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Hillary Clinton is ahead in the polls, but it's more due to Donald Trump's many blunders than excitement with Mrs. Clinton. She has benefited from being the anti-Trump. But new allegations about the FBI finding another 15,000 missing emails, as well as evidence of a possible "pay-to-play" donation system between her husband's Clinton Global Initiative and the Secretary of State's office, raises old perceptions about her untrustworthiness and dishonesty.
Mrs. Clinton's campaign is badly in need of a bold issue that fires the imagination of voters. Otherwise, if Trump stops the bloopers and regains his economic populism, this race could tighten very quickly.
What issue should Hillary Clinton focus on that will rally voters? Here's one that will neutralize her opponent's economic appeal: a dramatic expansion of Social Security.
This popular program, which celebrated its 81st birthday on August 14, enjoys stratospheric support, even among 70% of Republican rank-and-file voters. It's the greatest anti-poverty program that the US has ever devised. Three-quarters of Americans depend heavily on Social Security in their elderly years, and nearly half would be living in poverty without it. It's been an especially important support system for minority and female retirees. During the 2008-09 economic crisis, when home ownership, private savings and the stock market collapsed, Social Security remained stable.
Despite its popularity, critics have stoked the fear that Social Security will face a financial shortfall sometime in the 2030s. But that is overblown, Social Security has an established trust fund that, legally speaking, cannot spend more than it takes in. Any future deficits could be made up from any number of revenue sources. It's all a matter of budgetary priorities.
In fact, the real problem with Social Security is not a shortfall but that its payout is so meager. Social Security is designed to replace only about 40 percent of a worker's wages at retirement, yet retirement experts estimate you will need almost twice that amount to live decently. With private retirement pensions, as well as personal savings centered on homeownership - the other two legs of the three-legged "stool of retirement" -still looking wobbly, and with incomes low and inequality high, tens of millions of retirees won't have much more than their monthly Social Security checks to live on.
So the real problem with Social Security is that it is too stingy to function as the nation's single pillar retirement system. The obvious solution, as Senator Bernie Sanders pointed out during his presidential run, is to expand Social Security, not cut it. There are numerous revenue streams that would allow an increase in the monthly payout for the 43 million Americans who receive retirement benefits.
How much should we expand Social Security? Senator Sanders proposed adding about $68 per month per beneficiary - better than nothing, but not nearly enough to make a significant difference. The US needs a much more dramatic expansion.
If we design it correctly, we can afford to double the monthly benefit for every retiree, creating a new system that I call Social Security Plus. This would come much closer to providing sufficient income for the nation's retirees, and also put the US retirement system in line with the benefits provided by many other developed nations. As demonstrated in my recently published book Expand Social Security Now: How to Ensure Americans Get the Retirement They Deserve, there is so much waste in the US tax system that if we simply close many of the tax loopholes and deductions that disproportionately favor wealthier Americans, the nation could easily afford this.
Social Security Plus: How to pay for it
How much would it cost to doublethe monthly payout? Approximately $662 billion. That seems like a lot of money, but here's how we could do it.
1. Eliminate the unfair Social Security payroll cap. Currently any income above $118,500 is not taxed for Social Security purposes. The practical effect of the cap is that billionaire bankers and CEOs contribute a far lower percentage of their income for Social Security -- much less than 1% -- than their secretaries and chauffeurs, whose income is taxed at a rate of 6.2%.
The old rationale for this discrepancy is that Social Security is not welfare, instead it is an earned benefit -- the more you pay into it, the more you receive. The maximum amount that a Social Security beneficiary can receive is capped at around $2600, and so if the benefit is capped, so should be the payroll deduction, goes this line of thinking. If we are going to lift the payroll cap and tax wealthier Americans more, shouldn't they also receive more of a payout?
But that's not how Medicare works, nor private company pensions, nor any other tax-funded government service. Wealthy people don't receive more access to doctors, hospitals, roads, schools or airports just because they pay more in taxes. The rationale for treating Social Security so differently might have made sense when it was launched over 80 years ago, and there was little tradition of government providing a helping hand. But it makes much less sense today in this time of rampant inequality and greater acceptance of government acting as a counter-balance to unstable market economies.
So simply making the payroll contribution more fair and equal by requiring all income levels to contribute at the same rate of 6.2% on all of their earned wages would raise approximately $135 billion toward the targeted goal.
