16 January 2005

There is a debate that is not taking place in the United States about the Social Security system. Although politicians on both sides toss around competing “facts” about whether the current structure has enough money to continue paying benefits until 2018-2019, or perhaps as far as 2042,[1] no one has opened a more fundamental philosophical exploration of what the Social Security program is and should be for Americans. (Even the Republicans, who desperately want you to think that they have done so.) Without re-assessing what people expect and need from a social safety net, the system cannot possibly be “fixed” for the long-term, and that is a discussion that is not taking place.

When the Social Security system was created as part of President Franklin Roosevelt’s “New Deal” program, the American economy was a wreck, unemployment was several times higher than it is now, and, because of a collapse within the American banking system as well as in the financial markets, many Americans lost whatever savings they had accumulated. Those who had work during the Depression likely had difficulty saving money for their future – while the many who did not have work at all found themselves with nothing, in their present or their future. It was within this environment that the Social Security system was devised by the Roosevelt administration, to address this problem by helping those who had nothing in the present and whose future savings had been wiped out.

That was – and should remain – the broad, underlying principle of Social Security: to provide support to those who need it, to ensure that no old or disabled person lives in absolute penury during their twilight years. But what began, ostensibly, as a social welfare program for those in need has evolved into a mock-pension program for all Americans, and an extremely ineffective one at that. This was not the true point of the system, and should not be our goal in the future. America has great wealth and prosperity, certainly enough that we should be able to take care of those who cannot care for themselves, while enabling those who can – those who have achieved financial success – to plan for their own futures as best as possible.

President George W. Bush’s desire (and evolving plan) to reform the Social Security system seems off-target and misguided, less for the intended rule changes in tax deductions and benefits than for the way in which he avoids addressing the underlying principles. By proposing a plan to privatize people’s “accounts” within the system, the Republicans want to push the idea of ownership, to instill in Americans the sense that this money is theirs, and that it is an opportunity for them to control their future – albeit in a manner still required by the government, but without the government’s guarantee. Inevitably, the burden when these private investment accounts do not perform adequately will be felt most heavily by those at the lower end of the socio-economic spectrum. In other words, poor- and middle-class Americans will be screwed once again by the GOP’s unending commitment to greater economic freedom for those who have already found financial success.

For the most part, the Democrats are no better at tackling this issue. To them, Social Security is tied directly into their party’s history – they are the party of Roosevelt, as they remind us frequently during such debates – and therefore, implicitly, the group that champions social welfare. Acknowledging, perhaps, that tax increases are politically impossible (even if fiscally desirable), and having been too weak to prevent President Bush’s profligate first-term tax cuts (or in some cases, complicit in supporting them), the Democratic Party is clearly now hoping to rally around Social Security not as a means of fixing the program’s funding problems but as a tool for boosting their 2006 mid-term electoral opportunities. No practical salvation will be found within the party of Roosevelt, a party of extremely committed limousine liberals.

Therefore, in seeking to reform – or fix; pick your verb – Social Security for the future, we should begin with some changes to how the system works, underlying reconfigurations that will ensure that it reflects more strongly on its origins as a “social safety net.”

For starters, the current benefits-for-all bonanza must be scrapped. In keeping with the idea that the system should provide support to the poor or disabled elderly, these should be the citizens who receive benefits under a revised Social Security system. Moreover, there should be means-testing, to determine who needs benefits and at what level – because the rich should not be receiving Social Security payments, period. In fact, let’s go one further and say that even moderately-wealthy and upper-middle-class Americans should not receive benefits, unless they drop from being wealthy or upper-middle-class and lose the funds they have saved on their own.

That sounds unfair, but consider the advantages they have already: wealthy and upper-middle-class Americans not only have more money by definition, but typically enter retirement with substantial assets at their disposal. They make better use of employer-driven savings programs like 401(k)s – because they can afford to – and they usually have enough funds left over to invest in other long-term assets. This is a class of people who should not need benefits under a system that encourages them to save adequately for their future, and one that does not penalize them for doing so. Moreover, while wealthy Americans have likely used the benefits of their recent tax cuts to investment more money for their future, for their children’s education, for retirement, etc., lower-income Americans will most likely have used their tax cuts to help off-set near-term costs.[2] One area where President Bush is on target is in believing that we should expand tax exemptions for long-term savings (for all Americans, regardless of income level); but at the same time, we must also exclude from Social Security benefits those whose own nest eggs provide for their retirement and for whom government support is a nice-to-have, not a need-to-have.

This is not an “equal” solution, in the sense that it discriminates against those fortunate enough not to need government assistance. But it is absolutely “fair” in determining that those who deserve benefits should be those who need benefits. An analogy is to the unemployment benefits system. All American workers contribute to the pool of funds that helps support those who lose their jobs, as part of a mutual insurance program: if you lose your job, there will be funds available to help you. However, not all Americans receive unemployment benefits, and many never need such assistance in their lifetime. Social Security should operate the same way, helping those whose eligibility is defined by their need.

Likewise, the Social Security system should retain the current method of indexing benefits to wages, rather than adopting the Bush administration’s proposal to peg benefits to consumer prices. Working Americans who will be relying on Social Security income in retirement should not have their benefits cut (the almost-certain impact of this change) when – so often – their existing wages are already barely enough to support them and their families. Moreover, by removing benefits for richer Americans, there will be more funds available to support adequately those Americans who need Social Security assistance. (Besides, what are all those wealthy, Republican, small-government advocates doing taking government handouts anyway? And rich Democrats should know better than to take money that could otherwise be used to help pay benefits to those in need!)

Again, on taxes, the division of funds also needs to be re-assessed, to create a better balance between near-term tax revenue and long-term support for Social Security. It is essential that the Social Security system move from a pay-as-you-go system to one that actually holds funds in trust for future generations. This is possible: by continuing to require Social Security taxes from all, but reducing the tax costs of private savings at the same time. Doing so would mean a loss of tax revenue for the government in the near-term, but this is what the Republicans say they want anyway; yet it would also preserve and protect Social Security benefits for the future, which is what the Democrats want. And consistent with the philosophical approach that it is those who need help who should be helped, a reduced tax burden on savings will help everyone who can save to save – which will in turn help to reduce the number of Americans for whom Social Security is their only income, and perhaps reduce the number who need such government support at all.

The United States of 2005 is not the same country it was in 1939, when Social Security was created. Then, the “New Deal” was a radical reevaluation of the role of government in supporting and sustaining the health and welfare of Americans, particularly those at a disadvantage. One Republican counter-argument to the idea of preserving government support programs at all is that they disincentivize private initiative: why save for the future if the government will do it for me? But as all-too-many elderly Americans would surely tell you, Social Security is no get-rich-quick scheme, especially when many of the other costs of old age – such as health care – are considered. Nor has the existence of Social Security, welfare programs, unemployment programs, or other forms of government assistance done anything to inhibit wealth-creation in the United States. Is there any doubt that we as a nation are many times richer than we were in 1939?

What has not changed since the Great Depression is the reality that there are, and probably always will be, people who do not and cannot earn enough money to support themselves under our economic system – and who do not and cannot save enough to ensure their basic needs in old age. With so much attention focused on Social Security right now, America has an opportunity: to create a nation where saving for one’s future is encouraged rather than penalized; where one definition of success would mean liberating one’s self from the need for government assistance; but where those in need would always, and without reservation, get the help they need and deserve.