Social Security FY25

WM: Joint Social Security and Work & Welfare Subcommittee Hearing with the Commissioner of Social Security, Martin O’Malley, March 21, 2024

Finance: The President’s Fiscal Year 2025 Social Security Administration Budget, March 20, 2024.

General Approach

For obvious reasons, this year will be more hectic than the last. The budget and appropriations process needs to be simple. To do this, please just pass a consensus caretaker budget with two draft partisan supplemental bills, one of which can be enacted during the Lame Duck Session or at the beginning of the next Congress for the President-Elect to sign upon taking office, depending on who wins. Details are provided in our comments to the full Ways and Means Committee on the HHS budget.

If such a budget is enacted, use it as the basis for spending caps for a new Budget Control Act. Make the targets realistic and self-enforcing for purposes of Appropriations Committee allocations. 

Contingencies

In the event the majority in the House shifts due to early retirements or insurrection indictments, the Senate majority and the House minority should have legislation ready to enact a Public Option, including reconciliation instructions for the FY24 budget year. Details are provided in our comments to the full Ways and Means Committee on the HHS budget.

Any change in control will only last through the special election cycle, this should be the second priority. The first must be amending the Electoral Count Act and the jurisdiction of the Ethics Committees to provide for the enforcement of the Fourteenth and Twentieth Amendments, including provisions for removing any such disability for members and/or the president-elect.

The President’s Budget

The submitted budget strengthens Social Security in a way that ensures no benefit cuts; extends solvency by asking the highest-income Americans to pay their fair share; and improves financial security for seniors and people with disabilities. These priorities have not changed to a great extent.  We will address these proposals in the order presented by OMB.

Social Security 2100 is the current “school solution'' proposed by the Democrats. I hope that it clears both chambers, preferably on a bipartisan basis. However, as I mentioned in my 2019 comments to the Social Security Subcommittee, we can not stop because we have made the numbers work.

America Needs a Raise

Too many of the retired and disabled Americans (myself included) find it hard to make ends meet. The savaging of pension rights has made a decent retirement a rarity, as it is impossible for workers to both save and feed their families. 

More is needed than simply reinforcing the status quo. Work must pay enough for workers to put money away, as the three-tooled retirement model requires. Note that an employee-ownership model would restore pensions and end the need for such furniture.

The President’s proposal to restore the Child Tax Credit, which has already been passed by the House, is a major step in that direction. It is one of the two things that must be continued to meet our sacred trust for their retirement, as well as their present well being. 

So that no one will simply use fecundity for their incomes, minimum wages must be increased for present workers. Current retirement, survivors, disability and unemployment insurance and minimum wage levels are inadequate. America needs a raise, which should be adjusted for inflation on an annual basis. Twice the current level, but with a shorter work week (and work day) would eliminate the incentive to cut work hours for lower wage employees to avoid paying benefits (as well as improvements to how healthcare is funded, which is a whole other subject).

Unemployment, retirement  and disability insurance should at least match increased minimum wage levels on a full-time basis (but assuming  26 hour work week). This means that the minimum benefit, not the average, should be at least $1,600 per month. 

The median benefit needs to be high enough so that no one who is disabled or retired requires either Food Stamps or housing subsidies to meet basic needs. Upwards of $2000 per month is necessary, especially as the vast majority of retirees do not bring large retirement funds with them into old age, and certainly not into disability.

Payments to dependent children for survivors and the disabled should be abolished and replaced with an enhanced CTC at the $1,000 per month level.

To increase benefits for retirees and the disabled, consider the higher minimum wage 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. 

The Federal Role in Causing Inflation and Inequality

Households making under the 90th percentile have been losing ground for almost half a century,while incomes above that amount have increased on a regular basis.

The source of inequality, aside from abandoning the 91% top marginal tax rate, is granting raises at an equal percentage rather than by an equal amount. When the 91% rate was repealed, incomes were fairly equal, so it was not an issue. 

The federal government plays an outsized role in how salaries are determined through percentage based cost of living adjustments to government workers, beneficiaries, government contractors. The government can change this with the stroke of a pen.  The private sector will follow suit with a higher minimum wage, adequate child tax credits (as described below) and paying individuals in training from ESL to community college the minimum wage to pursue their studies.

From here on in, adjust for cost of living for federal employees and contractors on a per dollar an hour rather than on a percentage basis (or dollars per month or week for federal beneficiaries). Calculate the dollar amount based on inflation at the median income level. No one gets more dollars an hour raise, no one gets less dollars per hour in increases. Increase the minimum wage as above and consider decreasing high end salaries paid to government employees and contractors. Even without decreases, simply equalizing raises will soon reduce inequality. Why is this necessary?

Prices chaise the median dollar. The median dollar of income is actually at the 90th percentile, rather than the 77th percentile (which is about where the median is). This strategy will reduce inflation in both the long and short terms as prices adjust to decreases in higher salaried income.. Let me repeat this - prices chase income dollars, not income earners. 

Raising Adequate Revenue

The President proposes that we raise the income ceiling to collect more money even though this would increase benefits to the wealthy. I propose that Congress lower the OASI tax ceiling so as to lower benefits with less drastic bend points, move Survivors Insurance for non-retirees, Health/Affordable Care Act payroll taxes and Disability Insurance entirely to a Subtraction VAT or Credit Invoice VAT as described in Attachment One - Tax Reform. A floor is also added so that EITC payments are no longer necessary. 