2. Apply a Social Security tax to investment income. Many wealthy Americans make a lot of their money through investment income instead of from wages. Yet they make zero Social Security contributions based on that income. By applying Social Security rules on this investment income -- which is how Medicare is partly funded -- we would raise another $50 billion more for doubling the Social Security payout
3. Eliminate tax shelters and loopholes for 1-percenter households and businesses. The loopholes crying out for elimination include capital gains and other types of investment income, such as 'carried interest' and the truly outrageous 'step-up in basis,' which exclusively benefits inherited wealth. These function as direct federal subsidies to mostly affluent Americans. And they cost the national treasury some $250 billion per year, with the Congressional Budget Office estimating that a whopping 70 percent of this subsidy is hoovered by Americans in the top 1 percent income bracket (and nearly 93 percent by the top 20 percent bracket).
The 'step-up in basis' exemption is particularly repugnant. When a yacht, mansion or any other type of expensive asset is sold, the seller's profit is subject to the capital gains taxation rate of 15-20 percent -- already only about half the 39.6 percent tax rate that the wealthiest pay on their wage income. Normally, the amount subject to taxation is the difference between the sale price and the amount that the seller originally paid for that particular asset. But for inherited property, the difference is calculated using the date that the previous owner died and left it to the heirs. As a result, the appreciation in value is a lot less, and so are the capital gains taxes. Rather than a 'step-up in basis,' this dodge might more accurately be termed a 'step-up in privilege.' In 2015, this rule reduced federal revenues by an enormous $63 billion.
Step-up in basis is one of the 10 largest federal tax expenditures in the entire individual and corporate income tax system. And most of it is pocketed by the wealthiest of Americans. Of course none of the investment income received from the sale of these inherited assets is taxed for Social Security purposes. If it were, at the usual 6.2 percent Social Security tax rate that all workers pay, it would generate another $19 billion for the Trust Fund.
President Barack Obama has done next-to-nothing to close these loopholes while president, and Hillary Clinton has been mostly silent. Ironically, Donald Trump has been more outspoken about the unfairness of this system than most Democratic leaders. To his credit, Trump defended Social Security against budget cuts during the GOP presidential debates and primaries. So Mrs. Clinton is vulnerable on this issue.
4. Eliminate the tax exclusion that private employers receive for sponsoring their company's retirement plans. Not many people realize it, but every tax-paying American subsidizes the retirement plans provided by private companies, even though only a small slice of Americans -- about 15% of private-sector workers -- have pensions today. By implementing Social Security Plus, which would double the monthly benefit and make Social Security the de facto national retirement plan, employers would be liberated from having to provide retirement for their employees. So they will not need the substantial taxpayer-funded subsidies they receive from the federal government for their company's retirement plan. That will raise another $100 billion that can be used for Social Security Plus.
At this point, we have found nearly $600 billion in funding for Social Security Plus, nearly reaching our mark for doubling the monthly retirement benefit. So let's keep going and look for more sources of revenue for our increasingly expanded and financially sound national retirement plan.
5. Scrap other retirement tax breaks that disproportionately benefit wealthier Americans over middle class and poor Americans. Savings vehicles such as 401(k)s and IRAs have tragically failed to help most retirees for a very simple reason -- you can't put very much into your 401(k) if your wages are too low to save. And with aggregate wages in the US staying flat for the last three decades, the reality is that most middle- and poorer-class Americans haven't been able to sock that much away. Consequently, of the $165 billion that the federal government spends subsidizing individual retirement savings, nearly 80 percent goes to the top 20 percent of income earners. President Obama has proposed a universal 401(k), in which workers with no savings plan will be enrolled automatically in a 401(k) plan. But it seems pointless when wages are so low that the vast majority of middle class and poor Americans can't accumulate sufficient savings. Most Americans would be far better off if we scrapped the 401(k) and IRA subsidies, and instead doubled the Social Security monthly benefit.
The same is true for federal underwriting of homeownership, which totaled $154 billion in 2014. The federal subsidy for the home mortgage interest deduction amounts to around $70 billion per year, with Americans in the top 10-percent income bracket receiving a massive 86 percent of it. And the federal tax deduction allowed to homeowners to mitigate the cost of paying state and local property taxes on their houses cost the federal budget another $32 billion in 2014; a study by the Congressional Budget Office found that Americans in the upper 20 percent income bracket reaped 80 percent of that federal subsidy.
