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Protect our Social Security: Tax wealth to fund retirement

by Randy Silverman

George W. Bush is out to devastate Social Security. He wants to abolish the social insurance form of the program, under which current workers collectively pay for the pensions of retired workers. His privatization scheme would make each worker's retirement dependent upon their luck in the stock market.

Even more ominously, Bush seeks to attack the substance of the program -- its provision of more or less adequate monthly checks to retirees. He may propose slashing future pay-outs to seniors by 40%, as well as requiring people to work longer before they can retire.

Saving just the form of Social Security is not enough; if its substance is eroded, people's ability to spend their final decades in comfort and dignity will be imperiled.

The Democrats Waffle

Democrats are united in opposing privatization. Yet many are on record as favoring cuts in benefits, though not quite as much as the Republicans.

For example, Senate Democratic Whip Richard Durbin has stated that Democrats would be open to lowering pensions. Jason Furman, economic policy director of John Kerry's Presidential campaign, proposes extending the retirement age to reflect increases in life expectancy; in other words, penalizing workers for medical advances that let them live longer.

Prominent Democratic politicians and professors have put forward mixes of tax increases and benefit reductions that would hurt all but the poorest workers.

Bush may very well flop in his efforts to turn over trillions of dollars of Social Security taxes to Wall Street. This victory for workers will be short-lived if a critical mass of Democrats then pursues a "reasonable compromise" with moderate Republicans that balances lower payments to seniors with higher payroll taxes on workers.

Regressive Financing

Why are some Democrats prepared to diminish Social Security, the proudest achievement of the New Deal? Because of their unwillingness to look for alternatives to the current, regressive way that the program is financed.

Rather than drawing on general tax revenues, Social Security gets its money from a payroll tax, split 50-50 between workers and their employers. However, this tax is only imposed on wages up to $90,000. Wages above that ceiling are not subject to the tax. And investment income -- dividends, interest, rents, capital gains received mostly by the wealthy -- is not subject to the tax at all. Thus, corporate executives pay a lower percentage of their income toward Social Security than regular wage-earners.

Lifting the ceiling on the Social Security tax would make it fairer. But it would still let those whose income is derived from stock portfolios and real estate holdings off the hook.

There is no good reason why Social Security should be funded from a tax on wages instead of from taxes whose impact falls on those with the greatest economic resources. If any shortfall in Social Security were made up solely through taxes on the richest 5%, then low and moderate income people would be better off. But this solution requires recognizing the grotesque maldistribution of assets and income in our society. Instead, a substantial number of Democrats would prefer to weaken Social Security.

The U.S. Economy

Consider these points about the American economy.

Inequality has become worse. Gains in income over the past three decades have flowed mostly into the pockets of the richest one-fifth of the population. The top 1% now receive almost as much of the national income as the bottom 40%.

The aging of the baby boomers will not overburden our productive capacity. As baby boomers leave the work force in the years ahead, the ratio of workers to non-workers will decline. However, this trend requires neither forcing workers to put off retirement nor offering them stingier retirement benefits. America's economic efficiency is enormous; more and more can be produced by fewer and fewer workers.

The real danger to the well-being of older people comes from insufficient social protections. Most workers are not covered by employer-sponsored retirement plans. An increasing number of the plans that do exist follow the Bush model for Social Security; they provide each participating worker with a small, risk-filled portfolio of stocks and bonds instead of a guaranteed pension.

Under these circumstances, we should be demanding the expansion of Social Security into a truly universal pension program that would enable workers to retire younger with better benefits. It is absurd to solve any of Social Security's problems by imposing sacrifices on middle class workers. We should oppose any changes to Social Security except increases in benefits, financed by tax hikes on the wealthy.

[Randy Silverman is former chair of the Berkeley Rent Stabilization Board.]

This piece is accompanied by a cartoon by Mike Konopacki of Huck/Konopacki Labor Cartoons. The first panel of the cartoon shows a stool, with one leg labeled "Social Security", another labeled "Personal Savings" and the last labeled "Employer Pension". The main caption reads, "U.S. Retirement System: Twentieth Century", with a subcaption "The Three-Legged Stool". The main caption for the second panel reads, "U.S. Retirement System: Twenty-First Century", with a subcaption "The One-Legged Stool". That panel shows a sharpened stick pointing up from a circular base identical to the seat of the first panel's stool. The cartoon is from the January 2003 packet, which is no longer available on the web.

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