By GREGORY N. HEIRES
With a growing acceptance that millions of Americans will face a retirement crisis, the deficit hawks’ call for cutting Social Security is losing credibility.
As the federal deficit continues to fall and the baby-boom generation enters retirement with insufficient savings to maintain their standard of living, the deficit hawks will be exposed as callous anti-tax advocates and drum majors for the 1 percent if they persist in their attack on Social Security. But the Right’s campaign to reduce benefits has always been based more on a conservative and anti-government ideology than facts. With its own funding stream, some argue that Social Security doesn’t technically contribute to the deficit anyway.
As the United States continues to become more economically polarized, we should be talking about expanding Social Security rather than reducing benefits and forcing the cash-strapped poor and middle class to contribute more.
Two compelling arguments exist for expanding Social Security.
First, more and more Americans will need to rely on Social Security because they are unable to sock away enough savings to support their current lifestyle. Decades of stagnant and falling wages have left them unable to build up their nest eggs as employers have whittled away their benefits.
Second, the destruction of traditional, defined-benefit pensions and the failure of the 401(k) experiment means that Social Security will be the principal source of income for more and more retirees and therefore should be strengthened rather than cut.
The Retirement Crisis
Let’s take a look at the first point.
For decades, the 1 percent has waged an economic war on the rest of us.
The Right has never accepted Franklin D. Roosevelt’s New Deal, which created the middle class during the post World War II years. And it has done everything it can to undermine the New Deal from the beginning.
Beginning with the Carter years in the ‘70s with the attack on government regulations, conservative class warriors started to achieve major victories–and ordinary Americans started to feel the impact in their pocketbooks. The 1 percent and their allies have been on a roll ever since President Ronald Reagan broke the air traffic controllers union in 1981.
The emergence of right-wing think tanks helped move the country to the right and create a growing acceptance of a conservative economic and political agenda that unfortunately was often supported by Democrats. Besides deregulation, this agenda included destroying unions; exporting U.S. jobs overseas; containing the growth of the federal minimum wage; breaking down the regulatory barrier between commercial and investment banks; reducing the taxes of corporations and the rich; replacing traditional pensions with the 401(k) and similar, defined contribution savings plans; ending welfare and forcing the poor into workfare and capping their lifetime benefits, and chipping away benefits like health care.
The result? A slow but steady decline of the standard of living of the vast majority of Americans who face a big financial pinch–strangulation?–in their retirement.
Signs of the looming retirement crisis:
• About half of Americans lack an employer-provided retirement plans. Millions don’t have enough cash and wealth to retire in dignity. The 2008 and 2009 financial crisis exposed the weak foundation of our economy and has forced many baby boomers to work longer than they expected.
• Just over half of adult Americans have accumulated little savings, meaning that they will have to rely on Social Security for their entire retirement income. The share of households at risk of not being able to maintain their pre-retirement standard of living after age 65 increased from 44 percent in 2007 to 53 percent in 2010, according to the Center for Retirement Research at Boston College.
The median financial net worth of American households of all ages, excluding homes and cars, is $10,890, according to New York University economist Edward N. Wolff,. The figure is $61,300 for households headed by those in the 55-to-64 year bracket. Financial planners say you should have at least ten times your annual income in savings if you wish to maintain your current lifestyle during your retirement.
• The percentage of Americans with defined benefit pensions, which guarantee a steady stream of income during retirement, has plummeted as employers have replaced them with less rich 401(k) plans. In 1980, about 40 percent of private-sector workers were covered by such plans, compared to 15 percent in 2006, according to Dept. of Labor data cited by an April report by the New America Foundation that calls for the expansion of Social Security.
• The 401(k) experiment has failed. The typical worker approaching retirement needs about $250,000 in a 401(k), according to the public policy institution Demos. Most accounts don’t come close. The average is closer to $98,000, which is only a little more than a third of the recommended amount.
Strengthen Social Security
The economic squeeze on ordinary Americans makes it ludicrous to consider President Barack Obama’s “chained CPI” plan, which would reduce benefits by changing the consumer price index used to calculate the cost-of-living increases for beneficiaries. Other proposals popular in the Washington beltway include increasing the retirement age and raising contributions—steps that would fall on the backs of the poor and middle class.
So, the grim retirement prospects of millions of Americans cry out for government action. Certainly, we can’t expect corporations to respond in the low-wage and union-free Age of Wal-Mart.
Proposals exist to create a new government-supported retirement savings plan.
But the most immediate and easiest solution would to expand the Social Security system. Two thirds of seniors rely on Social Security for more than half of their income. Why not simply expand it instead of creating another program? What should be done to improve Social Security?
We should begin by recognizing that Social Security is fundamentally sound and that the talk about its demise is bunk.
First of all, Social Security is a very efficient program. Its administrative costs–about 2 percent of its total costs–are far below those of the parasitical financial industry, which has profited handsomely from the 401(k) hoax. Privatization would only lead to waste–Wall Street administrative costs and profits.
If Social Security collapses, it will be because conservatives succeed in defunding the system, which actually can be bolstered by minor changes. The system has not missed a single payment since its creation in 1935.
Social Security’s reserves are expected to run out in 2033, according to the latest trustees report After that, the system would be able to pay for 75 percent of the benefits until 2086. But nearly 90 percent of the current shortfall could be met by eliminating the cap on the payroll tax used to fund benefits, according to the Social Security Administration. Currently, both employers and employees pay 6.2 percent on earnings, which are capped at 113,700.
Possible Solutions
Recently, a couple of proposals to expand Social Security have emerged. Hopefully, this will mark the beginning of a shift in the public debate.
In March, Sen. Tom Harkin (Dem.-IA) introduced The Strengthening Social Security Act of 2013, which calls for increasing benefits for everyone by $70 a month.
The legislation would pay for the increase by raising the cap and adopting an inflation formula that more accurately reflects the cost of living increase of seniors than the current COLA or “chained CPI.” The new formula would, for example, better account for health care expenses.
The Harkin legislation has the support of the AFL-CIO, American Federation of State, County and Municipal Employees, the Alliance for Retired Americans, Campaign for Community Change, the National Organization for Women (NOW), the National Education Association, Paralyzed Veterans of America, Strengthen Social Security Coalition, Social Security Works, the United Automobile Aerospace & Agricultural Implement Workers of America (UAW), and United Steelworkers.
“The American Dream promises that if you work hard and play by the rules you’ll be able to save for retirement and enjoy your golden years with your grandchildren,” Harkin said when he introduced the legislation. “We must ensure that, after a lifetime of hard work, Americans are able to retire with dignity and financial independence. This legislation helps to achieve that goal.”
The New American Foundation plan–written by Michael Lind, policy director, Economic Growth Program, New America Foundation, Steven Hill, researcher and author, publisher, Steven-Hill.com, Robert Hiltonsmith, policy analyst, Demos, Joshua Freedman, policy analyst, Economic Growth Program, New America Foundation–calls for restructuring Social Security and devoting one plan to retirement and a second on to disability.
“Retirement security is often thought of as three-legged ‘stool’ consisting of Social Security, employer retirement plans, and private savings,” the report says. “Social Security has been far more stable and successful than the other two legs of the stool. The reliance on these other legs of the system has resulted in a retirement security crisis for most Americans.”