Can
Wall Street Save Social Security?
by
Jeff Gates ©
Proposals
to privatize Social Security require that we revisit the reasons for its
founding. But first let’s be clear
about who privatization impacts – and how.
Its proponents would transfer roughly $100 billion per year of payroll
taxes into financial markets where, from 1983 to 1998, 53% of market gains went
to the most well-to-do 1 percent of households.[1] It’s easy to see why those few might find
this approach appealing. Not, mind you,
that they’re suffering. The wealth of
the Forbes 400 richest Americans
grew, on average, $1.44 billion each from
1997-2000, for an average daily increase of $1,920,000 per person. That’s $240,000 per hour or 46,602 times the
minimum wage.[2] Without this proposed pipeline into Social
Security, that torrid pace may slow.
Just
prior to the dot-com collapse, Wired
magazine projected Microsoft’s Bill Gates would be a trillionaire by March 2005
and, by March 2020, a quadrillionaire (a million billionaire). With the Justice Department reneging on its
pledge to bust-up his monopoly, baby-boomers can look forward to a future where
a single person may have more wealth than their entire generation combined, all
76 million strong. Far-fetched? The Federal Reserve reports that, from
1983-1997, only the top 5 percent of households saw any increase in net worth,
while wealth declined for everyone else.[3]
The
last time wealth was this exclusive, a populist movement emerged, led by
Louisiana’s Huey P. Long. The wide popularity
of his mid-1930s “Share Our Wealth” program – paired with his White House
aspirations – persuaded Democrats to commission the nation’s first-ever
scientific political poll. The results
projected that Long’s populist message would throw the 1936 election to the
Republicans, including even New York, FDR’s home state. With those sobering findings in hand, FDR
pushed to passage in 1935 the Second New Deal (the first had fizzled), with
Social Security its centerpiece.
Historians confirm that his support was meant to “steal Long’s thunder.”
Tax-Our-Paycheck-Progressives
Rather than Share Our Wealth, progressives opted instead to Tax Our Paychecks. The Social Security payroll tax has since grown to become the largest tax paid by three-quarters of Americans, a hugely regressive flat tax of 15.3 percent on earnings up to $80,400. Sixty-six years later, the question to answer is: “Why are so many Americans still so dependent on it?” Imagine: in the world’s largest “capitalist” economy, the largest “asset” for most is a government-promised income stream funded with a tax on employment.
Now, after three centuries of labor-saving advances, today’s progressives propose not less work and more wealth-sharing but “full employment.” Conservatives, meanwhile, pit the employed against a global labor pool, ensuring that globalized capital creates jobs wherever labor costs are lowest. The result: a windfall for those who own alongside fast-growing overcapacity as labor-cost savings abroad show up back home as weakened consumer demand. Plus such concentration of wealth and income that baby-boomer retirement needs are poised to create a fiscal nightmare.
The share of after-tax income flowing to the top 1 percent
nearly doubled from 1979-1997. By 1998,
their combined income equaled the 100 million Americans with the lowest
earnings.[4] The top fifth of households now claim 49.2
percent of income while the bottom fifth scrapes by on 3.6 percent.[5] Yet neither party
voiced any concern that the proposed Medicare support for prescription drugs
would flow largely to Wal-Mart’s 2,428 pharmacies, capitalizing a family whose
wealth already exceeds $85 billion.
Today’s
policy mix offers no possibility of
adequately capitalizing baby-boomers.
None. Not that policy-makers
don’t know how to capitalize
people. For instance, the nation’s
“full faith and credit” is a public asset available to capitalize any purpose
to which policy-makers agree. In 1980,
the national debt totaled $909 billion.
By 2000, it topped $5711 billion.
What did we get in return? In
1981, we got a $872 billion tax cut, much of it “supply-side” investment
incentives, all of it deficit-financed.
In 1982, $91 million was required for inclusion on the Forbes 400 list where average wealth was
$200 million, including 13 billionaires.
By 1986, average wealth was $500 million. By 2000, $725 million was required for inclusion on a list with
an average $1.2 billion, including 274 billionaires. The latest tax cut quickens the pace of that trend, its long-term
fiscal cost twice the long-term Social Security shortfall.[6] The top 1 percent will receive three-eighths
of the benefits.
The
debate over “Saving Social Security” is a distraction. Privatization amounts to another opportunistic
raid on the Treasury on behalf of the already well-to-do. Today’s out-of-focus debate must be reframed
if we hope to reform a flawed plank in the progressive platform. The only
sensible solution for Social Security is a policy mix that ensures people need
it less. That’s why the populist
question remains the only sensible question to ask: How do we sensibly share our wealth?
Updating
national economic policy would be a good start, with law-making that encourages
both widespread employment of the nation’s labor resources and widespread
ownership of its capital resources.
That would demonstrate genuine fiscal foresight. An “ownership impact report” could accompany
any public law that affects private ownership, including private access to
assets on public lands (minerals, oil, timber). Because private property is so essential, policy-makers can no
longer be permitted to treat its patterns as irrelevant. Firms without broad-based ownership should
be disqualified from government contracts, trade assistance and licenses,
including broadcast licenses. Access to
capital markets and the banking system should favor firms that broaden
ownership. Tax incentives should be denied
employee benefit plans (now $8 trillion in assets) unless they invest in firms
committed to sharing ownership.
Social
Security won’t be saved by diverting payroll taxes to Wall Street. That’s a certain way to boost portfolio
values for those who need it least.
Common sense mandates a thorough policy review to ensure that widespread
ownership is encouraged throughout those rules that encourage free
enterprise. Only in that populist
direction will a sensible solution be found.
Former counsel to the U.S. Senate Committee on Finance (1980-87), Jeff Gates is author of Democracy at Risk - Rescuing Main Street from Wall Street, and president of the Shared Capitalism Institute (www.sharedcapitalism.org).
[1] Edward N. Wolff, “Where has all the Money Gone?,” The Milken Institute Review, Third Quarter 2001, p. 34.
[2] See www.forbes.com. To compare wealth accumulation with earnings of the typical employee, the figures assume wealth was amassed over 40-hour week and a 50-week year.
[3] Federal Reserve Bulletin, January 2000, p. 10.
[4] Congressional Budget Office Memorandum, Estimates of Federal Tax Liabilities for Individuals and Families by Income Categoy and Family Type for 1995 and 1999, May 1998.
[5] See www.census.gov (“income” at Table H-2).
[6] This projection assumes that the tax cut provisions enacted in 2001 are made permanent rather than, as now, assuming that they will automatically expire in 2011. Washington, D.C.: Center on Budget and Policy Priorities, August 3, 2001. See www.cbpp.org/8-3-01tax.htm.