Boomers need to pay attention to Social Security debate

Are Republican presidential hopefuls playing with fire?

It certainly looks that way in the wake of New Jersey Gov. Chris Christie’s recent call for increasing the retirement age for Social Security to 69, and changing Social Security, from social insurance for all, into means-tested welfare.

It’s a proposal that fits nicely within the worldview of white professionals, who drive the political debate on most issues in this country, but it would be devastating to most middle and working class Americans. That’s particularly true for baby boomers, a generation which has paid far more into Social Security and Medicare than any other.

Remember, it was in the mid-1980s when President Reagan and congressional Democrats agreed to the largest and most regressive tax increase in U.S. history, by essentially doubling the payroll tax for Social Security. It was sold to Americans as the solution to the demographic bulge represented by the baby boom, which would eventually challenge the original pay-as-you-go structure of these major programs.

Of course, the multi-billion dollar surpluses the tax increase generated annually for the Social Security program for the past three decades didn’t exactly get put away for those of us in the baby boom generation. Instead, the funds were transferred to the Treasury in exchange for IOUs, and the money was used to mask the fiscal impact of slashing taxes on income, dividends, and wealthy heirs, almost all of which primarily benefitted the wealthiest Americans. By 2007, Social Security’s primary account was collecting more than $190 billion a year above its obligations to beneficiaries, and by using that surplus in federal accounting, it obscured the reality that the rest of our tax system has been completely out of whack with our spending since at least the Reagan administration.

Now that baby boomers are beginning to retire, the huge Social Security surpluses are, as expected, winding down. In 2014, the annual surplus was down to $25 billion, and it’s expected to finally go negative in the next few years. Once that happens, Social Security will begin to draw on the roughly $2.8 trillion in accumulated IOU’s sitting in vast file drawers at the headquarters of the Social Security Administration. That’s $2.8 trillion that’s come mostly from the paychecks of working Americans for the past three decades— and now that it’s soon going to be time to pay the piper, those who have enjoyed the tax cuts those Social Security surpluses made possible are suddenly calling for “entitlement reform” and the Republican presidential candidates are leading that charge. Christie was the first, but he’s since been joined by Jeb Bush, Marco Rubio and others who say the current system isn’t sustainable.

Defenders of such changes argue that Americans are living longer, and that the ratio of workers to retirees is steadily declining. For a media talking head, an attorney, or a politician, the prospect of continuing to work well into one’s late 60s is perfectly plausible. But what about the construction worker, or those engaged in any of a hundred different occupations today that still involve manual labor? The wear and tear of these jobs on the bodies of these workers hasn’t changed over the years, and many of them struggle to continue working until age 62 (the current early retirement cutoff for Social Security), much less 69.

What’s more, working Americans really aren’t living much longer. According to the Social Security Administration, which pays close attention to retiree longevity, virtually all of the gain in life expectancy for new retirees is coming from the top half of the income scale. For workers in the bottom half of the income ladder, life expectancy at retirement has increased by only a year in the past three decades.

The impact of changes proposed by Republicans will hit minority groups particularly hard, since most minorities experience significantly shorter life-spans than whites. The Republican calls to raise the retirement age to 69 would cut lifetime benefits for the average African American by almost 30 percent. And don’t think for a moment that those calling for such changes don’t realize that.

But, say the proponents, how can you avoid the inevitable math? In 1950, for example, there were 16 workers paying into Social Security for every one retiree. Today, that figure is down to about 2.8 workers per retiree and it is expected to fall to just 2 workers per retiree by 2030.

What such arguments intentionally overlook is the incredible productivity growth we’ve experienced from the average worker in the U.S. during this same period. The 2.9 workers contributing to Social Security for every retiree today produce far more wealth per hour of work than workers did in 1950. That, combined with the higher tax rate established in the 1980s, has allowed the ratio of workers-to-retiree to go from 16-to-1, to 2.9-to-1, while accumulating huge surpluses at the same time! This whole argument is a classic example of the kind of empty political rhetoric we hear far too often from our politicians. There’s no substance to it at all, as history has aptly demonstrated.

That said, Social Security does have longer-term fiscal challenges, but they can be addressed by some relatively simple changes, such as lifting the cap on the Social Security tax.

The cap has long been America’s worst example of regressive tax policy. Consider that if you currently earn $50,000 a year, you pay the 6.2 percent Social Security tax on every dollar you make. But someone who makes $500,000 a year, pays those same taxes on only about one-in-five of the dollars they make. That’s because the payroll tax applies only to the first $113,700 of one’s annual income. So someone making $50,000 pays 6.2 percent of their income to Social Security, while someone making $500,000 currently pays just 1.4 percent of their income towards the program.

With incomes at the top rising far faster than for middle and working class Americans, the percentage of the nation’s annual payroll subject to the Social Security tax has been falling steadily. Not long ago, more than 90 percent of the nation’s payroll was subject to the Social Security tax, but that’s since declined to barely 83 percent. And as those at the top funnel more of their earnings into things like stock options, dividends, and other sources not subject to the Social Security tax, the situation continues to worsen.

By simply lifting the cap, and applying the Social Security tax to everyone equally, the program’s fiscal solvency would be extended by as much as 30 years according to most estimates.

As usual, it’s a question of who pays. In a healthy democracy, it wouldn’t even be a question. Average Americans wouldn’t be asked to accept benefit cuts or wait longer to qualify for programs like Social Security— at least not when asking the wealthiest to pay an equal share of their income could resolve most of the fiscal challenges.

Unfortunately, we don’t have that kind of democracy. Those at the top of the economic pyramid increasingly set the boundaries of the debate in Washington, and that means average Americans, for whom debates over programs like Social Security and Medicare have very real, potentially life-changing effects, are largely shut-out from the discussion. That’s a situation we shouldn’t accept. It’s time for those of us in the middle, who hope to have a decent chance to retire someday, to stand up and be counted. When politicians propose changes in Social Security or Medicare, we need to be paying attention, and we need to let them know that we’re not going to be fooled by misleading claims of looming bankruptcy. Social Security, as well as Medicare, have been enormously effective at improving the lives of older Americans, and those of us who hope to be older Americans someday can’t afford to take the future of these programs for granted.

Cooperating to fight the big boxes

I don’t usually draw attention to advertising appearing in the paper, but I was intrigued when I learned about a new effort by natural food cooperatives around the state to compete with the big box retailers.

For years, the organic products and other healthy foods typically sold at food cooperatives had a pretty limited market, and that made this particular niche of little interest to bigger retailers. But times have definitely changed. Organic products have hit the big time, and as that’s happened, the big box stores have increasingly tried to take over this segment of the retail sector, just as they’ve done in so many other ways.

But food cooperatives around the state decided to fight back. And as you might expect, they opted to “cooperate,” in this case by developing monthly “Co-op Specials” which dozens of cooperatives around the state all buy in one giant order, giving them the same kind of buying power as the big boxes. Then they print up inserts for local papers to advertise their now highly-competitive prices on many popular products. You’ll find just such an insert in this week’s edition of the Timberjay. The advertised prices are good at any participating food cooperative, including Natural Harvest in Virginia.

It’s an encouraging story, one that demonstrates not only that the spirit of cooperation is alive and well in today’s economy, but that, by working together, small retailers can do battle with the Goliaths of the industry.