In coming decades, America will face an economic crisis of epic proportions as tens of millions of citizens lean toward poverty as they reach their senior years. What is done about it will define what kind of country the U.S. will become.
Poverty increasingly will have an older, non-white and female face. The results may be unlike anything the nation has experienced since the 1930s Depression, when the middle and working classes were gutted by economic collapse. Then Congress responded by creating the first federal safety nets that are still relied on today, starting with Social Security.
What’s unfolding now is that much of the 76-million-member Baby Boom generation—all demographics—has not saved enough for their retirement, making Social Security and Medicare their primary means of support. Only 20 percent seniors, with incomes of more than $58,000 a year, will not rely on Social Security as their primary income source, the National Academy of Social Insurance found last fall. Women and communities of color will be especially hard-hit, experts report, citing long-time wage and savings disparities.
“Two-thirds of working Americans cannot maintain their standard of living in retirement—and that assumes they work until 65,” Syracuse University’s Eric Kingson, co-director of Social Security Works, testified in Congress last fall.
The causes of this pending crisis are well known. Pensions have disappeared. Wages have been flat for decades, even as productivity has risen. Healthcare costs have spiraled, and so have college tuitions. Private plans like 401ks haven’t produced enough. Periodic recessions, high inflation and joblessness all have tapped savings. The result is that the national retirement deficit, or what people would need to maintain current lifestyles, is about $12 trillion, Diane Oakley, executive director of the National Institute on Retirement Security, testified.
The average monthly Social Security check will be $1,290 in 2014, a $30 increase from last year, according to the Social Security Administration. One underappreciated problem is that annual benefit increases haven’t kept pace with inflation since the 1980s. According to progressive economist Dean Baker, they are 25 percent less than they were in 1983, when Congress started shaving off fractions from annual cost-of-living increases.
Another problem is that for many years, the politics surrounding Social Security have been dominated by Wall Street heavyweights who have cynically blared that the federal government is drowning in debt, fueled by future safety net obligations. Libertarian billionaires like Pete Peterson have bankrolled massive “ Fix The Debt” campaigns, casting the issue as one of better budgeting while opposing tax increases and ignoring human needs.
Their rhetoric has been fine-tuned to rail against “entitlements,” explained Drew Westen, a psychology professor at Emory University and author of The Political Brain. That frame says beneficiaries are undeserving or greedy—not average taxpayers who’ve spent their lifetime working and investing in a public social insurance program.
“That’s not a term [entitlement] that FDR [Franklin Delano Roosevelt] ever used to describe any program in the New Deal,” he said. “Entitlements suggests that you are asking for something that you don’t deserve… Instead you are so much better talking about insurance that you pay for through your taxes.”
In recent decades, the political world has not portrayed the issue as being about how the elderly, people with disabilities or tragedy-struck families can live with dignity. Similarly, it has avoided putting a clear price tag on that basic standard of living, such as suggesting that no one live below a modern poverty line—not one pegged to 1960s statistics, which is how the federal poverty line is calculated. And greedy financiers have predictably said that they could better manage the government’s Social Security accounts, eyeing billions in charges and fees.
Thus, in President George W. Bush’s administration, Bush proposed privatizing Social Security, claiming that made fiscal sense. Bush’s plan went nowhere, but it reflects the GOP mindset that lingers today. President Barack Obama created a commission to study safety net reform and it proposed reducing future costs by limiting ongoing living adjustments—Congress’ approachsince 1983. That plan would leave the elderly with a 6 percent cut after 20 years, and a 9 percentcut after 30 years, according to economist Dean Baker.
Like Bush, Obama bought into the narrow analysis and remedy from the same anti-tax increase crew, who, as part of their public relations campaign sought to pit younger Americans against their elders for a slice of a shrinking federal pie. Until recently, majorities in both parties were quick to believe that austerity was the only choice when discussing the future of social insurance, as reported by Lynn Parramore citing Obama’s slippery 2012 campaign rhetoric.
But that frame is finally starting to change and a new needs-based discussion is emerging in Washington. The pendulum has begun to swing back toward more benefits for ordinary Americans and less for the wealthy and corporations.
