Suggested Economic Reforms
By Roy Eaton
I can not, in good conscience, suggest modifications to Social Security without first addressing the reform recommendations announced by one of the most prestigious group of influential business men in America, The Business Roundtable. The roundtable, which consists of CEOs of the largest corporations in the United States, and represents roughly 33% of the total value of all U.S. stocks, recommended last week that the current age for Social Security and Medicare be extended to 70 for Americans currently under age 55.
It is ironic and disgraceful that several of the CEOs of companies that received generous taxpayer subsidies or bail-out assistance during our economic downturn, which several of them helped to create, are members of a roundtable that recommends delaying payments of benefits to which taxpayers are entitled.
Big businesses often refute big government for the establishment of social programs which benefit the public and are funded with taxpayer money. However, when their survival is threatened, these same companies believe in social corporate welfare. Business and worker well-being are interdependent, for the economic health of one is contingent upon the other. They are not synonymous though, for the value we place on life and the welfare of our society and country should far exceed the worth placed on the corporate sector.
I would like to think the roundtable’s recommendation simply lacks insight, but I believe this is merely another illustration of corporate greed and indifference. It demonstrates callousness toward the American worker and the plight of the less fortunate; one more instance where the wealthiest among us often have the least compassion for their fellow man; one more example of big business’s embracement of Darwin’s theory of “survival of the fittest.”
The roundtable’s recommendation should not be surprising, for most corporations have stopped funding company pension plans, have reduced or eliminated matching 401K contributions as well as contributions for employee health insurance. There is no doubt that our nations CEOs are bright and resourceful. However, their endorsement expresses little empathy toward the less fortunate and illustrates their collective lack of understanding of the economic hardships most breadwinners of middle age middle families currently endure. Perhaps they would think differently if they lost their obscene salaries, often inflated fifty to a thousand times that of the average worker, and lost their ‘golden parachutes,’ either of which eliminates their need for any form of social safety net.
One must begin to question whether the welfare of the corporation has become far more important than the welfare of our nation and its people. I realize that business provides jobs that enable families to acquire the necessities and luxuries to sustain and enjoy life. But workers provide a valuable service and should be treated with dignity and respect and not regarded as disposable objects that can be replaced easily, even during a time when there are far more workers than available jobs.
It is unjust for CEOs to make recommendations that affect the distribution of income and benefits earned decades before many of their companies were formed. It is also unfair that credence be given to any proposal coming from any sector within the economy that is governed solely by its bottom line.
There is no doubt that our nation’s indebtedness threatens our dollar and the sovereignty of our great nation, and that decades of complacency, unfettered capitalism, and government incompetence have made long term funding of our pledged entitlements unsustainable. However, unlike the roundtable’s recommendation, solutions for reform must be fair, comprehensive, and implemented over an extended period of time, an approach that the corporate sector dislikes and neither party in Congress seems willing to address. No one generation should be required to immediately bear the entire burden of restructuring, especially one that has contributed over a prolonged period of time and has the least number of years to recover from reform. If we were to follow the roundtable’s proposal, a 55 year old worker with 10 years of service can retire with full benefits at age 67, while a person at age 54 with 35 years of service, would have to wait another three years to retire at age 70.
Also, it is immoral to unfairly penalize those approaching their mid-fifties, who face age discrimination seeking work, and are sandwiched between helping their children and assisting their aging parents.
It is estimated in its present form, the Social Security Trust can fully fund withdrawals until the year 2036, after which it will be able to fund only 75% of guaranteed incomes. To cut costs and build reserves that will protect the integrity of the Social Security Trust, I am recommending several incremental changes to Social Security that will address both the revenue and expense sides of the economic equation.
Social Security Reform
I realize that Social Security is not a personal investment account, although it could have originally been set up in such a manner with funds being automatically invested in government securities. Instead, the trust was devised to provide a safety net for retirees, their spouses and children, and the disabled. It is a sound program with nearly 99% of revenues being paid out in benefits. Although our indebtedness may force program reform, it is not Social Security that is bankrupting the system. It is the system that is bankrupting Social Security.