Just to make sure everyone understands whom the tax code favors, homeowners also do not have to pay taxes on up to $250,000 of their capital gains profits when they sell their home, which doubles to $500,000 for married taxpayers. That exclusion amounts to another giant subsidy amounting to $52 billion per year. And here's the real kicker: these three subsidies for homeownership, which in aggregate mostly benefit higher-income people, cost the federal treasury nearly four times the $42 billion that the Department of Housing and Urban Development spends on all affordable housing programs for low-income people. Renters and most low-income Americans don't benefit at all from the subsidies, and while some middle-income people benefit, the total amount of their deductions is too small to help them much. They would benefit a lot more from a doubling of their Social Security payout.
Whose entitlement? Who's the 'welfare queen'?
Critics of Social Security have derogatorily labeled it an 'entitlement,' but in reality these tax-code favoritisms are nothing more than entitlements for wealthier people at the expense of everyone else. The affluent recipients of federal largess are the true 'welfare queens,' since these subsidies are mostly unavailable to middle- and lower-income Americans.
If we combine those budgetary add-backs with our previous savings, we now have reached nearly $900 billion, well over the $662 billion we need in order to enact Social Security Plus. And note that we were able to do this without spending a dime more in taxpayer money or national wealth than what is already spent on the retirement system, or on subsidizing the savings of better-off Americans. We are just shifting existing expenditures that right now benefit a small number of people, and redirecting these resources toward the vast majority of people.
Social Security remains one of the most popular government programs ever. It's not only good for the nation's retirees, but also for US businesses and the broader national economy. Retirees spend their income to live, providing customers for businesses, even during an economic downturn. So Social Security acts as an automatic stimulus that helps to maintain levels of consumer spending that in turn help stabilize the economy.
Moreover, expanded Social Security would be a better fit for the type of high-tech digital economy that is slowly taking root. More and more Americans are working as contractors, freelancers, temps and part-timers for multiple employers; many Americans now are working several part-time jobs to make ends meet. Social Security Plus would form a core part of a portable, universal safety net that is badly needed, providing a new kind of deal for American workers.
More members of Congress, led by Senators Bernie Sanders and Elizabeth Warren, as well as other political and media leaders and organizations like Social Security Works and the Progressive Change Campaign Committee, have come to the conclusion that we need to expand Social Security. So has President Obama, who initially disappointed his backers by supporting ill-advised cuts to the program and appointing an ill-fated commission that tried to enact cuts. Unfortunately Hillary Clinton has been the worst kind of waffler on this issue. Her latest position is that she will support expansion, but only for those who need it the most, which means not many people. If she isn't careful, she is going to be leapfrogged by Donald Trump, who is unpredictable enough to take a bolder stand on Social Security.
The simple message is that we can pay for this expansion by enacting tax fairness, and ensuring that all Americans contribute their fair share to the nation's bounty and security. With support among even Republicans extremely high, there appears to be no political risk to Hillary Clinton being out front on this issue. And with her campaign teetering on the edge of a cliff of scandal and pay-to-play politics, the Clinton campaign needs a popular issue that excites voters. Social Security expansion provides a vision for not only how our nation will treat our retirees, but also for what kind of nation we want to be.
So Mrs. Clinton should become a key catalyst in this movement for Social Security expansion by leading the way during this presidential election. What is she waiting for?
Hillary Clinton is ahead in the polls, but it's more due to Donald Trump's many blunders than excitement with Mrs. Clinton. She has benefited from being the anti-Trump. But new allegations about the FBI finding another 15,000 missing emails, as well as evidence of a possible "pay-to-play" donation system between her husband's Clinton Global Initiative and the Secretary of State's office, raises old perceptions about her untrustworthiness and dishonesty.
Mrs. Clinton's campaign is badly in need of a bold issue that fires the imagination of voters. Otherwise, if Trump stops the bloopers and regains his economic populism, this race could tighten very quickly.
What issue should Hillary Clinton focus on that will rally voters? Here's one that will neutralize her opponent's economic appeal: a dramatic expansion of Social Security.
This popular program, which celebrated its 81st birthday on August 14, enjoys stratospheric support, even among 70% of Republican rank-and-file voters. It's the greatest anti-poverty program that the US has ever devised. Three-quarters of Americans depend heavily on Social Security in their elderly years, and nearly half would be living in poverty without it. It's been an especially important support system for minority and female retirees. During the 2008-09 economic crisis, when home ownership, private savings and the stock market collapsed, Social Security remained stable.
Despite its popularity, critics have stoked the fear that Social Security will face a financial shortfall sometime in the 2030s. But that is overblown, Social Security has an established trust fund that, legally speaking, cannot spend more than it takes in. Any future deficits could be made up from any number of revenue sources. It's all a matter of budgetary priorities.