Straightforward Problem, Straightforward Solution
Senators such as Massachusetts Democrat Elizabeth Warren are saying what progressives have been saying for years—that fair-minded reforms are straightforward and very popular with the public. With Pope Francis talking about poverty and Washington taking notice, New York City electing a mayor who ran on reversing inequality, and minimum wage increase campaignsplanned for several red states in 2014, the political winds are shifting.
“We are hopeful that we’re on the cusp of turning the discussion from cuts to putting the (human) issues on the map,” Kingson said, saying the most harmful aspect of the debate in recent years has been the “devaluation of dignity.” He added, “We’re also trying to get the Democrats to see that Social Security is something the public wants.”
The reason Social Security has been such an easy target for wealthy anti-tax crusaders is because it is the only federal government program whose finances are calculated 75 years into the future. That requirement fuels outsized statistics, fearful projections and draconian responsesdemanded by right-wingers. In fact, there’s enough money in federal trust accounts to cover the next 20 years, the program’s trustees report. After 2033 is where an adjustment must be made.
Social Security is funded by a 15.3 percent tax on the first $117,000 of federal income, split between employers and employees (self-employed people pay all of that). That tax equates to 5 percent of the gross national product, according to the National Academy of Social Insurance’s Virginia Reno. Income above the $117,000 cap, and investment income isn’t taxed for Social Security.
There are slight variations in solutions proposed by various advocacy groups, but they all share basic elements. First, by gradually removing the income tax cap over 10 years, and increasing Social Security taxes by 1 percent for employees and employers over the 20 years—equal to an additional 50 cents a week annually—there will be no red ink for the next 75 years. These increases would mean that Social Security would take 6 percent of GDP, Reno reported. That increase in GDP is less than jumps in public education funding in the 1970s, she said.
Seventy percent of Americans, across all ages and incomes, support these tax increases, the National Academy found in polls last year. Other leading pollsters, such as Celinda Lake, have found even higher levels of support—80 percent or more, across both major parties in red and blue states. One obstacle, Lake told a congressional forum last fall, is that most Americans do not realize Social Security taxes are capped because they don’t have six-figure incomes.
“Only 2 percent of women in America make over $106,000,” she said. “So, of course, no one knows there is a cap. This is the biggest loophole that people didn’t know about in the tax structure.”
The added revenues would not just fortify Social Security’s long-term finances, but allow benefits to be adjusted and expanded. First, the government could use a more accurate inflation gauge to calculate real cost of living increases for the elderly, instead of deliberately undercutting it as has done since the mid-1980s. Elderly Americans have higher energy and healthcare costs, for example, in contrast to younger demographic cohorts.
The increased revenues could be used to improve benefits for people who really need them: such as have a minimum benefit of not less than 125 percent of the poverty line (other proposals say 150 percent); increasing what widows receive after spouses die; increasing what students get when parents die; and other adjustments that cost little but would make big quality-of-life differences.
It’s remarkable that Washington’s political establishment—from the House GOP, to Obama’sWhite House, to Washington Post editorials—sees the solution as cutting Social Security in future decades. There may no issue where they are more out of sync with the public, Lake said. The bottom line is Social Security won’t be broke for 20 years and simple, fair-minded fixes will not only make it solvent for decades, but expand it so no elderly Americans fall into poverty.
“Don’t listen to anyone in the Beltway,” Lake said. “Real people are wildly in favor of Social Security, wildly supportive of it. And this is a voting issue in 2014. We will have a record number of seniors [who are going to get] out to vote. And the senior vote is swinging back and forth between the two parties. This is going to be a very key issue and a very key vote. And it’s not, frankly, just for seniors.”
