Title: The “Stupidest Fix for Social Security” & Other Bad Ideas (Part 2)
ANNOUNCER: It’s You Earned This, the Social Security and Medicare podcast, brought to you by the National Committee to Preserve Social Security and Medicare, and now your host, Walter Gottlieb.
WALTER: Last week we were talking to Pulitzer Prize winning columnist Michael Hiltzik of the Los Angeles Times about how the mainstream media often gets it wrong when it comes to covering Social Security. We ran out of time and Michael had so much more to say that we asked him back for a part two. In this episode, we look at Democratic proposals to strengthen the program and Republican proposals to cut benefits, including raising the retirement age, which Michael calls the stupidest and most dishonest fix for Social Security. So Michael, welcome back and thank you for joining us again.
MICHAEL HILTZIK: Well, thank you for having me.
WALTER: All right. Well, let’s dive right in. You mentioned Nikki Haley before, so I want to go back to that for a minute. When she and other Republicans talk about cutting benefits, even if they don’t call them benefit cuts, they always say we’re not going to touch Social Security for today’s seniors, but our kids and grandchildren, we’re going to effectively cut their benefits. Why is that a bogus and unreasonable argument?
MICHAEL HILTZIK: Well, I think on the face of it, it makes no sense. If you come into this debate with the assertion or claim that we need to cut benefits, then what is the argument for not cutting them for everyone? Or are you going to be in a situation where workers can see that their parents got everything, but they’ve been cheated? They’ve been basically shortchanged. I just don’t think this is tenable as a logical argument, and it’s really not tenable politically. You are now going to create a two-class, maybe a three-class system. So yeah, if you’re going to cut benefits, the only reason they do that, by the way, is they figure that seniors or older people vote more, are more reliable voters. So let’s not hurt them, and that young people don’t vote as much and don’t have as much confidence in the system anyway. So let’s fulfill their worst expectations, and who cares? So it makes no sense to me.
WALTER: Also, Michael, is there any reason to think that millennials, for instance, won’t need their Social Security benefits every bit as much or more than their parents or grandparents do?
MICHAEL HILTZIK: Right, and I would say more, because the other stools, the other legs of the three-legged stool of retirement, two of the three are obviously impaired. I mean, we don’t get pensions anymore. I mean, I do, but I’m the last person on earth who does, I think. And it’s been harder to save money. We know that defined contribution plans are chronically underfunded for most Americans, and that’s not going to get any better.
WALTER: So in other words, one leg of the stool was pensions. We don’t get those by and large anymore. We just get 401ks, which are subject to extreme market volatility. And the other leg was supposed to be retirement savings, which a lot of younger people can’t afford to do because of income inequality and the gig economy and all that.
MICHAEL HILTZIK: Exactly.
WALTER: So we talked about the fact that Republicans seem to favor cutting Social Security as the solution. By and large, Democrats in Congress favor requiring the wealthy to pay their fair share. I’m sure you’re familiar, I know you’re familiar with John Larson’s Social Security 2100 Act and Bernie Sanders’ Social Security Expansion Act. And Senator Whitehouse has one, too, called the Social Security Fairness Act. Which side do you come down on in terms of which path is better?
