The stock market plunged more than 10% in the space of a week (opening on “Black Monday” 1,100 points down, alone) – not because of the US economy, which remains relatively strong (thanks Obama!), but because of China and a score of other relatively uncontrollable vagaries.
If it were up to Republicans in Congress, retirees would see their Social Security plunge along with their 401Ks and IRAs. Because Republicans – beholden to the 1% who begrudge the very existence of Social Security and are the last people in the world to depend on it, or contribute to it – want to privatize Social Security (a way of propping up Wall Street).
At very least, they want to cut benefits and raise the retirement age – and are satisfied holding the federal budget hostage – shutting down the government or putting the nation’s “full faith and credit” into default, in order to do it.
Social Security turned 80 this month, and ever since its birth, Republicans and the wealthy elites have wanted to murder it – because Social Security, you see, will be the death of capitalism, and we can’t have that.
Well, Social Security has not killed capitalism – obviously.
On the other hand, Social Security, along with Medicare which turned 50 this month, have been the most successful and popular government programs ever devised. Before Social Security, half of all Americans over 65 years old were plunged into poverty; these programs brought down that rate to as low as 10%. Now the rate is 15%, and the reason for the rise is the reason why Social Security needs to be expanded, not cut or privatized as Republicans are pushing to do.
And Social Security is not just for the elderly – but serves nine million Americans who are disabled, including veterans, and two million children who have suffered the devastating loss of their parents (Paul Ryan, one of the most ardent destroyers of Social Security took advantage of this benefit when his father died).
Republicans have taken aim at Social Security from the beginning, but, with their militant, obstructionist, brinksmanship style that has characterized their strategy during the entirety of the Obama Administration – taking the economy hostage not withstanding – they have continued to take aim to cut Social Security with the erroneous fear-mongering claim that the fund is going bankrupt, future beneficiaries will be caught with IOUs, and that Social Security is contributing to the national debt.
In actuality, Social Security has a $2.8 trillion surplus, enough to pay out every benefit owed to every eligible American for the next 18 years and approximately 80% of benefits owed after that.
But the solution to maintaining 100% of the benefits is simply to have the very wealthy pay their fair share. “Then, we can not only extend the lifespan of the Social Security trust fund, we can expand benefits for millions of Americans,” says Michael Phelan of Social Security Works.
The reason there would be any shortfall at all is a matter of demographics – the fact that 11,000 Baby Boomers are becoming eligible for Social Security every day for the next 15 years and are living longer (thanks Medicare!), and because there is a smaller working population that is paying into the system to support that bubble.
But Baby Boomers face a serious retirement crisis, which is why Social Security program needs to be strengthened and expanded, not cut.
The fact is that two-thirds of the 59 million Americans currently receiving Social Security depend on it for the bulk of their income. Over the past several decades, fewer and fewer companies have offered the old-fashioned guaranteed pension.
But contrary to Republicans’ propaganda, we have had a privatized retirement system for decades, affording people that opportunity to earn market-rate returns – IRAs, Roth IRAs, 401Ks, Keogh Plans, SEP – a slew of alphabet soups to choose from.
But these are the programs that have been vulnerable to the market swings such as happened this week. It’s why, after the 2008 Wall Street crash, Boomers who might have retired, were forced to keep working, propping up unemployment rates. As the market – and 401Ks – have recovered, Boomers are retiring again, easing the way for new graduates, which is a reason that unemployment rates are going down while the number of “no longer looking” is increasing.
That’s what privatized Social Security would look like, instead of being guaranteed, like an annuity.
But not all Boomers had the “luxury” of staying in their jobs to weather the rebound in their retirement funds. Millions of 55-plus workers were “excessed” with no prospect of getting a comparable job at a comparable salary, but looking at years before eligibility for Social Security and Medicare when they would have to depend on savings, if they had any at all. The problem is that half of all Boomers have no retirement savings at all.