In fact, the real problem with Social Security is not a shortfall but that its payout is so meager. Social Security is designed to replace only about 40 percent of a worker's wages at retirement, yet retirement experts estimate you will need almost twice that amount to live decently. With private retirement pensions, as well as personal savings centered on homeownership - the other two legs of the three-legged "stool of retirement" -still looking wobbly, and with incomes low and inequality high, tens of millions of retirees won't have much more than their monthly Social Security checks to live on.
So the real problem with Social Security is that it is too stingy to function as the nation's single pillar retirement system. The obvious solution, as Senator Bernie Sanders pointed out during his presidential run, is to expand Social Security, not cut it. There are numerous revenue streams that would allow an increase in the monthly payout for the 43 million Americans who receive retirement benefits.
How much should we expand Social Security? Senator Sanders proposed adding about $68 per month per beneficiary - better than nothing, but not nearly enough to make a significant difference. The US needs a much more dramatic expansion.
If we design it correctly, we can afford to double the monthly benefit for every retiree, creating a new system that I call Social Security Plus. This would come much closer to providing sufficient income for the nation's retirees, and also put the US retirement system in line with the benefits provided by many other developed nations. As demonstrated in my recently published book Expand Social Security Now: How to Ensure Americans Get the Retirement They Deserve, there is so much waste in the US tax system that if we simply close many of the tax loopholes and deductions that disproportionately favor wealthier Americans, the nation could easily afford this.
Social Security Plus: How to pay for it
How much would it cost to doublethe monthly payout? Approximately $662 billion. That seems like a lot of money, but here's how we could do it.
1. Eliminate the unfair Social Security payroll cap. Currently any income above $118,500 is not taxed for Social Security purposes. The practical effect of the cap is that billionaire bankers and CEOs contribute a far lower percentage of their income for Social Security -- much less than 1% -- than their secretaries and chauffeurs, whose income is taxed at a rate of 6.2%.
The old rationale for this discrepancy is that Social Security is not welfare, instead it is an earned benefit -- the more you pay into it, the more you receive. The maximum amount that a Social Security beneficiary can receive is capped at around $2600, and so if the benefit is capped, so should be the payroll deduction, goes this line of thinking. If we are going to lift the payroll cap and tax wealthier Americans more, shouldn't they also receive more of a payout?
But that's not how Medicare works, nor private company pensions, nor any other tax-funded government service. Wealthy people don't receive more access to doctors, hospitals, roads, schools or airports just because they pay more in taxes. The rationale for treating Social Security so differently might have made sense when it was launched over 80 years ago, and there was little tradition of government providing a helping hand. But it makes much less sense today in this time of rampant inequality and greater acceptance of government acting as a counter-balance to unstable market economies.
So simply making the payroll contribution more fair and equal by requiring all income levels to contribute at the same rate of 6.2% on all of their earned wages would raise approximately $135 billion toward the targeted goal.
2. Apply a Social Security tax to investment income. Many wealthy Americans make a lot of their money through investment income instead of from wages. Yet they make zero Social Security contributions based on that income. By applying Social Security rules on this investment income -- which is how Medicare is partly funded -- we would raise another $50 billion more for doubling the Social Security payout
3. Eliminate tax shelters and loopholes for 1-percenter households and businesses. The loopholes crying out for elimination include capital gains and other types of investment income, such as 'carried interest' and the truly outrageous 'step-up in basis,' which exclusively benefits inherited wealth. These function as direct federal subsidies to mostly affluent Americans. And they cost the national treasury some $250 billion per year, with the Congressional Budget Office estimating that a whopping 70 percent of this subsidy is hoovered by Americans in the top 1 percent income bracket (and nearly 93 percent by the top 20 percent bracket).
The 'step-up in basis' exemption is particularly repugnant. When a yacht, mansion or any other type of expensive asset is sold, the seller's profit is subject to the capital gains taxation rate of 15-20 percent -- already only about half the 39.6 percent tax rate that the wealthiest pay on their wage income. Normally, the amount subject to taxation is the difference between the sale price and the amount that the seller originally paid for that particular asset. But for inherited property, the difference is calculated using the date that the previous owner died and left it to the heirs. As a result, the appreciation in value is a lot less, and so are the capital gains taxes. Rather than a 'step-up in basis,' this dodge might more accurately be termed a 'step-up in privilege.' In 2015, this rule reduced federal revenues by an enormous $63 billion.
