Legislative Hearing on the Social Security 2100 Act

Ways and Means, Legislative Hearing on the Social Security 2100 Act, July 25, 2019

Like our FY2013 Budget Submission, we will offer our comments based on small to large ball games, adding no ball as well. 

The no ball solution is to believe the authors of Social Security: The Phony Crisis from the Economic Policy Institute. They point out that if we look at the Trustee likely estimates rather than the conservative estimates they are required to submit, there is no need to change the law at all and that the proposal to do so was mostly a sales pitch for personal retirement accounts. This is closer to reality than we need to admit, although it does nothing for the low benefit received by many beneficiaries. 

The small ball solution is the incremental approach in the Act. It is what most analysts regard as the easiest to pass. It adjusts benefits, the retirement age, the inflation rate used and tax levels. It is perfectly reasonable and will foreclose the need for more basic reform as part of a larger tax reform package, such as the one we offer, the latest form of which is outlined in Attachment One as part of our Large Ball solution. 

The medium ball solution is to increase the minimum wage to $15 per hour – or by the time it is fully implemented (and it should be more quickly than proposed) $20. This will not affect employment for most people, as their individual productivity is almost certainly more per hour than the new wage – only monopsonist profits will decrease. Since these profits are essentially economic rent and therefore, market dysfunction, there is no need to subsidize employers in any way.  

To increase benefits, simply consider the higher rates as wage inflation and readjust all prior work experience by this inflation. Combined with some of the tax rate adjustments in the proposed Act, raising the minimum wage will increase future revenues enough to pay for higher benefits. Shortfalls could also be made up by revaluing the Social Security trust fund as well, committing more future income surtaxes and Asset Value Added Taxes (as described in Attachment One).  

The large ball solution, which should include the medium ball solution, is to lower the OASI tax ceiling so as to lower benefits without bend points, move Survivors Insurance for non-retirees, Health/Affordable Care Act payroll taxes and Disability Insurance entirely to a Subtraction VAT or Invoice VAT as described in Attachment One. A floor is also added so that EITC payments are no longer necessary. The S-VAT will include much higher Child Tax Credits, to be distributed with pay rather than at the end of the year, and the higher minimum wage will end the need to subsidize low wage employers at the public trough.  

The S-VAT is used if personal accounts are included – not to shift Social Security funds to prop up Wall Street but to foster employee-ownership with its significant benefits in both productivity and control over the workplace, as well as cooperative consumption. The I-VAT will fund current retirees, making such taxes border adjustable, while the S-VAT funds the new accounts, if this option is taken by workers and employers (who in time will be the same) or will continue to fund normal benefits. 

The issues having to do with the benefits of employee ownership and the funding of personal accounts are described in detail from prior comments in Attachment Two.  

For employees who do not possess adequate skills to be productive at the new wage, paid training shall be provided (funded through the S-VAT) through either government or employer programs (the latter as a credit to the tax). Between this training and the higher CTC, both Temporary Assistance to Needy Families and Food Stamps can be abolished. Health benefits would be provided to trainees and employees through the S-VAT as well through the health plan of the provider, which may be Medicare for All or a Single-Payer Catastrophic Plan with an additional Public Option. 

The most important points are that, rather than raising income caps on payroll taxes, all value added for an employer is taxed, both labor and profit and, because there is no way to separate out individual income contributions to the tax, each employee will be credited the same amount – which allows for higher benefits without bend points. Such taxes also have no ceilings, so the S-VAT rate can be lower than both current law and the proposed legislation. 

Finally, a word on the Section 204, the Social Security Trust Fund. This is simply window dressing. The reality is that any trust fund balances must still be loaned to the Treasury and reimbursed with general income tax revenues or additional borrowing (which, given our current debt crisis would not be advisable, see Appendix Three). 

In our first submission to Congress in May of 2010, we addressed Trust Fund reimbursement issues. They are particularly applicable given the proposed funding increases in the subject legislation (which, if passed, would continue to have workers subsidize lower income tax rates for the few). They remain especially true today. 

When Social Security was saved in the early 1980s, payroll taxes were increased to build up a Trust Fund for the retirement of the Baby Boom generation. The building of this allowed the government to use these revenues to finance current operations, allowing the President and his allies in Congress to honor their commitment to preserving the last increment of his signature tax cut.  This trust fund is now coming due, so it is entirely appropriate to rely on increased income tax revenue to redeem them. It would be entirely inappropriate to renege on these promises by further extending the retirement age, cutting promised Medicare benefits or by enacting an across the board increase to the OASI payroll tax as a way to subsidize current spending or tax cuts. 

Attachment One -Tax Reform, Center for Fiscal Equity, May 22, 2019 

Attachment Two – A. Employee-Ownership, March 7, 2019 

B. From Hearing on the 2016 Social Security Trustees Report 

Attachment Three - Debt, The Future is Calling: It Wants a Refund, 2019