That’s not because Baby Boomers are profligate, but rather, Boomers have been strapped their entire working lives – paying in a higher percentage toward Social Security and Medicare (remember when Reagan “cut” taxes? At the same time, he raised the mandatory contribution for Social Security and Medicare), the first generation to face impossibly high college tuitions when a college degree was a necessity (their own and their kids) as well as day care costs equivalent to the cost of college, health care costs and energy costs soaring at rates five times the cost of living, not to mention double-digit mortgage rates – to put away enough money in private retirement.
A GAO report found that poverty rates are higher for people approaching retirement and people who are 75 and older. Altogether, 52 percent of households with someone 55 and older have no savings. And more than a quarter of households age 55-64 have no pension and a median net worth of only about $9,000. Without Social Security, 43 percent of seniors 65 and older would be thrown into poverty.
America is facing a $7.7 trillion retirement income deficit.
What that means is that “For the first time in our country’s history, Americans are preparing for a lower standard of living in retirement than their parents. As a result, retirement insecurity has quickly become a pressing issue in American politics,” says Michael Phelan of Social Security Works.
“With 15% of seniors living in poverty, we need to move away from risky 401ks that bet secure retirements on the stock market to enrich Wall Street millionaires. We need real retirement protections that we know we can count on–an expanded Social Security system,” says Phelan.
“Cuts would be devastating,” says Damon Silvers, Director of Policy, AFL-CIO. “While two-thirds of seniors depend on social security, Americans aren’t getting rich off of Social Security. The average annual benefit for those who rely on the program for the majority of their income is just $16,000. That amount of money barely covers the cost of housing, food and other basic needs.
“And it’s only going to get harder for future retirees because employers keep trying to cut real pensions and other retirement benefits. That’s why it’s more critical than ever that Social Security not only continues to provide the modest benefits that it currently does, but that it be expanded to provide a lifeline for more seniors, veterans and people with disabilities.”
Congresswoman Kathleen Rice said in vowing to protect Social Security, notes,
“Social Security is important for everyone but it’s absolutely crucial for women. Why? We tend to live longer than men. Over two-thirds of beneficiaries over age 85 are women. That means we are at greater risk of outliving savings and other sources of retirement income.
“And after decades of pay inequality, Social Security also begins to close the gap by paying lower-wage earners a bigger benefit as a percentage of past earnings. It doesn’t make up for years of unequal pay, but it makes a critical difference!”
The GAO report, Senator Bernie Sanders, Democratic candidate, says, “makes it clear that there is a retirement crisis in America today. At a time when half of all older workers have no retirement savings, we need to expand, not cut, Social Security benefits so that every American can retire with dignity.”
Sanders has introduced legislation that would make the wealthiest Americans pay the same share of their income into Social Security as other wage earners (the trick of it is “wage earners”). That change would fully fund the retirement program through 2065. Under the measure, the average benefit would increase by $65 a month, cost-of-living adjustments would more accurately measure inflation for seniors and the minimum benefit would be raised to lift millions of seniors out of poverty.
“Social Security is the most successful program in our nation’s history,” Sanders said. “At a time of massive wealth and income inequality, we have got to demand that the richest people in this country pay their fair share.”
Indeed, the solution to the retirement crisis is actually relatively simple: raise the cap on who pays into Social Security (something that has been done dozens of times before); institute the rule that Obama has promulgated making financial advisors who manage retirement accounts actually responsible to their client, rather than their own self-interest (funneling $68 billion into the pockets of the wealthiest Americans who are the administrators); making 401Ks “opt-out” rather than “opt-in” programs; and (as Obama has done), introducing the MyRA, a retirement savings program for low- and middle-income people that comes with government guarantees, like a savings bond, while growth and withdrawals are tax free like a Roth.
While clearly there needs to be more revenue funneling into Social Security, the answer is not by raising the Social Security tax rate – currently at 6.2% which is matched by employers or 12.4% for self-employed people plus another 1.45% for Medicare. By this measure, a self-employed person earning $55,000 a year (the median income, believe it or not), pays 25% of 100% of their income toward Social Security and Medicare. So it would be cruel to raise the tax rate (as Ronald Reagan did, while still claiming to have cut taxes).
