sizeable numbers of Americans never had pensions. But the percentage of people with secure retirements has plunged.

“In 1979, about 38 percent of workers had pensions—a future check replacing most of an income. Today that’s about 15 percent,” said Diane Oakley, executive director of the National Institute on Retirement Security. “Today… we have the lowest level of coverage in our workforce by any type of retirement plan [pensions, IRAs, 401ks, etc.]. We’re down to 52 percent of the workforce being covered.”

Most Americans “have put away zero,” Oakley said, “and when we look at the people who have saved, they’ve saved about $13,000.” Young people haven’t saved much either, she noted, because many are paying high-interest student loans and entry-level wages are stagnant. For people approaching retirement, investment advisors say they need many times their annual salary, but “when we look at people who have four or more times their salary, we’ve only got 8.3 percent of those people within 10 years of retirement.”

Wall Street titans, led by billionaire Pete Peterson—whose fortune, from capital gains, is not taxed for Social Security—have mounted a massive campaign claiming that the $17 trillion federal debt is the worst problem facing the country. They claim the only way to solve it is to cut future entitlements like Social Security. House Republicans and Obama have bought into this view, by proposing to trim future Social Security cost of living increases by using a metric called the chained consumer priced index (CPI).

But there is another number that’s almost as large as the $17 trillion debt that Americans haven’t heard about, Oakley said, and which most Washington politicians—except for a handful of progressives—don’t cite. It’s the “retirement deficit”—or what Americans have not saved but will need to maintain their standard of living. In 2010, it was a $14 trillion shortfall, Oakley said. When pension payouts are subtracted—and many plans are now under attack for being too generous—the retirement deficit falls to $11.8 trillion.

Costs this large—trillions—are abstract and hard to understand. Even so, congressional Republicans and President Obama have been focusing on the $17 trillion debt while ignoring the $12-plus trillion retirement savings deficit, even though progressive activists have been analyzing these trends for years. That misplaced focus, driving an unbalanced and incomplete public discussion overlt focused on the federal debt, is what has to change, the retirement experts said, citing to the ongoing federal budget negotiations.   

“Why are we talking about cutting Social Security? Why are we not talking instead about increasing Social Security and finding a way to close some of these gaps and provide real retirement security to everybody?” said Ross Eisenbrey, pension expert and vice president of the Economic Policy Institute.

“We have to understand who is going to be disproportionately affected by any proposed cuts,” said Maya Rockeymoore, chairwoman of the National Committee to Protect Social Security and Medicare. “I have said before—and some people might consider me incendiary for saying it—and that is this can also be interpreted through the lens of fiscal racism if you look at who’s talking about the cuts, and which populations it will fall on.”  

Solution Is Simple, But Not On Political Table

What was especially striking about last Tuesday’s Social Seurity briefing is that the solutions are well known by anyone who’s taken a fair-minded look at the problem. Every advocacy group present passed out reports with variations on these same remedies, a mix of progressive tax increases implemented over time, and a focused and compassionate expansion of benefits based on specific age-group and income-based needs.

“We’re just going to have to do it,” said Rep. Mike Honda, R-CA, who began his remarks by saying he was preaching to the choir in the Capitol Hill conference room. Honda was a co-sponsor of HR-3118, a bill mirroring Harkin’s S-567 which would shore up Social Security funding through 2049 by making income taxes more progressive, using a more accurate inflation metric and slightly increasing future benefits.   

The revenue to secure and expand Social Security for decades into the future comes from closing a big tax loophole for wealthy Americans, the experts said, and from asking workers and employers to pay a little more, such as 50 cents a week. Americans now pay a combined 12.4 percent Social Security tax (split between employers and employees) on their first $113,700 of annual income. People making more than that don’t pay more, just as income from capital gains is not taxed for Social Security.

Eliminating the $113,700 income cap would provide most of the funds needed to shore up and expand the program, the experts said. Pollster Celinda Lake said people across the political spectrum supported eliminating that cap, but ironically, many people don’t know it’s there.

“This is the biggest tax loophole that people didn’t know about,” she said. “Only 2 percent of the women in America make over $106,000, so of course, nobody knows there is a cap.”   

AFL-CIO policy director Damon Silver made the same point—the public does not know how Social Security is financed and why that foundation has not grown over time.

