SOCIAL SECURITY: FROM SCAM TO SCANDAL IN 65 YEARS
course it's been better than nothing, considering only the great number of old
and survivors it has kept at or above the poverty line; or so we are told. But
at least two points: about 40 percent of families over 65 have an annual income
of under $15,000 (only a bit over the official poverty line), including
benefits; only about 30 percent have an income over $25,000:repeat, including
benefits. That is, over two-thirds of families over 65 have an annual income of
under $25,000.And then one must consider how poor you have to be at or under the
social security itself (as will be seen), the "poverty line" suffers
from congenital defects. It was set in 1964, as new prez LBJ was seeking to put
his "war on poverty" together. He needed a definition of poverty if he
was going to war against it. After a lot of scurrying around, the line was set
at $3,000 for a family of four. The basis for that figure -- I kid you not --
was a modification (downward) of the amount estimated by the Office of Civil
Defense ($3,995) as necessary for a family to get by in a post-nuclear attack
world: one-third for food, one-third for rent, the rest for bandages. (Only the
last part is my joke.) Since 1964, believe it or not, and despite economic hell
and high water (especially of rents for low-income families), the basis has
remained unchanged (in inflation-adjusted dollars). So, what began as a cruel
farce has descended further into deeper tragedy.
which it must be added (and here again, our social security comes off badly)
that in Western Europe a family is deemed to be in poverty when its income is
less than half of the national median. Were we to adopt that standard, the
percentage of U.S. families in poverty would rise by 50 percent. The median
family income here is about $40,000; that leaves something like half of social
security beneficiaries living in poverty. Still better than nothing, of course:
two cheers for social security.
make that one cheer. In what follows we set aside the indecent probabilities of
ongoing privatization and and crisis proposals, of which much has been said in Z
and elsewhere. Instead, our focus will be on the original Social Security Act
(1935).Of its many defects, the two examined were two sides of the same coin.
The metaphor is apt, for the 1935 legislation was not about security for all,
but money: who would pay the least as a percentage terms of their income and get
the most in dollar benefits after retirement. The main means for insuring that
was the adoption of payroll deductions to finance benefits. It was a bad start;
just how bad jumps out when you look at the details. .
couldn't have been expected to hew to the standard
each according to ability, to each according to need." But there must have
been some who knew that the Founding Fathers assumed that the costs of
governmental activities should be borne -- as they quaintly put it -- by
"ability to pay."
to pay was stood on its head in the Social Security Act (and "need"
ignored as though it were a four-letter word). In all other industrial
capitalist nations the financing of governmental pension programs is from the
general fund, itself built upon a tax structure of one degree or another of
progressivity (that is, where not just amounts but also rates go up in terms of
ability to pay). The Act of 1935 provided a) for financing on a 50-50 basis,
half from worker, half from employer, and b) that benefits would be
proportionate to their contributions.
fair, until an even closer look; therein we find the sweetest kicker of all (if
you're well off). Payroll deductions are structured so as to be regressive; that
is, the opposite of "ability to pay": payroll deductions are now at
7.65 percent of income -- up to a maximum of $62,000.After that, nothing. So:If
you're at the median income of $40,000, you pay $3,060.But let's say you're
doing pretty well, making $62,000.You pay $4,570.Or you're doing a helluva lot
better, at $620,000 a year. You pay $4,570.And $6.2 million? Also $4,570.Fair's
a nutshell, the worse off you were while working, the worse off you will be when
you stop working (even worse, of course, for there is no longer your wage);
symmetrically, the better off you were, the better off you will be. Put
differently (and more to the point), the more you need the less you get; the
less you need, the more you get. And that's not all of it: in a definitive
Brookings Institution study of 1972, The Payroll Tax for Social Security) (by
senior statistician John Brittain) it was established that employers on average
-- by hook or by crook -- manage to deflect half of their contributions to the
employees, whose effective rate is thus closer to 12 than to 7.65 percent -- and
that was before the shift to the Right began.
did such a lousy law get written? Well, the "Second" (or liberal) New
Deal was just a-borning in 1935, with popular discontent and organizing taking
place both left and right of center. The main writer of the legislation was a
nice enough professor, Edwin Witte, of U. of Wisconsin (I knew him years later).
He began with a justly-financed social security program, but soon was convinced
that if a decent social security bill were proposed it would never get anywhere.
Remind you of Clinton and health care? As with Clinton in 1993, et seq., so it
was in 1935:that is, with some good leadership from the "bully pulpit"
and from labor (and economists), et al., something much better could have been
accomplished with social security and -- very probably -- with much else. The
easy way was taken, paving the way for subsequent compromises.
the latter was that the Act didn't even apply to a large percentage (the
neediest percentage) of those in agriculture, retail and other services, etc.
However, it was better than pre-1935; Clinton's Compromise on health care meant
matters would become worse than before 1993.But he feels our pain.
Act of 1935 was hotly-opposed by the insurance companies: their slogan was
"all the security you want, as long as you can pay us for it." Now
they are joined by all of Wall Street. During the depression Wall Street had
ceased to be a big player in politics; now it's the biggest. They want as many
as possible of those countless billions of contributions to keep their bubble
expanding. They've been willing to pay for what they want, and they're getting
their way -- not just in D.C. but, via the media, in the "hearts and
minds" of Mr. and Mrs. America.
were better alternatives in the 1930s, there are of course better alternatives
now; those alternatives organized for and put forth from the bottom up. Not just
the financial sector, but all of business wants to "commodify" social
security and everything else -- you get what you pay for -- except what butters
their own bread. But that's not the end of the problem: Congressional incomes
put them in the top 10 percent of the population. Add perks and (for many)
investment income, and (for almost all) what might indelicately be seen as
bribes, and what you have at the top of income, power, and wealth may produce
some kind of trickle down to the rest of us; but what's trickling is not orange
juice. All of which applies to health care also -- among other matters -- in
that they have legislated for themselves and the military not only marvy
pensions, but even marvier health care.
might a reasonable alternative be? Suppose we cannot now take the very large
jump of getting ridding of the payroll deduction. OK. So, we fight to turn it
rightside up: exempt all those from payroll deductions whose incomes are below
the family median of about $40,000; tax all incomes above that on a roughly
progressive basis: e.g., 1 percent for the first $10,000 above the median, 2
percent for the next you name it amount, and up to a maximum of, say, 7.65
percent, over $100,000, going down to a minimum of 5 percent over half a
million. And disallow any benefits whatsoever to those whose incomes have been
in excess of (pick a number) $250,000 for the preceding 10 years. (This is
getting to be fun.)
the rates around as one might, a little more here, a little less there; so long
it were progressive, the poor (or not well-off) who had never made a
contribution (or very little), would be assured of benefits set by what would
keep them in (let's call it) a secure and healthy zone, until death did them
part. And the rich? Ishkabibble. They'd still be rich.
Impossible? Depends on us.