On the other hand, Donald Trump, who claims to earn $400 million a year in income, and Mitt Romney pay a relative nickel because the amount of income that is taxed is capped at $118,500 of earned income. The guy who earns $1,000,000 and the guy who earns $118,500 pay the exact same amount. And if Trump and Romney claim their income comes from investments, they don’t pay a penny (recall that Romney gave his tax rate at about 14%).
Based on the $118,500 cap, 94% of wage earners in America pay into Social Security on all of their earnings, but the top 6% do not.
But if you taxed all income – or at least raised the cap to, say $1 million or even $250,000 – not only would Social Security be solvent, but I’ll bet they could bring down the tax rate to something in the range of 3% for everyone.
It’s not as if the cap has never been raised. From 1936-1950, the cap was $3000 (of course, annual incomes were less than $10,000 then); during Reagan’s Presidency, the cap was raised from $25,900 to $45,000; in 2000, the cap was $76,200; in 2010, $106,800, and it was raised $1500 from 2014 to the current rate of $118,500. So it isn’t as if this is an unusual circumstance. The question is what is a fair amount.
Now, they say that the reason they don’t tax all income is that the billionaires would never be able to recoup the amount they pay into the system (their “earned benefit”). So what?
What should be capped is the amount that can be taken out should be capped (this is different than means-testing).
And, if a billionaire declines to take any Social Security, they should be allowed to deduct that amount from their taxable income after age 65.
The other proposals – advanced by Republicans – to raise the retirement age is patently unfair. That might be okay for the CEO who gets to enjoy “business” lunches and golf games, but there are many, many people in jobs that require physical labor or mental stress – nurses, teachers, construction workers, miners – where it would be cruel to force them to work more years.
On the other hand, the reality of work, these days, is that increased productivity and technological advancements (which have produced record profits and dividends but not increased wages) result in older workers – in their 50s – being excessed in favor of younger, cheaper workers (like teachers, particularly, where a school district like Great Neck can save $1 million when older teachers retire and are replaced by hiring younger, cheaper ones).
The fact of the matter is that two-thirds of seniors, today, depend on Social Security entirely.
That’s because over the last 30 or so years, fewer and fewer companies offer pensions at all, and even when they did offer it, they would play a cruel trick of firing long-time employees just before they retired, inorder to escape the liability.
Even government pensions are not sacrosanct from being clawed back by the likes of New Jersey Governor Chris Christie and Wisconsin Governor Scott Walker (while “golden parachutes” of CEOs who crashed their companies are).
As for private retirement accounts, we saw what happened after the 2008 Financial Collapse – people approaching retirement found their funds cut in half.
But here’s another problem with privatized retirement – besides the risks of stocks going up and down – retirees being ripped off by bad advice and high fees of financial “advisrrs” who put their own self-interest ahead of their client.
As President Obama noted in a speech to AARP, “On average, conflicts of interest in retirement advice results in annual losses of 1 percentage point for affected persons” and with compounding interest, can cut into retirement savings by more than 25% over the course of 35 years. “All told, bad advice that results from conflicts of interest costs middle-class and working families about $17 billion a year.”
So Obama this year has required Department of Labor to update the rules so that retirement advisors are required to put the best interests of their clients above their own financial interests.
Another way the Obama Administration is working to forestall a retirement crisis is offering a new retirement savings account, MyRA, geared toward new savers, low and middle-income earners (individuals earning up to $129,000 and couples up to $191,000 a year), and people who aren’t offered a retirement savings option through their employers. (See: http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/201…)
But these improvements won’t help baby boomers retiring now. Social Security is still fundamental to preserving a secure retirement, and it should be expanded, not curtailed or replaced (privatized). And there are relatively simple ways to bolster Social Security program and address the impending retirement crisis.
And it turns out that Social Security is enormously popular. In fact, recent polling shows that 79% of likely voters — Democrats, Republicans and Independents — all support expanding earned benefits and paying for it by asking the wealthy to pay their fair share. Only 6% favor cuts.