Step-up in basis is one of the 10 largest federal tax expenditures in the entire individual and corporate income tax system. And most of it is pocketed by the wealthiest of Americans. Of course none of the investment income received from the sale of these inherited assets is taxed for Social Security purposes. If it were, at the usual 6.2 percent Social Security tax rate that all workers pay, it would generate another $19 billion for the Trust Fund.
President Barack Obama has done next-to-nothing to close these loopholes while president, and Hillary Clinton has been mostly silent. Ironically, Donald Trump has been more outspoken about the unfairness of this system than most Democratic leaders. To his credit, Trump defended Social Security against budget cuts during the GOP presidential debates and primaries. So Mrs. Clinton is vulnerable on this issue.
4. Eliminate the tax exclusion that private employers receive for sponsoring their company's retirement plans. Not many people realize it, but every tax-paying American subsidizes the retirement plans provided by private companies, even though only a small slice of Americans -- about 15% of private-sector workers -- have pensions today. By implementing Social Security Plus, which would double the monthly benefit and make Social Security the de facto national retirement plan, employers would be liberated from having to provide retirement for their employees. So they will not need the substantial taxpayer-funded subsidies they receive from the federal government for their company's retirement plan. That will raise another $100 billion that can be used for Social Security Plus.
At this point, we have found nearly $600 billion in funding for Social Security Plus, nearly reaching our mark for doubling the monthly retirement benefit. So let's keep going and look for more sources of revenue for our increasingly expanded and financially sound national retirement plan.
5. Scrap other retirement tax breaks that disproportionately benefit wealthier Americans over middle class and poor Americans. Savings vehicles such as 401(k)s and IRAs have tragically failed to help most retirees for a very simple reason -- you can't put very much into your 401(k) if your wages are too low to save. And with aggregate wages in the US staying flat for the last three decades, the reality is that most middle- and poorer-class Americans haven't been able to sock that much away. Consequently, of the $165 billion that the federal government spends subsidizing individual retirement savings, nearly 80 percent goes to the top 20 percent of income earners. President Obama has proposed a universal 401(k), in which workers with no savings plan will be enrolled automatically in a 401(k) plan. But it seems pointless when wages are so low that the vast majority of middle class and poor Americans can't accumulate sufficient savings. Most Americans would be far better off if we scrapped the 401(k) and IRA subsidies, and instead doubled the Social Security monthly benefit.
The same is true for federal underwriting of homeownership, which totaled $154 billion in 2014. The federal subsidy for the home mortgage interest deduction amounts to around $70 billion per year, with Americans in the top 10-percent income bracket receiving a massive 86 percent of it. And the federal tax deduction allowed to homeowners to mitigate the cost of paying state and local property taxes on their houses cost the federal budget another $32 billion in 2014; a study by the Congressional Budget Office found that Americans in the upper 20 percent income bracket reaped 80 percent of that federal subsidy.
Just to make sure everyone understands whom the tax code favors, homeowners also do not have to pay taxes on up to $250,000 of their capital gains profits when they sell their home, which doubles to $500,000 for married taxpayers. That exclusion amounts to another giant subsidy amounting to $52 billion per year. And here's the real kicker: these three subsidies for homeownership, which in aggregate mostly benefit higher-income people, cost the federal treasury nearly four times the $42 billion that the Department of Housing and Urban Development spends on all affordable housing programs for low-income people. Renters and most low-income Americans don't benefit at all from the subsidies, and while some middle-income people benefit, the total amount of their deductions is too small to help them much. They would benefit a lot more from a doubling of their Social Security payout.
Whose entitlement? Who's the 'welfare queen'?
Critics of Social Security have derogatorily labeled it an 'entitlement,' but in reality these tax-code favoritisms are nothing more than entitlements for wealthier people at the expense of everyone else. The affluent recipients of federal largess are the true 'welfare queens,' since these subsidies are mostly unavailable to middle- and lower-income Americans.
If we combine those budgetary add-backs with our previous savings, we now have reached nearly $900 billion, well over the $662 billion we need in order to enact Social Security Plus. And note that we were able to do this without spending a dime more in taxpayer money or national wealth than what is already spent on the retirement system, or on subsidizing the savings of better-off Americans. We are just shifting existing expenditures that right now benefit a small number of people, and redirecting these resources toward the vast majority of people.
Social Security remains one of the most popular government programs ever. It's not only good for the nation's retirees, but also for US businesses and the broader national economy. Retirees spend their income to live, providing customers for businesses, even during an economic downturn. So Social Security acts as an automatic stimulus that helps to maintain levels of consumer spending that in turn help stabilize the economy.
