Impact of COVID-19 on Social Security and its Beneficiaries

WM Subcommittee on Social Security, Impact of COVID-19 on Social Security and its Beneficiaries, July 17, 2020

Social Security beneficiaries come in various shapes and sizes, from non-participation to those for whom it is a mere backstop to those at the end of life.

Care for the retired was provided by families prior to the establishment of Social Security. Extended families provided shelter, income and health care because they had to. Allowing seniors to live independently freed the nuclear family to move without taking everyone with them. 

Some families remain multi-generational for a variety of reasons, from tradition to immigrants whose seniors have no eligibility for the program. Such families may have heightened needs due to poverty and immigration status. Ignoring such families in the distribution of economic aid resulting from the virus and their continued lack of eligibility under the Affordable Care Act does society no good and likely is a cause of both economic harm and mortality.

While many in the public health community fear for the lives of these elders, it is possible that when all is said and done, living with school age grandchildren has likely provided some level of protection against the Coronavirus because they have been exposed to every cold and immunity challenge typical in such households. Ask the question of our medical experts. There has been too much panic and not enough real science on this issue. 

The same question arises for households of the disabled. Those of us with no children in the home are likely more susceptible to illness than those with them. Comparing health outcomes of COVID exposure could prove useful.

The vast majority of the disabled (especially those receiving Supplemental Security Income), as well as those retirees have no additional income. While distributing stimulus payments to them was not strictly necessary for them to meet their usual expenses, many are finding that expenses for food and transportation have increased in the pandemic. Most are quite willing and able to do their part in stimulating the economy, as almost all of these payments will be spent. Such households always have unmet needs.

The nation is experiencing a spreading of the pandemic in areas that were likely shut down too early. While the virus does not respect political boundaries, it does spread through human interaction from area to area. Had there been guidelines on when to close the economy, as well as those to open it, the prospect of another shutdown could have been averted. Now it is certain. Sadly, hindsight is 20-20.

As the majority of the nation returns to phase one (or even a more severe quarantine), the supply of money will exceed the supply of available labor and goods. This has already led to higher grocery prices. Given where the current outbreaks are occurring, the possibility of food price inflation is much greater. 

Higher prices will strain the vast majority of beneficiary households. In other words, they will soon need a raise. An annual cost of living increase will be too long in coming. Adjustments will be needed more frequently during the pandemic, either on a quarterly or even a monthly basis.

Some retiree households do have modest additional income which puts them beyond the $25,000 income limit. This limit has not been adjusted for inflation in decades. As part of both short and long-term reform, these limits should be increased to match the increase in the Standard Deduction which was passed with the Tax Cut and Jobs Act. Not doing so was an oversight. 

Such a reform would exacerbate the problem of getting stimulus payments to non-filers. There is an easy fix for this. The next round of payments should be distributed by the Social Security Administration rather than the Internal Revenue Service. Not doing so in the first place was an oversight. This oversight can be corrected for the inevitable next round of payments.

On the health insurance side, COVID has become no more or less inconvenient for most beneficiaries in comparison to the population at large, including for dual eligibles. The same cannot be said for the retirees themselves. We recently provided comments to the Subcommittee on Health regarding how COVID impacts dual eligibles in nursing homes near the end of life. These are attached. The same analysis also applies to assisted living and planned retirement communities.

The gist of our comments are that mistakes in disease modeling (particularly with regard to ignoring nasal symptoms), rather than early reopening, have caused the pandemic to reignite in areas that should not have been closed so early; and more importantly, that fatality is mostly due to compromised immunity as a result of wrapping our retirees in crepe paper and antibacterial soap. Too much hand washing, especially be caregivers, before the onset of the virus and segregation from the swarm of disease that is endemic to the modern world has not served retirees well. It should definitely not become the new normal or the next pandemic will be an extinction level event. 

Sadly, social cohesion among the medical community, which is abetted by the media, is not allowing such a view to be considered at present. Science has taken a back seat to policy.

In the long run, something must be done about OASDI benefit levels. An attached table shows how many will likely die by state when all is said and done

The inadequacy of benefits for poorer beneficiaries, and indeed for all without substantial savings, corresponds with decreased purchasing power for workers as a whole. This can be traced to the fact that the minimum wage has not been increased in a very long time. This also impacts all wages below the middle management level. Historically, unemployment has not increased when the wage goes up. 

For workers to rejoin the economy post-pandemic, not only must the increased unemployment compensation level need to go down from $2,400 per month over base benefits to about half that amount (which still results in an overall payment of $1,500 every two weeks); the minimum wage must be increased, ideally to the same level, if not higher. In the unlikely event that higher wages do result in job losses, paid adult literacy, academic and vocational training should be funded for all comers and their opportunity costs should be compensated at minimum wage levels.

As part of any increase to the minimum wage (which may bring many beneficiaries out of retirement), benefit levels must be rebased by the amount of the increase. Over time, this raise will pay for itself in higher payroll taxes, increased work and a growing economy. It will do all of those things that tax cuts promise but rarely deliver on.

Increasing the child tax credit and making it refundable will also make work worthwhile. Senator Harris suggested $3,000 a year. We would double this, inviting higher cost states to match the increase. This would bring wages to the actual cost of raising a child, as estimated by the U.S. Department of Agriculture. 

Long term changes will likely have to wait for the next Congress, but they must be made. Indeed, no member of either party can be counted as a friend of the poor or a friend of the unborn without taking such actions. Our usual tax reform proposals, which make increased benefits much easier to finance, are attached.

These proposals include adjustments to OASDHI contributions. The employee contribution will feature a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive. The employee contribution should only be retained if a tie between retirement income and wages is necessary to preserve broad based support for the program. 

There should be a floor to the employee contributions as well, which would obviate the need for an EITC, given higher proposed wages and a more robust child tax credit. To pick up the slack for lower income workers, the employer contribution would be credited on an equal dollar basis to all workers and funded through either an employer paid subtraction value added tax or a goods and services tax. 

The SVAT would be used if employees have the option of investing in a mix of employer voting and preferred stock and an insurance fund of other employee-owned firms. This fund prevents the loss of retirement income should the business fail. A culture of increased accountability to employees would make failure less likely. Contributions would be a credit to the SVAT. The credit would start small and increase until all workers are covered for the majority of their careers.

Firms with no employee ownership would not receive the credit. Current beneficiaries and older workers would be funded under a credit invoice goods and services tax. Using this tax allows for zero rating exports, which will bring the United States into parity with the rest of the developed world, who fund their social insurance in a similar manner.

Firms could accelerate their transition to full-credit status by funding all employee and retiree accounts (which should retain voting rights, unlike current law) as if they were in the program on day one. If this is done, current benefit levels should be a floor for all retirees, even wealthier one.

Currently, some households have plenty of money, due to substantial savings. These savings are enabled by higher incomes and generous tax cuts, rather than thrift. They should receive all of the benefit adjustments described above (from higher income exclusions and rebasing to employee ownership).  

Not doing so would jeopardize any reform at all, not because these beneficiaries have a moral right to equal treatment, but because they are among the most generous donors to political campaigns in both parties. Absent enactment of radical campaign finance reform, any thought of exclusion needs must be abandoned at the outset.

Attachment, Subcommittee on Health, Examining the COVID-19 Nursing Home Crisis, June 25, 2020

Attachment - Tax Reform, Center for Fiscal Equity, February 21, 2020