The S-VAT will pay for increasing the Child Tax Credit beyond what the President proposes, 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 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.

In 1998, when I participated in on-line discussions on Social Security personal accounts, I brought up the necessity of doing this. This idea raised the hackles of the privatizers much more than their desire to take advantage of riskier investment strategies. The best way to kill talk of private accounts is to introduce redistribution on the front end and give organized labor proxies to vote worker shares. 

Finally, a word on Section 204 of Social Security 2100 regarding 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.

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.  

Increasing Affordable Housing Supply to Reduce Housing Costs

We disagree with the President’s proposed subsidies. The best cure for housing affordability is higher income. The President’s budget is on the right track regarding the Child Tax Credit. I would treble down on his amounts and distribute these funds through Old Age, Survivors, Disability and Unemployment Insurance payouts or with wages. 

Urban renewal, which relocates poor and largely non-white people, leads to redevelopment that chases the 90th percentile. The tax incentives in the President’s budget are exactly the wrong approach. Instead, reform the entire tax system so that most families do not have to file income taxes. By most, I mean 99%. 

A Radical Change to Entitlement Spending

This is a new idea that deserves mention, just to think about for the future. There are many proposals to maintain incomes as technology eats jobs (although ChatGPT is not the demon we thought it was). Among them are a social credit payment, Kelso and Adler’s Two Factor theory and Len Burman’s proposal for a Universal Earned Income Tax Credit. The last makes the second tier economy permanent where now it is simply an ad hoc affair. It also does nothing for those with inadequate training.

Disability Insurance is hard to get and this dissuades getting off, regardless of programs such as the Ticket to Work. Making it easier to get some kind of benefit after normal unemployment without a disability filing and the associated lawsuit will encourage work and end reporting requirements to claim extra income. When income appears in the system above a certain level, give notice that benefits will stop - and an added bonus for doing so.

There is a large leaky bucket in social services at large and for disability insurance in particular, employing an army of social workers who would rather be doing client care than pushing paper and making determinations of whether the employer or employer was responsible for job loss and whether a family is entitled to benefits or not. There is another army of lawyers who fight disability claim denials and tax preparers (and revenue agents) that process earned income tax credit claims.

There is another army of tax avoidance professionals whose main product is tax minimization for upper middle class and wealthy families by selling retirement accounts and whole life policies (on commission).

There is yet another army fighting a losing battle against homelessness with public housing and hard to get subsidies ,with another who capitalize on these programs by offering substandard housing.

These armies include taxpayers in their battle plans. We can redirect these efforts with a few simple changes.

Unemployment and disability insurance can be "no fault" and paid automatically with a few simple steps to minimize fraud (multiple collections). They also need to pay more, as does baseline Social Security (which eighty percent of retirees rely on as their soul income).

Children can be provided for without Food Stamps or EITC paperwork or a parent on disability, or by being diagnosed themselves.

The system can also end the exploitation of the "working poor" who, with remedial education can learn themselves out of poverty to the extent that they are able, and who require a low tier economy that provides cheap goods and convenience food. The thing that gets in the way is the opportunity cost of not working to go to school. Including taking ESL.

Long-term unemployment insurance is offered as an option. There should not be an end date and should equal what is paid for a full-time, minimum wage job. This rate can be set at the level paid to retirees, as this level of income is at about that level anyway. 

A stipend at this level can also be paid to students who are old enough to work through college or technical training - with all such training and education provided free of charge, ending the need for student loans and other grants and the process for administering them.

A refundable child tax credit, paid with wages, stipends or benefits ends the need for the EITC, SNAP, TANF and disability and survivors payments funded through Social Security.

Unemployment benefits are intended as an incentive to keep staff, although avoiding them has resulted in a wasteful system of punitive human resource policies to fire people for cause. Giving employers a refundable offset mitigates these incentives and results in their referral to other payers, especially schools, who would take over plan administration (rather than having government do so).

The main question is  always how to pay for high Social Security, disability and unemployment benefits? The most appropriate way to pay some of it is an employer-paid subtraction VAT or net business receipts tax at the federal and state levels, with offsets to fund education and stipends for current and potential employees, as well as their children and the children of current employees. Ideally, what is collected by the government and redistributed will be zero. 

The other part of the funding is a goods and services (value added) tax to take over funding the employer contribution for Social Security, as well as long term unemployment insurance.

The state level SVAT would fund education and related stipends and child credits (again, with offsets).

Individual employee FICA taxes will fund additional payments to retirees over and above long term unemployment insurance levels.

Personal and corporate income taxes will be abolished for all but the top 1% as part of the deal. To replace capital gains taxes, an asset value added tax will be levied for each transaction (explained elsewhere).

To avoid the abuse of keeping people on payroll who do nothing, refundable portions (paid by government) of offsets will be limited to SVAT + GST collections.

To review the bidding, the list of government functions abolished in a radical reform include punitive (rather than no-fault) unemployment insurance, temporary assistance to needy families (and its replacement with real education), disability insurance, the complicated earned income tax credit, supplemental nutrition assistance, inheritance taxes, employer paid FICA and personal and corporate taxation, as well as the associated private sector costs, housing subsidies and the need to lobby for services for the poor.

Attachment: Tax Reform Videos included