Attachment: Social Insurance Taxes

WM Social Security and Welfare & Work: Hearing with the Commissioner of Social Security, Frank J. Bisignano

There are two ways to define solvency: budgetary and adequacy. Solvency is willingness to raise income taxes to honor Social Security Trust Fund obligations as they come due and to continue to use personal income and consumption or payroll taxes to provide adequate funding for retirees. The second way to see solvency is in the adequacy of benefits. The current system leaves most seniors and the disabled barely solvent, which requires them to use food stamps, energy assistance, assisted housing and homestead exemptions for property taxes. This inadequacy threatens state and local finance as well.

Most seniors run out of their savings or simply have not built them up in the first place. Leaving payments low is a cruel joke, because savings is not neglected because of indolence or overspending during our working years, but because incomes have been inadequate. Inflation follows the median dollar, not the median income. Percentage based COLAs, rather than equal dollar ones, magnify inequality. Most families cannot keep up.

The wealthy and their pet non-profits don’t fund studies warning about the accumulation of publicly held debt but fund numerous efforts to get entitlement spending under control. CBO projections show the biggest driver of future debt is the continual rolling over of net interest. The demands of retirees are stable, not so the demands of bond holders. When the nation stops rolling over the interest, the wealthy can talk about the health of federally held trust funds.

The debt assets owed to the bottom 60% (indeed, to the bottom 90%) are sacrosanct, as they paid for it with regressive payroll taxes while they were working. Others had to shift from the Civil Service Retirement System to the Federal Employee Retirement System which required savings rather than a defined benefit and included Social Security. 

Forty years ago, the decision was made to advance fund the retirement of the baby boomers, rather than immediately begin subsidies from the general fund. Doing so would have required repealing the tax cuts on the rich enacted by President Reagan, the Senate and just enough conservative Democrats in the House to do damage.  They also gave us the ill-advised 1986 tax reform. 

Now that it is time for the wealthy to pay what they owe to the trust fund (or rather, the children of the wealthy of the 80s), people are talking about means testing Social Security and were talking about making it attractive to upper classes by investing it. The desire to invest Social Security accounts in Wall Street died in 2008. Private accounts held by Wall Street would again make the working class fix the debt liability of the top 10%. Means testing benefits would also rob the bottom two quintiles of their most effective voice – higher income taxpayers who do receive benefits. As long as the higher quintiles get benefits, the program is safe.

The very rich have the data on their own wealth and know what they pay in taxes.  They won’t like the implication that the rest of us now know how closely the two figures are related. They certainly won’t like it shown that they are on the hook for paying back Social Security and the U.S. debt held for the world. 

Individual payroll taxes. A floor of $20,000 would be instituted for paying these taxes, with a ceiling of $115,000. This lower ceiling reduces the amount of benefits received in retirement for higher income individuals. The logic of the $20,000 floor reflects full time work at a $10 per hour minimum wage offered by the Republican caucus in response to proposals for a $15 wage. The Democrats need get the offer back on the table and take the deal. Doing so in relation to a floor on contributions makes adopting the minimum wage germane in the Senate for purposes of Reconciliation. The rate would be set at 6.25%.

Employer payroll taxes. Unless taxes are diverted to a personal retirement accounts holding voting and preferred stock in the employer, the employer levy would be replaced by a goods and services tax addition of 6.25%. Every worker who meets a minimum hour threshold would be credited for having paid into the system, regardless of wage level. All employees would be credited on an equal dollar basis, rather than as a match to their individual payroll tax. The tax rate would be adjusted to assure adequacy of benefits for all program beneficiaries. As the results of Asset Value Added Tax exclusions for ESOP sales build up that sector, funding this revenue obligation will move to employer-paid Subtraction Value Added Taxes.

Disability and Survivors Insurance: Baseline disability and survivors benefits will be moved to the Long Term Unemployment Insurance Program, which will be funded by employer paid subtraction value added taxes. Payments may be higher based on employee-paid contributions.

Health Spending and Taxes: Medicare, Senior Medicaid, Affordable Care Act subsidies, subsidies for health insurance collected under corporate income taxes and the Public Option will be funded through both the Credit Invoice Value Added Tax and/or the employer-paid Subtraction Value Added Tax.

Pension Reform: Increased saving requires relatively safe investment options; those relatively free of speculative junk. ETFs are not free of junk. They merely hide it until it rots. MBS, crypto, under regulated commodity markets, as well as new technology - such as AI - are the usual suspects.

Pensions are safer, especially when they are not required to be "fully funded." Such a requirement ruined these instruments, forcing workers into defined contribution plans. Such plans are, by their very nature, inadequate for most workers. They can also hide junk. 

Encouraging the return of pensions by reforming solvency requirements is an essential step. Encouraging the expansion of Employee Stock Ownership Programs is another. Please see our attachment regarding asset value added taxes as a replacement to capital gains taxes, the death tax and to prevent any kind of wealth tax.

Long Term Unemployment Insurance: The general approach to reform social services is to provide a form of guaranteed income, but not through a general subsidy for all households. We do not propose free money for all households - which is the gist of basic income proposals. Our approach addresses individual needs, but uses similar tools. 

Until Congress increases the minimum wage, and as importantly, abandons percentage based cost of living adjustments for federal direct and contract employees in favor of a specific dollar amount, the country will face deepening poverty for some and high inflation for others. Prices  chase the wage given to the 90th percentile - which is where the median dollar of income is paid. 

The reforms below will prevent the boom-bust cycle which we seem to be trapped in of late. They will also provide resilience against the next pandemic.

1. An increase in the minimum wage to at least $12 per hour (if not more to account for pandemic inflation), with a $14.50 wage for a shorter work week.  This distributes the burden of higher wages for less work with employees and employers.
2. Increase the Child Tax Credit to levels passed by the House, with increases to at least twice that in fairly short order.
3. Replace the current menu of social programs with long term unemployment insurance at below minimum wage levels, which would be supplemented with additional funding for participation in basic education (especially for ex-offenders), employment training, psychiatric or addiction rehabilitation programs. Old Age, Survivors and Disability Insurance would start with this amount as a minimum, with higher benefit levels based on employment history. Dependent payments would be made through the child tax credit once it has been increased to current survivor benefit levels. 
4. Long term unemployment insurance would be awarded on a no fault basis, ending the need for eligibility investigations beyond verification of identity and for punitive disciplinary systems by employers designed to avoid paying benefits. This payment, which would be indexed for inflation, would be $13.25 per hour for a 28 hour week, would be tax free and funded by a national goods and services tax. States could enact higher benefit levels funded by a local GST.

Taken together, these reforms will remove the punitive features from anti-poverty programs, especially those which require an excess of red tape to participate -  the earned income tax credit and supplemental security income.

Attachment: Consumption Taxes