And yet, 100 percent of Republican candidates are pushing for cuts to Social Security – raising retirement age to 70, cutting and means-testing benefits, privatizing Social Security – which New York Times columnist Paul Krugman attributes to the fact that they serve the donor-class which has been hostile to Social Security (Socialism!!!) as a threat to Capitalism (Oligarchy!!) from the very beginning. (See “Republicans Against Retirement,” Aug. 17, 2015).
Want proof that Republicans are out to destroy Social Security? At the opening of the Congressional session this year, the Republicans forced a rule that prevents “reallocation” of money between Social Security’s two accounts, one that covers Old Age and Survivor’s benefits and one that covers Disability.
This is normally routine (it has been done 11 times in Social Security’s 80-year history), uncontroversial and bipartisan – until now.
Stumping in New Hampshire, Sen. Rand Paul (R-KY) showed his contempt, flippantly attacking Americans living with disabilities, saying, “You know, over half the people on disability are either anxious or their back hurts. Join the club.” and asserted that a majority of people who receive Social Security disability benefits are “gaming the system.”
“Rand Paul’s attack on Social Security and disabled Americans wasn’t only heartless and offensive, it was also untrue,” countered Josh Nelson of CREDO Action. “According to a report released in November by the Social Security Administration’s Inspector General, fraudulent Social Security Disability Insurance claims are exceedingly rare – accounting for just 0.02% of all payments. And as Social Security Works Executive Director Alex Lawson noted recently, “America has one of the strictest disability standards in the developed world.'”
If Congress does not act before the end of 2016 to rebalance Social Security’s trust funds, disability benefits – that serve 9 million adults, including Veterans, and two million children – will be cut by 20 percent. The Republicans are holding the disabled hostage to their demand that Social Security benefits to older Americans be cut or taxes raised (nothing about raising the cap or making wealthiest Americans pay into the program.)
“Just like they did with the debt ceiling,” Phelan says. “Republican leaders have already made clear, through a rule adopted on the very first day of the new Congress that blocks reallocation, that they plan to hold rebalancing hostage this time around. Presumably, they are seeking a bipartisan deal, worked out behind closed doors, that cuts Social Security and enacts other unpopular changes.”
“Right out of the gate, House Republicans are only increasing the chances of yet another unnecessary manufactured crisis, akin to shutting down the government or threatening a debt default,” Sen. Charles Schumer wrote constituents.
But thanks to Republican fear-mongering, most Americans have been made to believe that Social Security is what is causing the US debt, that the US will go the way of Greece (which used to pay retirement from as young as 50 years old, but no more; on the other hand, the way we will go as Greece is through rampant tax avoidance), that there won’t be Social Security available when they are ready to retire (so why pay into it now?).
This is the result of a very long, well executed propaganda campaign that paints Social Security recipients as “takers” rather than people who paid into an annuity program their entire working lives, and now are taking out what they are, in fact, owed. People who are disabled are particularly vilified.
As Phelan notes, “Mainstream media outlets are echoing the Wall Street talking points, falsely saying that Social Security is going broke and pitting the young, old, and people with disabilities against each other. The New York Times ran an op-ed claiming, ‘Rising national debt levels may threaten the ability of millennials to collect on promised Social Security and Medicare benefits.’
“They continue to use this outrageous talking point – thought-up by Third Way, Fix The Debt and other Wall Street front groups – even though Social Security has never contributed one penny to the deficit, has a $2.8 trillion surplus, can pay out every benefit owed to every eligible American for the next 19 years and approximately 80% of benefits owed after that if no action is taken.
“And this is just the beginning: A think tank called the Center for a Responsible Federal Budget is using this week to offer their own so-called compromise solutions, nearly all of which will cut the earned benefits of millions of Americans in exchange for allowing our Social Security system to continue to function as promised.”
Says Phelan, “Social Security is the most universal, secure, and efficient source of retirement income that we have, providing a guaranteed, inflation-protected source of income that one will never outlive. And expanding Social Security is completely affordable. Millionaires and billionaires should pay the same rate as everyone else on all of their income. The trust fund will remain strong, even with expanded benefits.”
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