Moreover, expanded Social Security would be a better fit for the type of high-tech digital economy that is slowly taking root. More and more Americans are working as contractors, freelancers, temps and part-timers for multiple employers; many Americans now are working several part-time jobs to make ends meet. Social Security Plus would form a core part of a portable, universal safety net that is badly needed, providing a new kind of deal for American workers.
More members of Congress, led by Senators Bernie Sanders and Elizabeth Warren, as well as other political and media leaders and organizations like Social Security Works and the Progressive Change Campaign Committee, have come to the conclusion that we need to expand Social Security. So has President Obama, who initially disappointed his backers by supporting ill-advised cuts to the program and appointing an ill-fated commission that tried to enact cuts. Unfortunately Hillary Clinton has been the worst kind of waffler on this issue. Her latest position is that she will support expansion, but only for those who need it the most, which means not many people. If she isn't careful, she is going to be leapfrogged by Donald Trump, who is unpredictable enough to take a bolder stand on Social Security.
The simple message is that we can pay for this expansion by enacting tax fairness, and ensuring that all Americans contribute their fair share to the nation's bounty and security. With support among even Republicans extremely high, there appears to be no political risk to Hillary Clinton being out front on this issue. And with her campaign teetering on the edge of a cliff of scandal and pay-to-play politics, the Clinton campaign needs a popular issue that excites voters. Social Security expansion provides a vision for not only how our nation will treat our retirees, but also for what kind of nation we want to be.
So Mrs. Clinton should become a key catalyst in this movement for Social Security expansion by leading the way during this presidential election. What is she waiting for?
Hillary Clinton is ahead in the polls, but it's more due to Donald Trump's many blunders than excitement with Mrs. Clinton. She has benefited from being the anti-Trump. But new allegations about the FBI finding another 15,000 missing emails, as well as evidence of a possible "pay-to-play" donation system between her husband's Clinton Global Initiative and the Secretary of State's office, raises old perceptions about her untrustworthiness and dishonesty.
Mrs. Clinton's campaign is badly in need of a bold issue that fires the imagination of voters. Otherwise, if Trump stops the bloopers and regains his economic populism, this race could tighten very quickly.
What issue should Hillary Clinton focus on that will rally voters? Here's one that will neutralize her opponent's economic appeal: a dramatic expansion of Social Security.
This popular program, which celebrated its 81st birthday on August 14, enjoys stratospheric support, even among 70% of Republican rank-and-file voters. It's the greatest anti-poverty program that the US has ever devised. Three-quarters of Americans depend heavily on Social Security in their elderly years, and nearly half would be living in poverty without it. It's been an especially important support system for minority and female retirees. During the 2008-09 economic crisis, when home ownership, private savings and the stock market collapsed, Social Security remained stable.
Despite its popularity, critics have stoked the fear that Social Security will face a financial shortfall sometime in the 2030s. But that is overblown, Social Security has an established trust fund that, legally speaking, cannot spend more than it takes in. Any future deficits could be made up from any number of revenue sources. It's all a matter of budgetary priorities.
In fact, the real problem with Social Security is not a shortfall but that its payout is so meager. Social Security is designed to replace only about 40 percent of a worker's wages at retirement, yet retirement experts estimate you will need almost twice that amount to live decently. With private retirement pensions, as well as personal savings centered on homeownership - the other two legs of the three-legged "stool of retirement" -still looking wobbly, and with incomes low and inequality high, tens of millions of retirees won't have much more than their monthly Social Security checks to live on.
So the real problem with Social Security is that it is too stingy to function as the nation's single pillar retirement system. The obvious solution, as Senator Bernie Sanders pointed out during his presidential run, is to expand Social Security, not cut it. There are numerous revenue streams that would allow an increase in the monthly payout for the 43 million Americans who receive retirement benefits.
How much should we expand Social Security? Senator Sanders proposed adding about $68 per month per beneficiary - better than nothing, but not nearly enough to make a significant difference. The US needs a much more dramatic expansion.
If we design it correctly, we can afford to double the monthly benefit for every retiree, creating a new system that I call Social Security Plus. This would come much closer to providing sufficient income for the nation's retirees, and also put the US retirement system in line with the benefits provided by many other developed nations. As demonstrated in my recently published book Expand Social Security Now: How to Ensure Americans Get the Retirement They Deserve, there is so much waste in the US tax system that if we simply close many of the tax loopholes and deductions that disproportionately favor wealthier Americans, the nation could easily afford this.
Social Security Plus: How to pay for it
How much would it cost to doublethe monthly payout? Approximately $662 billion. That seems like a lot of money, but here's how we could do it.
