Call out the fifes, sound the bugles, strike on the drums. With the State of the Union behind us, the Battle for Social Security now officially begins–again. The President’s cynical distortions are fully engaged–“crisis” and “bankruptcy” having replaced “weapons of mass destruction” in his fearmongering rhetoric. The right-wing propaganda machine assumes relentless repetition of the big lies will carry the day this time. But we doubt it. Those of us who understand the true condition of Social Security–and why Republicans wish to dismantle this essential and durable system of social insurance–are fairly confident that truth can prevail. It helps that a coalition of progressive groups are making Social Security their top priority and that most major news organizations (the same ones Bush snookered on Iraq) have belatedly discovered the President’s factual manipulations on Social Security (it would be disrespectful to call them lies). In any case, until this fight is won, no one can back away.
Bush’s cruelest distortion lies in forcing the political system to confront the wrong problem. The crisis is not Social Security. It is retirement security in general–Medicare most obviously, but also the medley of employee pension plans shrinking in value and the collapsed private savings of American households. All three are far more imperiled than Social Security, with its relatively minor and distant problems. All three will require densely complicated policy solutions and deep shifts in economic thinking.
Social Security, it is important to remember, is the bedrock guarantee that keeps millions of elderly people from destitution in their old age–the basic floor people can build on, not a ticket to golden-age affluence. Social Security is the only income for one-fifth of retirees, and it is the principal source of income for two out of three retired Americans. When the other pillars of retirement security are weakening, it is especially irresponsible to tamper with it.
Democrats, or progressives at large if Democrats lack the nerve, should force a public debate to address all the elements of retirement security and should begin advocating solutions. Indeed, this is an opportunity for inventive social thinking that might restore the Democrats’ faded reputation as the party of reform. Defending sound, long-established government programs is honorable work, but Democrats must go on the offense with their own perceptions of social and economic vulnerabilities and their own visionary solutions.
Any discussion of the crisis appropriately starts with medical care. Medicare and its less popular stepsister, Medicaid, for the poor, both face impending financial shortfalls, driven mainly by relentless healthcare inflation. A rational analysis would observe that the two important aspects of healthcare financing–for the poor and the elderly–are now managed by government. It’s time to take a deep breath and advocate a universal healthcare system that can confront the rising costs and wasted resources embedded in the entire system. The insurance industry was given its chance to do this in the 1990s and failed utterly, despite its intrusive regulation of doctors and patients. Symbolic half-measures by government will fail too. Americans at large are ready for real answers.
The pension crisis is more complex and also calls for big ideas. The deteriorating condition of corporate pensions is an almost daily political scandal–though usually reported only in the business pages–as companies dump retirees and workers. Unions have typically traded wage increases for better retirement benefits in contract bargaining, but when companies renege on the deal, the federal government is stuck with the tab–an ominously expanding list of bailouts.
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The supposed replacement for defined-benefit plans–the matched employee-company contributions to 401(k) accounts–looks increasingly like a busted promise, too. The 401(k) approach sounded great during the fantastic run-up of stock prices in the 1980s and ’90s, but that fantasy is over–and ended badly for small investors. Many baby boomers are discovering their battered 401(k) portfolios won’t support retirement.
Meanwhile, Americans’ private savings rate–the money they sock away themselves–has been hovering around zero. (Half the population, remember, has no pension plan other than Social Security plus whatever they can save personally.) The explanation for the decline in household savings is not a mystery. A generation of wage stagnation and the growing inequality of incomes and wealth allows some folks to live very, very well and save fabulously, too. But farther down the income ladder millions of families are working extra jobs just to keep up with the mortgage and credit-card payments, trying to forestall further decline in their standard of living. This shortfall is the most ominous of all, since it is so widespread in the middle class, not to mention the working poor.
The solution is nothing less than an epochal shift in economic policy, including its approach to globalization, to refocus attention on work and wages as the priority. Telling people they should save more is pointless as long as the economic system continues to tamp down income levels across the broad middle. The portents of deindustrialization and growing international indebtedness suggest grim consequences ahead won’t be confined to the elderly.
Restoring a stable system of retirement security (assuming Social Security survives the Republican assault) is a gigantic challenge that requires a much stronger role for the federal government. Washington is already a central player as last-resort insurer and major financier because of the federal tax deductions companies get for their pension contributions. These contributions represent a major public subsidy to private enterprise, yet corporations are allowed to game the pension funds to benefit their own bottom line while employees have no voice whatever in how the funds are invested. These and other contradictions in the thirty-year-old basic pension law must be changed.
But that’s only a first step. We can further envision, for example, government creating a second-tier pension plan, above Social Security, that insures a safe, conservative vehicle for retirement savings, free of the scandalous corporate finagling and phony accounting. This government-supervised pension would be available to anyone but tailored especially for workers struggling to save (a very broad group in today’s circumstances) and for millions of smaller firms that have difficulty bearing pension costs. The financing would be a blend of tax deductions, employee savings and employer contributions, perhaps including bonds or marketable stock options that constitute hard capital rather than unreliable promises. In a very wealthy nation, this problem is solvable with a little imagination if only serious politicians will ignore the heavy hand of corporations intruding on the public’s business.
Meantime, Social Security does need some fixes eventually. But these can occur anytime in the next twenty or thirty years–whenever the political community gets up the nerve to raise taxes on the high end of the income ladder. By substantially raising the cap that now restricts FICA taxes to the first $90,000 of a worker’s income, the big winners in today’s economy would no longer be exempt from sharing the burden fairly–and any potential future shortfall would be easily forestalled.
Defending Social Security successfully will deliver a profound blow to the Bush Administration’s “You’re on your own, Jack” ideology–thinly disguised as the “ownership society.” Bush does not speak to America’s deepest values. Despite the right’s market ideology, Americans still believe in the importance of sharing risks to achieve common purposes, described more simply as looking out for one another. Social Security is that practical ideal. We do not think Americans are ready to give up on it.