There is a misconception that funding for this program is insufficient due to the increase in the life expectancy of the worker and because retirees outnumber contributing workers. This is not the case when applied to the working spouse, for if one were to calculate the average worker and employer contributions for a current 66 year old from age 21 over a 45 year work-span, invested in government bonds and treasuries, the principal would, most likely, far exceed a million dollars. Even at a payout at today’s historically low 30 year bond interest rate of approximately 3%, the annual amount paid to a recipient would exceed $30,000 a year without touching or annualizing the principal. However, the stay at home spouse is another matter.
Some economists say current funding is insufficient, because stay-at-home spouses, who have not paid directly into the program, are dramatically diminishing the funds by receiving retirement income based on their working spouse’s earnings. I fully understand the importance of having a stay-at-home parent during the most impressionable years of childhood. But, under current regulation, a stay-at-home spouse could theoretically collect a greater retirement income under their working spouse, than a person who worked a lifetime with a far lower income.
Current regulations require that a worker complete 40 quarters of work (10 years) to be eligible to receive retirement income under his or her own merit. I do not believe it is unreasonable to ask both family members to qualify under their own work history.
If either spouse chooses not to accumulate the required 40 quarters, than the working spouse should have the option of paying an additional payroll tax of 50% (not matched by employer) for each missing quarter needed to qualify for spouse eligibility. This would affect all Americans under the age of 35 who have not accumulated 40 quarters of credit.
A good number of Americans who believe in a progressive income tax code also believe in expanding the payroll tax limitation, because they believe the current tax is too regressive for it favors the wealthier taxpayers who do not have to contribute after they have reached the current threshold of $113,700. If the majority of Americans believe their contributions entitle them to an amount commensurate with what they and their employers have contributed, then an argument could be made that such an increase should proportionally raise the income amount to which the wealthiest are entitled.
To avoid any implication of a double standard, I would continue to increase the current limit, but would tie it to the inflation rate, and proportionally base future earnings on contributions. Because of the indecent and unsustainable growing disparity between the ultra rich and remaining population and the extraordinary large number of ‘baby boomers,’ who will be drawing retirement incomes over the next thirty years, I do not believe it is unfair to levy a thirty year 3% surtax on annual incomes over one million dollars to increase revenues directed to the trust.
Should our legislature change our tax code to a non-progressive flat tax, then I believe the payroll tax should be replaced with a flat tax. Employers would match earnings to our current threshold, but the ceiling would be removed on employee contributions, resulting in a 6.2% payroll tax on all income. And, a new income formula should be devised for income distribution based solely on the number of years worked rather than on the dollar amount contributed.
The current age for full retirement eligibility for a worker should be progressively raised from 67, the current age for one born in 1960 or later, to 70. Instead of the plan proposed by the Business Roundtable that substantially affects those under the age of 55, I propose a far more moderate approach.
One additional month should be added to a workers retirement age from year 55 down. For example, a 55 year old would retire one month later than expected, a 54 year old, two months later, and a 19 year old, three years later, at age 70. This incremental increase over a 36 year period of time is incremental, less punitive, and much fairer, for it allows adequate time to prepare for retirement.
Workers having obtained 40 quarters of credit should remain eligible for partial Social Security withdrawal at age 62. A formula must be devised to determine the portion that will be received at age 62 based on income earned, employer contribution, age, and the number of years worked.
Currently, a non-working surviving spouse receives 71% of the working spouse’s death benefit at age 60, and 100% at full retirement age. I believe that the surviving spouse should receive 100% of this accrued benefit at the time of the working spouse’s death regardless of age.
No changes to Social Security eligibility should be made unless future funding is secured in an irrevocable guarded trust earmarked solely for the preservation of funds for their intended purpose.
Additional Suggested Reforms to follow in next issue.