Biden will lift the cap and tax the rich
ROBERT REICH in Robertreich.Substack.Com
During a typically rambling and incoherent interview last week, Trump admitted he would cut Social Security and Medicare if reelected."There is a lot you can do in terms of entitlements, in terms of cutting and in terms of also the theft and the bad management of entitlements.”
Trump has tried to
walk back the remarks,
saying that when he used the word “cutting” he didn’t actually mean “cutting,”
and that Social Security has a lot of waste.
In fact, Social Security is well
managed, and theft or fraud is rare.
But there’s no question Trump and his
Republican allies want to cut Social Security and Medicare.
Here’s why. At the heart of their economic
agenda — at least the portion they’re sharing with their super-wealthy backers
— is another giant tax cut for the super-wealthy and big corporations.
The problem is that this tax cut would
cause the federal budget deficit to explode — as did their last tax cut for the
wealthy — unless Social Security and Medicare are cut.
(Remember that as president, Trump repeatedly included cuts to Social Security
and Medicare in his official budget proposals.)
This is why Trumpers have been ramping up calls for cuts in Social Security (or raising the age of eligibility, which is the same thing).
Last week, Daily Wire founder and professional bloviator Ben Shapiro — oblivious to the fact that millions of Americans do hard work that takes a toll on their bodies — urged that the retirement age be raised.
“No one in the United States should be retiring at 65
years old. Frankly, I think retirement itself is a stupid idea unless you have
some sort of health problem.” Turning Points USA founder Charlie Kirk echoed
Shapiro: “I’m not a fan of retirement. I don’t think retirement is biblical.”
I want to be clear with you about Social
Security. (I was once a trustee of the Social Security Trust Fund, so I know
about this issue.)
Even without another Trump
Republican tax cut for the rich, America still faces a pending
problem financing Social Security. (Medicare is less problematic because the
rise in health care costs has slowed, probably due to the Affordable Care Act.)
That’s because the American population is
aging, with a rising ratio of retirees receiving Social Security benefits to
workers paying into Social Security.
The Congressional Budget Office expects
that over the next 20 years, spending on Social Security and Medicare will rise
by about 3 percentage points of GDP.
In their annual report, the trustees of the
Social Security Trust Fund said that Social Security will be able to pay full
benefits for another decade but thereafter faces a significant funding
shortfall. Unless something changes, after 2034 it will be able to pay only
about 80 percent of scheduled benefits.
But this pending problem in no
way requires cuts to Social Security benefits or increases in the
retirement age.
In sharp contrast to Trump, Biden
correctly asserts in his new
budget that Social Security (and Medicare) can remain solvent by raising taxes
on high incomes rather than by cutting benefits.
The problem isn’t that the giant baby-boom generation is sucking up too many Social Security benefits. The Social Security trustees anticipated the boom in boomer retirements.
This is
why Social Security was amended back in 1983, to gradually increase the age for
collecting full retirement benefits from 65 to 67. That change is helping
finance the retirements of boomers (like me).
So what did the trustees fail to
anticipate in 1983 when they raised the retirement age for collecting full
benefits? Answer: the degree of income inequality in 21st century America.
Put simply, a big part of the American
working population is earning less than the Social Security
trustees (including me) anticipated decades ago — and therefore paying less in
Social Security payroll tax.
Had the pay of American workers kept up
with what had been the trend decades ago — and kept up with their own
increasing productivity — their Social Security payroll tax payments would have
been enough to keep the program flush.
At the same time, a much larger chunk
of the nation’s total income is going to the top than was
expected decades ago.
Here’s the thing: Income subject to the
payroll tax is capped. Not a single dollar of earnings
in excess of the cap is subject to Social Security payroll
taxes. This year’s cap is $168,600.
Which means, for example, that Jeff Bezos
finished paying all his Social Security payroll taxes due this year at
around 7 minutes into
January 1.
The Social Security cap is adjusted every
year for inflation, but the adjustment is tiny compared to what’s happened to
incomes at the top.
As the rich have become far richer,
more and more of the total income earned by Americans has become concentrated
at the top. Therefore, more and more total income escapes the
Social Security payroll tax.
The obvious solution to Social Security’s
funding shortfall, therefore, is to lift the cap on income subject to the
Social Security payroll tax, so the super-rich pay more in Social Security
taxes.
To make sure it’s the super-rich — and not
the upper-middle class — who pay, it makes sense to eliminate the cap
altogether on earnings in excess of, say, $400,000.
As it happens, Biden’s plan does exactly
this.
So there you have it: Trump and his
regressive mouthpieces want to cut Social Security so they can give another
giant tax cut to the super-rich.
Biden wants to save Social Security by
having the super-rich — who have become far richer over the past several
decades — pay more Social Security taxes.
The contrast couldn’t be more obvious or
more important. Please help get the word out.
© 2021 robertreich.substack.com
ROBERT REICH is
the Chancellor's Professor of Public Policy at the University of California,
Berkeley, and a senior fellow at the Blum Center for Developing Economies. He
served as secretary of labor in the Clinton administration, for which Time
magazine named him one of the 10 most effective cabinet secretaries of the
twentieth century. His book include: "Aftershock" (2011), "The
Work of Nations" (1992), "Beyond Outrage" (2012) and,
"Saving Capitalism" (2016). He is also a founding editor of The
American Prospect magazine, former chairman of Common Cause, a member of the
American Academy of Arts and Sciences, and co-creator of the award-winning
documentary, "Inequality For All." Reich's newest book is "The
Common Good" (2019). He's co-creator of the Netflix original documentary
"Saving Capitalism," which is streaming now.