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SOCIAL SECURITY: FROM SCAM TO SCANDAL IN 65 YEARS


Doug Dowd

Of

course it’s been better than nothing, considering only the great number of old

and survivors it has kept at or above the poverty line; or so we are told. But

at least two points: about 40 percent of families over 65 have an annual income

of under $15,000 (only a bit over the official poverty line), including

benefits; only about 30 percent have an income over $25,000:repeat, including

benefits. That is, over two-thirds of families over 65 have an annual income of

under $25,000.And then one must consider how poor you have to be at or under the

poverty line

Like

social security itself (as will be seen), the "poverty line" suffers

from congenital defects. It was set in 1964, as new prez LBJ was seeking to put

his "war on poverty" together. He needed a definition of poverty if he

was going to war against it. After a lot of scurrying around, the line was set

at $3,000 for a family of four. The basis for that figure — I kid you not –

was a modification (downward) of the amount estimated by the Office of Civil

Defense ($3,995) as necessary for a family to get by in a post-nuclear attack

world: one-third for food, one-third for rent, the rest for bandages. (Only the

last part is my joke.) Since 1964, believe it or not, and despite economic hell

and high water (especially of rents for low-income families), the basis has

remained unchanged (in inflation-adjusted dollars). So, what began as a cruel

farce has descended further into deeper tragedy.

To

which it must be added (and here again, our social security comes off badly)

that in Western Europe a family is deemed to be in poverty when its income is

less than half of the national median. Were we to adopt that standard, the

percentage of U.S. families in poverty would rise by 50 percent. The median

family income here is about $40,000; that leaves something like half of social

security beneficiaries living in poverty. Still better than nothing, of course:

two cheers for social security.

Let’s

make that one cheer. In what follows we set aside the indecent probabilities of

ongoing privatization and and crisis proposals, of which much has been said in Z

and elsewhere. Instead, our focus will be on the original Social Security Act

(1935).Of its many defects, the two examined were two sides of the same coin.

The metaphor is apt, for the 1935 legislation was not about security for all,

but money: who would pay the least as a percentage terms of their income and get

the most in dollar benefits after retirement. The main means for insuring that

was the adoption of payroll deductions to finance benefits. It was a bad start;

just how bad jumps out when you look at the details. .

Congress

couldn’t have been expected to hew to the standard

"from

each according to ability, to each according to need." But there must have

been some who knew that the Founding Fathers assumed that the costs of

governmental activities should be borne — as they quaintly put it — by

"ability to pay."

Ability

to pay was stood on its head in the Social Security Act (and "need"

ignored as though it were a four-letter word). In all other industrial

capitalist nations the financing of governmental pension programs is from the

general fund, itself built upon a tax structure of one degree or another of

progressivity (that is, where not just amounts but also rates go up in terms of

ability to pay). The Act of 1935 provided a) for financing on a 50-50 basis,

half from worker, half from employer, and b) that benefits would be

proportionate to their contributions.

Sounds

fair, until an even closer look; therein we find the sweetest kicker of all (if

you’re well off). Payroll deductions are structured so as to be regressive; that

is, the opposite of "ability to pay": payroll deductions are now at

7.65 percent of income — up to a maximum of $62,000.After that, nothing. So:If

you’re at the median income of $40,000, you pay $3,060.But let’s say you’re

doing pretty well, making $62,000.You pay $4,570.Or you’re doing a helluva lot

better, at $620,000 a year. You pay $4,570.And $6.2 million? Also $4,570.Fair’s

fair.

In

a nutshell, the worse off you were while working, the worse off you will be when

you stop working (even worse, of course, for there is no longer your wage);

symmetrically, the better off you were, the better off you will be. Put

differently (and more to the point), the more you need the less you get; the

less you need, the more you get. And that’s not all of it: in a definitive

Brookings Institution study of 1972, The Payroll Tax for Social Security) (by

senior statistician John Brittain) it was established that employers on average

– by hook or by crook — manage to deflect half of their contributions to the

employees, whose effective rate is thus closer to 12 than to 7.65 percent — and

that was before the shift to the Right began.

How

did such a lousy law get written? Well, the "Second" (or liberal) New

Deal was just a-borning in 1935, with popular discontent and organizing taking

place both left and right of center. The main writer of the legislation was a

nice enough professor, Edwin Witte, of U. of Wisconsin (I knew him years later).

He began with a justly-financed social security program, but soon was convinced

that if a decent social security bill were proposed it would never get anywhere.

Remind you of Clinton and health care? As with Clinton in 1993, et seq., so it

was in 1935:that is, with some good leadership from the "bully pulpit"

and from labor (and economists), et al., something much better could have been

accomplished with social security and — very probably — with much else. The

easy way was taken, paving the way for subsequent compromises.

Among

the latter was that the Act didn’t even apply to a large percentage (the

neediest percentage) of those in agriculture, retail and other services, etc.

However, it was better than pre-1935; Clinton’s Compromise on health care meant

matters would become worse than before 1993.But he feels our pain.

The

Act of 1935 was hotly-opposed by the insurance companies: their slogan was

"all the security you want, as long as you can pay us for it." Now

they are joined by all of Wall Street. During the depression Wall Street had

ceased to be a big player in politics; now it’s the biggest. They want as many

as possible of those countless billions of contributions to keep their bubble

expanding. They’ve been willing to pay for what they want, and they’re getting

their way — not just in D.C. but, via the media, in the "hearts and

minds" of Mr. and Mrs. America.

There

were better alternatives in the 1930s, there are of course better alternatives

now; those alternatives organized for and put forth from the bottom up. Not just

the financial sector, but all of business wants to "commodify" social

security and everything else — you get what you pay for — except what butters

their own bread. But that’s not the end of the problem: Congressional incomes

put them in the top 10 percent of the population. Add perks and (for many)

investment income, and (for almost all) what might indelicately be seen as

bribes, and what you have at the top of income, power, and wealth may produce

some kind of trickle down to the rest of us; but what’s trickling is not orange

juice. All of which applies to health care also — among other matters — in

that they have legislated for themselves and the military not only marvy

pensions, but even marvier health care.

What

might a reasonable alternative be? Suppose we cannot now take the very large

jump of getting ridding of the payroll deduction. OK. So, we fight to turn it

rightside up: exempt all those from payroll deductions whose incomes are below

the family median of about $40,000; tax all incomes above that on a roughly

progressive basis: e.g., 1 percent for the first $10,000 above the median, 2

percent for the next you name it amount, and up to a maximum of, say, 7.65

percent, over $100,000, going down to a minimum of 5 percent over half a

million. And disallow any benefits whatsoever to those whose incomes have been

in excess of (pick a number) $250,000 for the preceding 10 years. (This is

getting to be fun.)

Move

the rates around as one might, a little more here, a little less there; so long

it were progressive, the poor (or not well-off) who had never made a

contribution (or very little), would be assured of benefits set by what would

keep them in (let’s call it) a secure and healthy zone, until death did them

part. And the rich? Ishkabibble. They’d still be rich.

Unrealistic?

Impossible? Depends on us.