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CPE Articles, Essays and Position Papers

SOCIAL SECURITY REFORM: A View from the Bottom

A large majority of older Americans depend on Social Security income as their majority income source!! This allows them to be better quality customers/clients/consumers and citizens.

Currently Social Security is considered a pension and benefit program, which is causing difficulties in creating a solution and public understanding. Social Security is NOT an actuarial pension system! It is a recirculation-tax and transfer system. It takes from the workers making about $110,000 or less (this figure goes up every year) and their employers match this amount. This pay roll tax is a regressive tax not a progressive one.

Therefore, this payroll revenue should not be in a separate box. It should be within the overall budget and collected within a progressive income tax system. It is too harsh a tax on lower income families. Then on the income side, it should NOT be based on how much one pays in but how much one needs the income.

There have been many studies and analysis on how to solve the Social Security income shortage. We have read and reviewed most of them. The following is a list of the most important factors:

  • Increase the payroll tax rate.
  • Increase the payroll tax base.
  • Tax benefits like private pension.
  • Require coverage of State and Local employees.
  • Allow the trust fund to invest in the private investment market like private pensions – under strict regulation and oversight.
  • Increase the retirement age.
  • Impose a gradual Means test on the income.
  • Reduce CPI cost-of-living adjustments.
  • Reduce benefits across the board for future retirees.
  • Increase the number of years used in the income benefit computation.

Unfortunately, these solutions only consider the solvency factors. They do not consider the human and macroeconomic-customer factors. We need to explore how to improve Social Security for the workers of America and the overall economy. It is obvious that “one age fits all” does not work for many occupations and excludes most health factors.

One point is the actual statistic of when the system will be bankrupt. The experts keep extending then lowering the date. As of this entry, the date is now 2037. Have you ever noticed that most economic projections over extended periods of time can be very inaccurate? A thirty-year projection of insolvency lends itself to being very inappropriate. Attempting to solve something where we do not know the employment, life span and retirement habits, the economic conditions and tax revenues 3 or 4 decades from now is probably impossible.

The solution is to merge the Social Security into the entire Federal budget-fiscal system. The government currently spends all the revenues anyway! Any short falls can be covered by monetary creation. I don’t believe the national government has to borrow anything. Under the Constitution, the government can create the money and avoid any interest expense as long as they don’t issue too much causing excess inflation. Please review our monetary section and tax sections, where it depicts lower tax rates if some expenditures are picked up on the monetary side of government.

Let’s discuss how to improve Social Security based on human needs, which also aids in a more macroeconomic expansion by providing more funds to more people creating better quality customers.

Social Security should benefit the lower income workers, the more occupational hazardous workers, and the medically hindered workers more than others!

The Social Security start age should be lowered to age 60. Workers who have difficult jobs or in poor health (not just the severely disabled) can start earlier. This system can be based on a non-ridged/liberal basis so workers can start collecting early based on occupational verification and medical history review. Yes, there will be some who will take advantage but most will need it. Those of us who sit in an office and are healthy and still working will not be able to collect at all until al least age 70.

The Social Security income can still be reduced for earlier retirement and the less one pays into the system, but it would be much better macro-economically if the payouts are closer to parity. A poorer worker needs the money substantially more than a wealthy worker. This solution would help more workers than our current system and with more deserving workers having more for consumption activities; it would substantially increase the stimulation of the economy.

Instead of having a means test, it would be more advisable and easier to implement an adjustment to the taxation of the social security income. It should be 100% taxable for higher income brackets. It is currently at 85%. Thus, the less needy pays more back indirectly. This also helps the so-called insolvency problem.

Obviously our suggestions are general in nature. Appropriate economists can research the specific rules, numbers and ages at the time of the proposed legislation. But everyone wins. The poor and medically unfit receive more and the overall economy is improved, benefiting all.