1. Eliminate the unfair Social Security payroll cap. Currently any income above $118,500 is not taxed for Social Security purposes. The practical effect of the cap is that billionaire bankers and CEOs contribute a far lower percentage of their income for Social Security -- much less than 1% -- than their secretaries and chauffeurs, whose income is taxed at a rate of 6.2%.
The old rationale for this discrepancy is that Social Security is not welfare, instead it is an earned benefit -- the more you pay into it, the more you receive. The maximum amount that a Social Security beneficiary can receive is capped at around $2600, and so if the benefit is capped, so should be the payroll deduction, goes this line of thinking. If we are going to lift the payroll cap and tax wealthier Americans more, shouldn't they also receive more of a payout?
But that's not how Medicare works, nor private company pensions, nor any other tax-funded government service. Wealthy people don't receive more access to doctors, hospitals, roads, schools or airports just because they pay more in taxes. The rationale for treating Social Security so differently might have made sense when it was launched over 80 years ago, and there was little tradition of government providing a helping hand. But it makes much less sense today in this time of rampant inequality and greater acceptance of government acting as a counter-balance to unstable market economies.
So simply making the payroll contribution more fair and equal by requiring all income levels to contribute at the same rate of 6.2% on all of their earned wages would raise approximately $135 billion toward the targeted goal.
2. Apply a Social Security tax to investment income. Many wealthy Americans make a lot of their money through investment income instead of from wages. Yet they make zero Social Security contributions based on that income. By applying Social Security rules on this investment income -- which is how Medicare is partly funded -- we would raise another $50 billion more for doubling the Social Security payout
3. Eliminate tax shelters and loopholes for 1-percenter households and businesses. The loopholes crying out for elimination include capital gains and other types of investment income, such as 'carried interest' and the truly outrageous 'step-up in basis,' which exclusively benefits inherited wealth. These function as direct federal subsidies to mostly affluent Americans. And they cost the national treasury some $250 billion per year, with the Congressional Budget Office estimating that a whopping 70 percent of this subsidy is hoovered by Americans in the top 1 percent income bracket (and nearly 93 percent by the top 20 percent bracket).
The 'step-up in basis' exemption is particularly repugnant. When a yacht, mansion or any other type of expensive asset is sold, the seller's profit is subject to the capital gains taxation rate of 15-20 percent -- already only about half the 39.6 percent tax rate that the wealthiest pay on their wage income. Normally, the amount subject to taxation is the difference between the sale price and the amount that the seller originally paid for that particular asset. But for inherited property, the difference is calculated using the date that the previous owner died and left it to the heirs. As a result, the appreciation in value is a lot less, and so are the capital gains taxes. Rather than a 'step-up in basis,' this dodge might more accurately be termed a 'step-up in privilege.' In 2015, this rule reduced federal revenues by an enormous $63 billion.
Step-up in basis is one of the 10 largest federal tax expenditures in the entire individual and corporate income tax system. And most of it is pocketed by the wealthiest of Americans. Of course none of the investment income received from the sale of these inherited assets is taxed for Social Security purposes. If it were, at the usual 6.2 percent Social Security tax rate that all workers pay, it would generate another $19 billion for the Trust Fund.
President Barack Obama has done next-to-nothing to close these loopholes while president, and Hillary Clinton has been mostly silent. Ironically, Donald Trump has been more outspoken about the unfairness of this system than most Democratic leaders. To his credit, Trump defended Social Security against budget cuts during the GOP presidential debates and primaries. So Mrs. Clinton is vulnerable on this issue.
4. Eliminate the tax exclusion that private employers receive for sponsoring their company's retirement plans. Not many people realize it, but every tax-paying American subsidizes the retirement plans provided by private companies, even though only a small slice of Americans -- about 15% of private-sector workers -- have pensions today. By implementing Social Security Plus, which would double the monthly benefit and make Social Security the de facto national retirement plan, employers would be liberated from having to provide retirement for their employees. So they will not need the substantial taxpayer-funded subsidies they receive from the federal government for their company's retirement plan. That will raise another $100 billion that can be used for Social Security Plus.
At this point, we have found nearly $600 billion in funding for Social Security Plus, nearly reaching our mark for doubling the monthly retirement benefit. So let's keep going and look for more sources of revenue for our increasingly expanded and financially sound national retirement plan.
