Bipartisan Retirement Legislation

Finance: Building on Bipartisan Retirement Legislation: How Can Congress Help?  July 28, 2021

The title is a bit ironic. Only Congress can build on retirement legislation. Whether Congress is helping or not is the open question. Gridlock is not helping, although sometimes doing nothing is better than faux bipartisanship that makes things worse. 

The current structure of Social Security found its genesis in the 1983 Greenspan Commission, which resulted in a Social Security Trust Fund, which raised taxes on workers for their future retirements while avoiding the repeal of President Reagan’s signature tax cuts.

Many think tanks of a certain ideology hint that we cannot afford the burden of retirement spending as repaying trust is a budget buster. It is not. Certain people simply must pay what they owe. Whatever the future of Social Security, for the present, the burden of repaying the Trust Fund is on the wealthy, not current or future retirees. The bill is now coming due and those families who received the benefit of this plan owe the rest of us some money. 

Truth is more important than bipartisanship. 

The 1990s found us in a pension crisis. Actuaries sold the nation on the belief that pay-as-you-go pensions were not adequate. Investments must be fully funded. This led many companies to stop funding their plans altogether, shifting funds to defined contribution programs. As fortune would have it, the financial sector had many ideas (and products to sell) to fill this need. It is almost as if the actuaries had been talking to those who created the new regime.

Bipartisan reforms of late have been an effort to strengthen this regime. They have been good for many retirees. Most retirees, however, were not able to afford to make the required savings because their incomes were not adequate to do so. By most, I mean the vast majority. Few workers have the economic clout to insist on wages high enough to adequately save. Those who do are bedeviled by the need to “hit their number.” Job one in doing this is to control the income and benefits of the non-professional class.

The only thing that saves most retirees and the disabled is Social Security. It is not currently adequate. Before the Reagan Revolution, the National Commission on Social Security did its work, releasing its recommendations in 1981, which were rejected out of hand. The report is available at https://www.ssa.gov/history/reports/80commission.html. The Commission found that the best way to assure retirement security is to build it around, not away from, Social Security.

The Commission noted that savings would not have increased were it not for the program. Like now, the economy was a concern for solvency. The Pandemic may be duplicating those economic conditions, especially if the Fed starts to fight inflation.  The declining birth rate was a concern then. It still is. One thing that is different is that productivity was stagnant the decade before. It is not stagnant now (although the gains have not been shared.

They proposed a higher retirement age (eventually passed), general funding (which is now programmed in as the trust fund is paid down), independent funding of Medicare, Medicaid, Disability and SSI under a separate agency, (trust funds have met with limited success) and other recommendations for 88 in total. Their OASDI trust fund was only for a year. More than a few of their recommendations deserve a second look, particularly with regard to healthcare and disability insurance.

We cannot turn the clock back to 1981 (or November 1980). This does not mean that we are without options. Committee members and staff are likely familiar with our proposed solutions. The tax reform plan to enact them can be found in our first attachment. We will refer to it in the text.

Our first task must be to increase incomes for workers and retirees.

The President’s Budget features a permanent increase in the Child Tax Credit, retaining the refundability added as part of the American Rescue Plan Act. The CTC is the ultimate in bipartisan legislation. Both Republicans and Democrats have added to it, although only now has it become refundable for smaller families. It is still not adequate.

Making these reforms permanent and increasing benefit levels further should be seen as bipartisan as well. As we have pointed out (because our Center has a religious bent), higher incomes for families are one of the most effective ways to reduce the number of abortions. We call upon the U.S. Conference of Catholic Bishops and the National Right to Life Committee to make doing so a required vote to maintain a perfect pro-life voting record.

If we want people to save for retirement, we must make sure that they can also eat and have adequate housing and medical care. Higher incomes achieve both of those goals (while the latter is outside the scope of these comments).

Our tax reform plan, specifically the Subtraction Value Added Tax, details how the Child Tax Credit can be paid out without turning the Internal Revenue Service to society’s pay master. Payments through the IRS are a temporary expedient, but this is likely too much government for Republican members to support on a permanent basis. Distributing benefits through other government payments, such as Social Security, Unemployment Insurance and TANF training stipends and through wages (as an offset to either the subtraction VAT or quarterly payments to the IRS) is more likely to stand the test of time.

Our second attachment addresses how to raise the minimum wage and why this is essential for retirees. Enacting these changes must be a required vote for ratings by the American Association of Retired Persons and other retiree coalitions.

Our second task is to reform how Social Security taxes are collected.

Disability Insurance, the Employer Contribution to FICA and Supplemental Security Insurance should be decoupled from wages and credited on an equal dollar basis. Our first attachment explains how this can be done through tax reform. Doing so could be funded by consumption taxes in three ways.  

Our (Credit) Invoice VAT will increase the competitiveness of our exports and protect worker jobs while decreasing employer costs. Our Subtraction (Net Business Receipts) VAT is useful if options include personal accounts holding employer voting and preferred stock (but in no cases should it be invested in the stock market). Our Asset VAT is appropriate for funding the repayment of the Social Security Trust Fund.

Each of these proposals (all of which can be used) burden the entire economy, as well as investors, who have had the benefit of worker productivity, especially that part of productivity which featured the destruction of unions and limiting pay and benefits for all but the top 10% of households. There are no caps to increase with these taxes and they can be adjusted more easily than payroll taxes (which are regressive).

Our third task is to move toward employee ownership, which allows a return to defined benefit compensation.

Our Asset VAT can be enacted as a replacement for estate (death) taxes and capital gains and income taxes (including dividends, interest, rent and pass-throughs) through personal income tax filing. Corporate income taxes and business taxes collected through individual income taxes and all but the highest taxes on salaries would be shifted to our subtraction VAT. The Asset and Invoice VATs are superior to Wealth Taxes because they are impossible to dodge. This also makes them superior to the Estate Tax.  This is described in detail in our first attachment. 

The key feature of the Asset VAT would be an easier path for shareholders to avoid taxation on sales to qualified Employee Stock Ownership Plans. This benefit is available to only a small number of business owners. It should be available to every investor and heir. It would not be paid by inheritors until they sell the family business, farm or share holdings. ESOP sales allow them to avoid taxation altogether (except when purchasing new shares or spending the gains).

Employee-ownership is real liberty for workers. Capitalist ownership fosters an authoritarian workplace, not a libertarian one. Being paid to obey is not freedom. Any libertarian worthy of the name must recognize this.

The 2017 tax reform brought capital gain and profit taxes into a small range. They should be set to a single rate rather than being debated with each change of administration. When net interest payments on the debt become less workable, this is one of the taxes that would be increased, along with a high salary surtax (which could be collected through tax prepayment bonds for a quick buy-back). 

We must put our fiscal house in order. It is the most important thing we can do for retirees.

Attachment - Tax Reform

Attachment - Raising the Minimum Wage to Raise Retirement Income