“People really don’t understand,” he said. “We only tax wages for Social Security. We do not tax capital gains or dividends. We only tax wages up to a cap of about $110,000. In the past, we’ve taxed in real dollar terms up to close to $200,000, in 2013 dollars. So we have allowed the wage base to decline, and we have exempted income to capital, just at the time when there’s been a wholesale shift from wage income to capital income in terms of the composition of income in our society.”

Restoring that fiscal balance—by asking the wealthy to pay a fairer share—is what the politics is all about, Silver said. Until now, the discussion has been about using Social Security to pay off other federal debt, created by recent wars and other tax breaks. It hasn’t been about tax fairness and the real-life impact on the elderly and vulnerable.  

“The real politics of the attack on Social Security are all about the people who are getting away with not contributing to Social Security fear that they might have to pay a little more taxes—and are willing to spend a lot of money to buy people in the media and in policy institutions to keep the taxman away from their door. And their willingness to sacrifice the weakest among us to that agenda,” Silver said.

The second part of the solution framework is how to expand Social Security so retirees—and others facing family emergencies—can get an income that they can live on and not fall into poverty. The experts all discussed a better and more accurate inflation index for the elderly, called the CPI-E (E stands for elderly). It would track the inflation in expenses that primarily affect older people (such as medical, utilities and food), so the benefit increases tracking inflation would be tied to a better metric.

The other big part of expanding Social Security is creating minimum benefit levels, set to 125 percent or more of the federal poverty line, and a maximum payout so richer people don’t receive billions that they don’t need. There were other improvements mentioned, such as expanding payments for students whose parents die or become disabled, as well as expanding family leave options in real emergencies, or for birth or adoption.

“Where does the money come from? We have about a 2.72 percent of taxable payroll shortfall and we add about 2.5 percent of additional expenses,” said Kingson, speaking of Social Security Works’ plan. “We get it from gradually eliminating the [income tax] cap. And we give full credit to people who pay above it, up to $6,000 [a month] of average benefits. So there would be a maximum benefit, just as we have a minimum benefit.”    

Harkin's and Honda’s bills would lift the tax cap, use a CPI-E and increase benefits by $70 a month. It does not go further and create a minimum benefit based on the federal poverty level or a benefit ceiling. Many progressives are now trying to make the funding and expanding of Social Security an issue as federal budget talks continue. They also are talking about campaigning on it in the 2014 federal elections. A petition to save and expand the program already has a half a million signatures.

But all this progress—from reframing the political discussion to the very stark and pragmatic reasons to expand the program—comes in an indifferent if not hostile political environment, Rep. Dan Maffei, D-NY, told those at the daylong Capitol Hill conference.

“We are in a rear-guard action,” Maffei said. “We have a Democratic president who is supporting one of the worst policies for Social Security and many Democrats have supported that. It’s bad policy in a way that’s insidious and would continue year after year afer year… Chain CPI is so dangerous because it’s put together to be politically palatable. It’s too complicated. Nobody can figure it out."

“The frame right now is that’s a rear-guard action,” Maffei continued. “Nonetheless, we have to go on the offensive… and talk about expanding it—Social Security, not as a challenge that has to be overcome, but as a solution to many of our other challenges. That’s very important. And it may not happen tomorrow. And may not happen next year. And it may not happen in the next Congress. But I do believe that [expansion] is an important component in how we are going to solve these important societal challenges.”

There are an estimated 77 million baby boomers who are now reaching their retirement years, the experts said. Slightly more than half of them have little or no retirement savings and will have to rely on Social Security and Medicare. In a presidential election year, the country roughly sees 140 million people vote. In federal midterm elections, like 2014, that number drops by 40 million voters.

Social Security has been called the "third rail," of American politics for years—politicians who touch it can get badly burned. But with tens of millions of elderly and soon-to-be-elderly Americans, who tend to vote more frequently, facing a decent into poverty as they age, you can be sure that fortifying and expanding Social Security is going to be a giant political issue in coming years.  

 

Steven Rosenfeld covers national political issues for AlterNet, including America's retirement crisis, the low-wage economy, democracy and voting rights, and campaigns and elections. He is the author of "Count My Vote: A Citizen's Guide to Voting" (AlterNet Books, 2008).