ABSTRACT: We need to improve the economic security of today’s – and tomorrow’s – senior citizens. Strengthening and expanding Social Security is the third of the Ten Big Ideas to Save the Economy. Reliance on Social Security is increasing. Despite its maximum benefit of only $32,000 per year, for one-third of seniors it’s 90% of their income.
Some people are using scare tactics – claiming that Social Security is running out of money and that we have to cut benefits or raise the retirement age to preserve it. However, Social Security is not in serious financial trouble; a simple adjustment in how payments into Social Security are calculated will provide funding sufficient for the foreseeable future. There is $118,500 cap on the amount of annual income taxed to provide Social Security benefits. This is not sensible or fair. Scrap the cap and everyone alive today can look forward confidently to Social Security benefits.
Outside of Social Security, the federal government spends $68 billion every year on tax incentives for contributions to Individual Retirement Accounts (IRAs), Keoghs, 401(k)s, and other tax sheltered retirement accounts. However, almost all of these benefits end up in the pockets of the wealthiest Americans. So these supposed retirement savings incentives for the middle and working classes, which significantly reduce government revenue, are primarily just another tax avoidance scheme for the well-off.
Our country both needs to and can afford to provide Social Security to its seniors. With all the challenges the middle and working classes are facing in saving for retirement, we should be strengthening Social Security and increasing its benefits, not cutting them as some people say we should.
FULL POST: We need to improve the economic security of today’s – and tomorrow’s – senior citizens. Strengthening and expanding Social Security is the third of the Ten Big Ideas to Save the Economy presented by Robert Reich and MoveOn.org. [1] We all want to be able to maintain a reasonable standard of living in retirement. However, fewer and fewer workers have pensions from their employers. And saving for retirement is harder than ever because middle class wages have been stagnant for 40 years while living expenses keep going up. In addition, student debt has grown dramatically and most Americans lost substantial income or savings (or both) in the Great Recession of 2008.
A recent study found that more than half of all American households with someone 55 or older have no retirement savings. Among those with some retirement savings, the median amount of those savings is only about $104,000 for those 55-64 and $148,000 for those 65-74 – nowhere near enough to maintain a reasonable standard of living in retirement. [2]
Therefore, reliance on Social Security is increasing. Despite its maximum benefit of only $32,000 per year, for two-thirds of seniors, Social Security represents half of their income; for one-third of seniors, it’s 90% of their income. Nearly half of seniors would be living in poverty if they weren’t receiving Social Security. So Social Security benefits should not be cut; they should be increased.
Some people are using scare tactics – claiming that Social Security is running out of money and that we have to cut benefits or raise the retirement age to preserve it. However, Social Security is not in serious financial trouble; a simple adjustment in how payments into Social Security are calculated will provide funding sufficient for the foreseeable future. Right now, we pay into Social Security on up to $118,500 of annual income; nothing is paid into Social Security on income over that amount. Therefore, a CEO or hedge fund manager making $10 million or more in a year pays the same amount into Social Security as someone who makes $118,500. If this cap on the income taxed for Social Security were lifted, and everyone paid the same rate on all their income (as we do for Medicaid), Social Security would have plenty of money to pay its promised benefits – and more.
The $118,500 cap on the amount of income taxed for Social Security is not sensible or fair. Scrap the cap and everyone alive today can look forward confidently to Social Security benefits when they are senior citizens.
Some people go so far as to say we can’t afford Social Security. However, they conveniently ignore the fact that the federal government spends $68 billion every year on tax incentives for contributions to Individual Retirement Accounts (IRAs), Keoghs, 401(k)s, and other tax sheltered retirement accounts. Although these policies are presented as promoting retirement savings for average Americans, the way these tax breaks are designed results in almost all of these benefits ending up in the pockets of the wealthiest Americans. These wealthy individuals would be saving anyway, so rather than functioning as effective retirement savings incentives, these tax breaks are largely giveaways to the already well-off. [3] The maximum amounts that can be contributed to these accounts are something only the well-off can afford to take advantage of. For example, the maximum contribution one can make to a 401(k) or 403(b) plan is $18,000 per year or $24,000 if one is over 50. (For the sake of comparison, the median annual household income in the US is $52,000.) The huge amounts of money that can be accumulated in these accounts are far more than are needed to maintain a reasonable standard of living in retirement. The result is that these supposed retirement savings incentives for the middle and working classes, which significantly reduce government revenue, are primarily just another tax avoidance scheme for the well-off.
Our country both needs to and can afford to provide Social Security to its seniors. With all the challenges the middle and working classes are facing in saving for retirement, we should be strengthening Social Security and increasing its benefits, not cutting them as some people say we should.
[1] You can watch the 3 minute video at: http://civic.moveon.org/expandsocialsecurity/share.html?id=116037-5637721-y4jZ7Rxn.
[2] U.S. Government Accountability Office. 5/12/15. “Most Households Approaching Retirement Have Low Savings,” GAO-15-419: http://www.gao.gov/products/GAO-15-419
[3] Ghilarducci, T., Spring 2015, “Senior class: America’s unequal retirement,” The American Prospect
Lippitt's Policy and Politics Blog 