Save our Social Security Now
WM, Social Security, Save our Social Security Now, September 24, 2020
The reason for this hearing will be solved on January 20, 2021, or before if this committee acts to have any payroll tax holiday’s trust fund shortfall be credited back to the trust fund for later payment from the general obligation debt.
A payroll tax holiday gives money to those who are already working and is of no use to those who are not, especially in regions of the nation that must shut down due to not only higher infections, but higher hospitalizations and death rates. Most of the nation has weathered the storm. Rural America and especially the Midwest and the Great Plains have not, but are about to. God help us all, for this plague is coming at harvest time.
As Rahm Emmanuel once said, never let a serious crisis go to waste. We have a few ideas to improve Social Security in the short-term. The Subcommittee has received some of these before, but not all of them.
The first is a higher minimum wage, which will inflate wages and salaries for everyone below the executive level. Extreme executive compensation mostly comes from lower salaries and benefits for workers. Investors get little from such actions (nor do they suffer because of the reverse) because they reliably receive a normal profit from their investments, at least in terms of their industry. CEOs are overpaid; grossly so. They can afford the hit.
Franchise owners like to think of themselves as CEOs. They are not. They are simply less well compensated middle management to whom risk has been shifted. Their franchisors will cut fees if they wish to keep coverage in those business areas. Likewise, greater economic activity will compensate for any lost profit (with or without price increases).
The important fact is that, if wage growth is considered inflation, the retired and disabled can be given not only a Cost of Living Adjustment, but also have their income history rebased for inflation. Even with Chained CPI, such an increase will take the financial pressure off of many such households, including mine.
Higher benefits reduce the cost of other social services, such as Food Stamps, dual-eligible Medicaid and especially housing due to low benefit levels. It is a scandal that any retiree needs food or housing assistance. Such assistance should continue for SSI beneficiaries, whose benefit levels should also increase.
All of this will take pressure off of state budgets. Federalizing Medicaid for the disabled and retirees who require long-term care will eliminate all such pressure, as would adoption of Medicare for All.
Higher wages will pay for higher benefit levels in the long-term, although in the short-term the Trust Fund may be drawn down a bit more quickly. This will either drive up the public debt a bit or require an increase in taxes. Taxes are scheduled to go up automatically in 2025, although this January 2021 may accelerate that schedule.
A more robust change that would ease poverty among beneficiaries is to recalculate how payroll taxes are credited, as well as income ceilings for the payroll tax. As the attachment with our usual tax reform plan states, employer contributions to the old age and survivors’ insurance fund can be credited on an equal dollar basis.
A goods and services tax collected at invoice would fund this change (with corresponding increases in net income) or an employer-paid subtraction value added tax could keep net income constant for all but higher-income individuals. Higher salaries would be decreased to offset shifting from payroll to value added taxes. There is no ceiling on the latter.
A more equitable crediting of employer levies allows for a floor for lower income workers without a loss of benefits, the elimination of the Earned Income Tax Credit and corresponding increases to the Child Credit, which could be distributed through subtraction VAT through higher wages rather than an April 15th bonus (remember, higher minimum wages are part of the package) and a lower ceiling on the employee contribution. The lower ceiling would decrease the amount paid to higher income retirees without adjusting, if not eliminating, bend points.
An invoice credit GST would have the added benefit of improving our balance of payments. Other OECD nations offset such taxes at the border. The United States exacts an unconstitutional export tax by not doing so as well.
There is a rumor that a GST would be a new thing. It is not. Firms and sole proprietors who collect sales taxes deduct the sales taxes which they pay to states. Not having a federal GST is an implicit transfer to state governments. A federal GST would adjust that transfer to give the federal government a share of such revenues, all the while lowering payroll tax revenue. Such a change would be progressive, because payroll taxes are worse on that score than a VAT.
An employer-paid subtraction VAT also allows personal accounts in Social Security to be created at some later date. These would also be credited on an equal dollar basis and should only be used to invest in employer voting and preferred shares (with or without using an Employee Stock Ownership Plan) and in an index fund with the same share types to protect the retirement of employees. In bankruptcy, the index fund would be among the first creditors paid, although it would pay out more to retirees and employees than it takes in when a business fails. Current employees would see a balance transfer rather than a distribution.
Until the employee-ownership sector is expanded, personal accounts paid to such funds would not be created. The way to expand such funds is also mentioned in the attachment, that is, an asset value tax. Briefly, an A-VAT would bring collection of capital gains taxes, as well as other income from capital (rent, interest, dividends) forward to point of sale. This would end the portion of the tax gap attributable to the wealthy.