MICHAEL HILTZIK: Well, I think going back to what you mentioned earlier, this is supposed to be the richest country on Earth. We have more than enough money in the economy to expand Social Security, to raise it back up to the bulwark against poverty that it has always been. And there’s certainly no rationale for cutting benefits. And when we talk about the fair share, not a few well-heeled readers and friends and acquaintances who say, don’t I already pay my fair share? For God’s sake, you’re going to now saddle me with another 12.4% on my income. And there are a couple of ways that we need to understand the fair share. To the extent that wealthier people are capped out of the payroll tax, they earn more than, I think this year it’s $168,000 and change. They’re not paying an obligation that we all actually have inherited from the 1930s, which Peter Orszag and Peter Diamond called the legacy debt. And that is when Social Security was created, this country made the decision that we were going to start paying benefits even to people who had not paid in to the system long enough to fund those benefits. And that was a whole generation of older workers and retirees in the 1930s and early 1940s. And I think that condition persisted, that condition persisted well into the 1950s at least, and we did that by basically having Social Security borrow from later generations, and that debt has never gone away, it just gets rolled over year after year and generation after generation. And that’s right, that’s well and right, but we have to pay it. So when you have people who are basically capped out of paying the full payroll tax, they’re not carrying their fair share of that legacy. So basically what we know from the actuaries is that if you basically remove the cap and have everybody with wage income pay 12.4% divided between employers and employees, then you can basically obviate most, if not all, of whatever deficit we end up facing in the 2030s. And the other aspect of this, which for some reason almost never gets mentioned, I don’t think it’s in Larson’s bill or Sanders, or Whitehouse, is that wealthier people get really half of their income or more from unearned income, from capital gains and dividends which are not taxed at all for Social Security. So they’re getting sort of a double break. They don’t pay payroll tax on income over whatever the cap is for the year, and they don’t pay payroll tax at all on earned income. And I think if you now start taxing earned income, that would almost certainly eliminate the long-term deficit.
WALTER: Well, so just to be clear, I mean, I do think at least Larson and Sanders and probably Whitehouse too, do include some net investment tax, but I guess I just would like to get a clear answer of in general, do you support these revenue side solutions as opposed to cutting Social Security benefits?
MICHAEL HILTZIK: A hundred percent. I think all of the, whatever fiscal repairs we need to the system, it needs to come entirely from the revenue side, not from the benefit side. I mean, there’s an argument for improving benefits for lowest income workers, changing the bend points, changing the revenue, the income replacement level, maybe even having a bump up for people in 80 or 85 when we know that personal and family resources begin to really start disappearing. But on the whole, you know, there’s absolutely no reason to cut benefits when the alternative of raising revenues is so clear.
WALTER: Well, this has been a fantastic discussion. I wish we had even more time. I did want to ask you, because I’ve been curious, you’re working on a book about the history of California. Is that right? I’m just curious, like what the angle is, what the perspective is.
MICHAEL HILTZIK: Well, the original angle, the angle that I sold the project with was that this was going to be a look at what California has taught the nation and the world over its long existence. And in the course of doing the research, and the manuscript is now finished and has been edited and the book will be published in January.
WALTER: Congratulations.
MICHAEL HILTZIK: Thanks. Anyway, what I what I learned, and the researching a book like this is a learning process, is that it’s true that California has taught everybody outside California a lot. But a lot of what California has taught the rest of the world, things that we’re not so happy that the rest of the world has learned from California, that there’s a long history of racism and discrimination, and genocide in the state’s history. And of course, we gave the world Richard Nixon and Ronald Reagan, along with with Irene Johnson, and Jerry Brown, and Earl Warren, whose legacy is really very, very checkered, which is another thing I learned.
WALTER: Quite, quite the history, quite the legacy you’re documenting there. Congratulations on that book.
MICHAEL HILTZIK: Well, it’s been a lot of fun. And I learned a lot and really enjoyed researching it, which is good, because when you have a project for four years, you want it to be fascinating to yourself as well as to readers.
WALTER: I’m sure it will be and you got it done before California falls into the ocean.
MICHAEL HILTZIK: So that’s that’s right. Well, we hope it won’t yet, as long as I’m a property owner.
WALTER: There you go. Well, thank you, Michael Hiltzik, for being on the podcast and for everything you do.
MICHAEL HILTZIK: Well, thanks for having me. It’s been a blast.
WALTER: And thanks to all of you for listening today. Our engineer is Shahab Shokouhi. Our editor is Simon Laslo Janssen, who also composed our wonderful theme music. I’m Walter Gottlieb, inviting you to join us next time and reminding you that you earned this.