These are the individuals who have contributed to AlterNet's Retirement Crisis Reporting Fund:
Nancy Adams | Maria Alvarez | Dolores Amato | Sara Baker | Jerry Banks | Catherine Barnes | Patti Batchelder | Maryann Bayne | William Bell | Hugo Benoit | Werner Bergman | Lisa Beutler | Patricia Bewley | Gary Billey | Gary Binderimz | Rosemarie Blake | Bhikkhu Bodhi | Robert Bottman | Christopher Boutelle | Angus Bowen | B. Bowers | Charles Brainard | Kern Braswell | Catherine Brave | Jody Breslaw | Kim Brown | Marilyn Bruning | Bonnie Burkart | John Burke | Jeffrey Cancilla | Alice Canty | Dorothy Cinquemani | Kenneth Clark | Suzan Clausen | Robert Cohen | Harriet Cohen | Sandra Colombo | Michael Conley | Casey Conner | | Eugene Constant | Rachel Cooke | Peter Costello | Sydney Crawford | Iris Culter | Kathleen Daugherty | Gary Davis | Michael Davis | Richard Dawson | Jorge De Cecco | Kenneth Deed | Nandi Devam | Kim Dexter | J.A. Dingman | Elizabeth DiPalma | Patricia Dodds | John Doheny, Jr. | Gloria Donohue | Don Dougherty | Albert Driscoll | Stu Duckman | Ronald Dumont | Kim Ecclesine | Nancy Eckel | Cynthia Ellsmore | Edwin Engelmann | Judith Espovich | Virginia Eyman | Matthew Farrell | Karen Fedorov | Perrin Ferris | Thomas Firpo | Carolyn Fletcher | Christopher Flores | Terry Fontenot | Barbara Ford | Thomas Friel | Linda Fulton | Larry Gaylord | Marion Gehlker | David Glater | Nancy Goldberg | Donald Goldmacher | Alison Gomez | Florence Granowitter | Emily Greene | David Griscom | Terrence Grywinski | Shawn Hansen | Debra Harpole | Louise Harris | George Hart | Stuart Hartley | Bill Healey | Geoffrey Hendricks | Robert Henning | Marion Hirseman | Martin Hittelman | Cathy Hoot | James Hopkins | David Huhn | Will Husa| Ayed Hyder | Linda Irenegreen | Aaron Jacobs | Bobie Johnson | Wynn Kapit | Elizabeth Kelley | Jae Kenworthy | Ronald Kestler | Anita Kichefski | Jeremy Kilborn | W. Kimzey | Kerry Kleiber | Denise Kobylarz | Sandra Korn | Nancy Kranich | John Kyper | Bruce Lee | Marilyn Lee | Theodore Leibowitz | Carol Lemieux | Henry Lesnick | Betty Leyerle | Ellen Linnemanstons | Robert Lipsyte | Joan and Wallace MacDonald | Susan MacMillan | Charlene Maker | Barry Maloney | Josepha Maly | Tommy Mandel | Lawrence Mar | Louis Mariani | Joseph Mastalski | Annie Masters | Chris Matthews| George Matkovits| Kay Matthews| Frank McEvoy| Gail McMullen| Kevin Meismer| Elizabeth Mewhinney| Mary Micek| Rosemary Migas | Claire Mills | Jonathan Morris | Nina Murano | Christine Murphy | John Murrill | Deborah Mytels | Jean Naples| Peter Nasatir| Aileen Nelson| Terrance Newton| Deborah Nitasaka| D. Ocker| Janet Ohlhausen| Clifford Olin| Judith Pearson| Charles Percival | Jeanne-Marie Peterson | Mary Peterson | Cynthia Peterson | Ted Pfeiff | Brian Porter | Rudolph Radau | Joseph Rainho | Richard Rayford | Lisa Reswick | Debbie Richards | Sharon Richey | Leonard Rifas | Marvin Ritzenhaler | Nancy Roca | Edwin Rogers | Sue Rosen | Richard Ross | Nancy Ryan | Susan Salazar | Joseph Sanchez | Terry Sanders | Elizabeth Sands | Carole Sauriol | Carol Scher | Scott Scherman | Wanda Schertz | Gerda Seaman | Carolyn Semiglasow | Marlene Shaner | Elaine Simon | Crystal Sloa | Sara Sogut| Helen Sohne| Priscilla Solomon| Wayne Stinson| Patricia Stroud| Francis Sullivan, Jr.| Jyun Takagi| Tasmin Taylor| Diane Thatcher | C. Thompson | Keith Thornton | Lisa Tomchesson | Priscilla Toth | Catherine Twohill | Eric Weis | Teresa Welborn | Wilma A. Wheeler | Joel White | Dolores Whitman | Terry and Barbara Williams | Hugh Wilson | Liddy Wilson | Carroll M. Wilson | Eric Wilson | Jack Wilson | Charles Witt | William Woodward | James Woolsey | Eleanor Wynn | Christine Wynne | David Yamada | Leroy York, II | James Young | Marian Zaouk | Susan Zencka