Employee-ownership would be increased if sales to ESOPs/COOPs and other broad-based retirement plans holding employer stock were zero rated, while marking sales after gift inheritance or option-exercise to market (rather than just appreciation). This incentive will jump start worker-ownership (and possibly cooperative purchasing of goods, financial and human services). Social Security would eventually be the insurance fund mentioned above. A backstop to employee-ownership as well as a separate income stream.
ERISA could be changed to allow retirees vote their shares (adding experience to the voting pool). Holdings in the insurance fund would be paid out to retirees and, upon the death of the worker, voting and preferred shares would be transferred to the insurance fund to fund a permanent annuity to survivors and to workers who have outlived their direct share payouts. Employees of non-participating companies would pay into and receive benefits from the insurance fund.
The end result of not letting this crisis go to waste is a secure retirement for everyone, but with much greater control of work by employees. Unions would come back in force, not to bargain against ownership, but to serve as a conduit for worker input to the operation of the employing firm, if such workers desire such representation. It adds a new meaning to organized labor, inoculating it from attacks by management. One of the great lost opportunities of the Chrysler bailout was not using unions for this purpose as part of the deal. Instead, influence went the other way toward management.
The last thing to consider is why Social Security is under attack. It is not just to subsidize Wall Street, although this is part of the deal. How the national debt, held by both the public and the government, at the household level, adds light to the discussion rather than heat.
Direct household attribution exists through direct bond holdings, expected income from federal retirement programs (especially Social Security) and through secondary financial instruments. Using the Federal Reserve Consumer Finance Survey and federal worker and Social Security payment and tax information, we have calculated who owes and who owns the national debt by income quintile.
Responsibility to repay the debt is attributed based on personal income tax collection. Payroll taxes create an asset for the payer, so they are not included in the calculation of who owes the debt. Calculations based on debt held when our study on the debt was published, distributed based on the latest data (2017) from the IRS Data Book show a ratio of $16.5 of debt for every dollar of income tax paid.
The following summary table shows a summary level distribution, using three income groupings rather than five. Boundaries between lower, middle and upper income are determined by dollars of Adjusted Gross Income received, rather than by number of households. This answers the perennial question of who is in the middle class.
This table also shows why the wealthy are more concerned with debt held by entitlement programs than market debt. It also shows everything one needs to know about Fiscal Policy in the U.S.
Note especially the ownership by class of bond holdings. The bottom 75% of taxpaying units hold no bonds at all. They do own the vast majority of federal retirement assets. The next highest 20% (the middle class), hold some, but not many of existing financial assets (Federal Reserve and Bank holdings are attributed based on household checking and savings account sizes).
The top 5% (roughly 8.5% of households) own the vast majority of non-government retirement holdings and collect (and roll-over) most net interest payments. This allows them greater leverage over time. It explains why tax cuts are desired, even if they increase the national debt, as well as why workers have been losing ground for the past 55 years (when the Kennedy/Johnson tax cuts came into effect in 1965). As importantly, this income grouping owns very little of retirement assets held by the government.
There should now be no mystery about why so many studies are funded and testimony offered on the upcoming crisis in future entitlement spending, while there are few on interest payments.
The punchline is, he who pays the piper, calls the tune.
The numbers in the last column do not add up, because they do not include non-retirement trust funds or debt held overseas, $4.2 Trillion of which is held by official accounts. A large portion of the remaining foreign debt is held in tax havens by the world’s wealthy. Debt in official accounts enables international trade, which benefits the top 5% of income earners.
SCF asset ownership figures are not calculated in greater detail than the top quintile, however, both debt and asset holdings can be calculated using the Pareto rule, which was derived from household income information originally. The original rule was the 80% of costs or income is attributable to 20% of the accounts or households. That rule is now 90% to 10%. To go back to 80-20, increase the minimum wage to reasonable levels ($20 rather than $15).
This means that for every set of households, the bottom 90% receive half of the income and the top 10% receive the other half. This ratio is applicable for the top 1%’s share of the top 10%, the top 0.1% share of the top 1%, etc., all the way to the amount of income received by the top 1400 households, or the top 0.001%. Note that in this table, AGI is expressed in thousands of dollars, so add 3 zeros. The number of returns, however, is not so adjusted.
posted by Michael Bindner at 1:00 PM
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