What would Edwin Witte think?
Witte, who graduated from the University of Wisconsin-Madison in 1909 and died in 1960, is often referred to as “the father of Social Security.”
Witte advised Robert M. “Fighting Bob” La Follette when he was governor before becoming executive director of President Franklin D. Roosevelt’s Committee on Economic Security. In that role Witte designed what became the Social Security Act of 1935.
But here in Wisconsin these days, devotion to the cause of protecting the nation’s elderly from economic catastrophe is, well, quite different.
Within the past two weeks, two state Republicans gained national notice on the topic, and neither is named Scott Walker.
First, U.S. Sen. Ron Johnson was half of a much-publicized dust-up on a Sunday political talk show with Paul Krugman, the New York Times columnist and Nobel Prize-winning economist, over Johnson’s claim that the trust fund for Social Security doesn’t really exist. Krugman told Johnson his “facts are false.”
That set off a frenzy of left-right Internet fist-fighting over trust fund accounting, but Johnson was just dutifully adhering to right-wing talking points that portray a program facing a catastrophe that would justify its dismantling.
Days later, U.S. Rep. Paul Ryan of Janesville doubled down against Social Security, claiming it and the Medicare program are “tens of trillions” of dollars in the hole. His comments on Social Security were part of his unveiling a proposed federal budget as chairman of the House Budget Committee.
Ryan’s comments on Social Security delighted a Los Angeles Times columnist who had just published a story listing the “five biggest lies” told about social programs. The columnist was grateful for Ryan’s validation under the headline: “Paul Ryan drinks deeply from pool of Social Security lies.”
If they were living, the corporate titans who despised all aspects of FDR’s New Deal would be applauding Johnson and Ryan for carrying forward a Robin-Hood-in-reverse spirit.
But wait, wasn’t it Ryan who said last week that Social Security benefits should not flow to the wealthy, advocating “means testing” for the well-to-do? On its face, that seems like a concession for a party entirely beholden to the nation’s rich.
Turns out GOP support of means testing is cynical and self-serving, though. A writer in The New York Times recently explained why. Thomas Edsall, who covered politics at The Washington Post for 25 years, produced a meticulous analysis headlined: “The War on Entitlements.”
Edsall writes that while most analyses focus on cutting benefits, the idea of subjecting earned income over the current $113,700 ceiling to the Social Security payroll tax is “largely missing” from the policy debate.
What Edsall calls the “Washington cognoscenti” are more inclined to advocate means testing. Why? He writes in summary: “Insofar as benefits for the affluent are reduced or eliminated under means testing, social insurance programs are no longer universal and are seen, instead, as a form of welfare. Public support would almost certainly decline, encouraging further cuts in the future.”
Also, he writes, the focus on means testing diverts attention “from a much simpler and more equitable approach: raising the payroll tax (ceiling) to apply to the earnings of the well-to-do, a step strongly opposed by the ideological right.”
The reason the wealthy can be so sanguine about losing Social Security benefits is that the amount, to them, is piddling. I heard one Madison executive joke years ago that the program represented only “golf ball and wine” money to him.
A key statistic: Edsall says the Congressional Budget Office estimates that eliminating the payroll tax ceiling would cost the wealthy the equivalent of 0.6 percent of Gross Domestic Product, but sharp Social Security benefit reductions to the top third of the income distribution would cost them only the equivalent of 0.1 percent of GDP.
Lest you infer that I place sole blame for our failure to fix Social Security on selfish Republicans, I think Democrats and liberals deserve a portion of the rap for their third-rail hysteria around even modest benefit changes.
A smart fix for Social Security almost certainly involves adjustments on both revenue and income, illustrated by a UW-Madison academic exercise. Economics Professor Tim Smeeding, who Edsall refers to among “thoughtful scholars” in his analysis, recently shared with me the assignment he uses with his graduate social policy students.
In simple terms, Smeeding challenges students to reconcile an “actuarial imbalance” the Social Security program faces over the next 75 years of 1.2 percent of GDP. They cannot reduce initial benefits of people now older than 55.
He then lists a smorgasbord of options to get to 1.2 percent, and those options fit generally into five categories: increasing payroll taxes, reducing initial benefits for retirees in the distant future, increasing benefits for low earners (which exacerbates the problem), increasing the retirement age, and reducing cost of living adjustments on continued benefits.
Smeeding’s students must measure the effects of their prescriptions against goals that include closing the deficit, improving public confidence in Social Security, reducing poverty among the elderly and generally maintaining income protection for lower- and middle-income Americans.
So, I ask him, what does a good answer look like? “A good answer, one that defends very well, is … one that balances some change in benefits, in other words outlays, and some change in income.”
The trick, he says, “is to get these things to add up.” For example, he says, there is a real issue of elderly poverty. “Gee, we have an elderly poverty issue. It’s a very small issue, but it’s (generally) with older women who live alone or have outlived their husbands and their husbands’ pensions and their Social Security was low to start with and just isn’t keeping up with costs. So, if you can raise benefits for those people and target it, then you could do that, but that costs you two-tenths of a percent (of GDP).”
Smeeding points out that simply raising or removing the ceiling on which earned income is taxed is complicated by the fact that many with truly high incomes are paid in a manner not even subject to Social Security taxes.
“If you were going to eliminate the taxable maximum, I would tell you that you’d better take a look at the top, at people who pay themselves in terms of capital gains,” Smeeding says. “In other words, hedge fund managers and people who are in the finance industry pay themselves not in wages, but in what’s called ‘carried interest.’ … No one’s talking about that.”
Which reminds me of a comment in Edsall’s analysis by Theda Skocpol, a Harvard professor of government and sociology: “At one level, it’s very, very privileged people wanting to make sure they cut spending on everybody else” while “holding down their own taxes.”
Smeeding’s exercise suggests achieving a balanced, centrist solution shouldn’t be that hard.
Skocpol’s quote sums up why it is.