5. Scrap other retirement tax breaks that disproportionately benefit wealthier Americans over middle class and poor Americans. Savings vehicles such as 401(k)s and IRAs have tragically failed to help most retirees for a very simple reason -- you can't put very much into your 401(k) if your wages are too low to save. And with aggregate wages in the US staying flat for the last three decades, the reality is that most middle- and poorer-class Americans haven't been able to sock that much away. Consequently, of the $165 billion that the federal government spends subsidizing individual retirement savings, nearly 80 percent goes to the top 20 percent of income earners. President Obama has proposed a universal 401(k), in which workers with no savings plan will be enrolled automatically in a 401(k) plan. But it seems pointless when wages are so low that the vast majority of middle class and poor Americans can't accumulate sufficient savings. Most Americans would be far better off if we scrapped the 401(k) and IRA subsidies, and instead doubled the Social Security monthly benefit.
The same is true for federal underwriting of homeownership, which totaled $154 billion in 2014. The federal subsidy for the home mortgage interest deduction amounts to around $70 billion per year, with Americans in the top 10-percent income bracket receiving a massive 86 percent of it. And the federal tax deduction allowed to homeowners to mitigate the cost of paying state and local property taxes on their houses cost the federal budget another $32 billion in 2014; a study by the Congressional Budget Office found that Americans in the upper 20 percent income bracket reaped 80 percent of that federal subsidy.
Just to make sure everyone understands whom the tax code favors, homeowners also do not have to pay taxes on up to $250,000 of their capital gains profits when they sell their home, which doubles to $500,000 for married taxpayers. That exclusion amounts to another giant subsidy amounting to $52 billion per year. And here's the real kicker: these three subsidies for homeownership, which in aggregate mostly benefit higher-income people, cost the federal treasury nearly four times the $42 billion that the Department of Housing and Urban Development spends on all affordable housing programs for low-income people. Renters and most low-income Americans don't benefit at all from the subsidies, and while some middle-income people benefit, the total amount of their deductions is too small to help them much. They would benefit a lot more from a doubling of their Social Security payout.
Whose entitlement? Who's the 'welfare queen'?
Critics of Social Security have derogatorily labeled it an 'entitlement,' but in reality these tax-code favoritisms are nothing more than entitlements for wealthier people at the expense of everyone else. The affluent recipients of federal largess are the true 'welfare queens,' since these subsidies are mostly unavailable to middle- and lower-income Americans.
If we combine those budgetary add-backs with our previous savings, we now have reached nearly $900 billion, well over the $662 billion we need in order to enact Social Security Plus. And note that we were able to do this without spending a dime more in taxpayer money or national wealth than what is already spent on the retirement system, or on subsidizing the savings of better-off Americans. We are just shifting existing expenditures that right now benefit a small number of people, and redirecting these resources toward the vast majority of people.
Social Security remains one of the most popular government programs ever. It's not only good for the nation's retirees, but also for US businesses and the broader national economy. Retirees spend their income to live, providing customers for businesses, even during an economic downturn. So Social Security acts as an automatic stimulus that helps to maintain levels of consumer spending that in turn help stabilize the economy.
Moreover, expanded Social Security would be a better fit for the type of high-tech digital economy that is slowly taking root. More and more Americans are working as contractors, freelancers, temps and part-timers for multiple employers; many Americans now are working several part-time jobs to make ends meet. Social Security Plus would form a core part of a portable, universal safety net that is badly needed, providing a new kind of deal for American workers.
More members of Congress, led by Senators Bernie Sanders and Elizabeth Warren, as well as other political and media leaders and organizations like Social Security Works and the Progressive Change Campaign Committee, have come to the conclusion that we need to expand Social Security. So has President Obama, who initially disappointed his backers by supporting ill-advised cuts to the program and appointing an ill-fated commission that tried to enact cuts. Unfortunately Hillary Clinton has been the worst kind of waffler on this issue. Her latest position is that she will support expansion, but only for those who need it the most, which means not many people. If she isn't careful, she is going to be leapfrogged by Donald Trump, who is unpredictable enough to take a bolder stand on Social Security.
The simple message is that we can pay for this expansion by enacting tax fairness, and ensuring that all Americans contribute their fair share to the nation's bounty and security. With support among even Republicans extremely high, there appears to be no political risk to Hillary Clinton being out front on this issue. And with her campaign teetering on the edge of a cliff of scandal and pay-to-play politics, the Clinton campaign needs a popular issue that excites voters. Social Security expansion provides a vision for not only how our nation will treat our retirees, but also for what kind of nation we want to be.
So Mrs. Clinton should become a key catalyst in this movement for Social Security expansion by leading the way during this presidential election. What is she waiting for?
