Tag Archives: social security

Why the GOP’s war on Social Security hurts basically everyone but rich white guys

Polls consistently suggest that the No. 1 women’s issue is the economy.

Female voters are split, particularly by marriage between the Democrats and Republicans. Married women slightly prefer Republicans, while single women overwhelmingly prefer Democrats. The reason is simple: In an economic system that overwhelmingly favors the married, single women tend to live more precariously and rely on programs that Republicans want to eviscerate. And there’s another factor that will only increase such discrepancies: Conservatives are increasingly pushing to cut programs for seniors. In our economy, where care-taking responsibilities fall overwhelmingly to women, this will mean more women will have to shoulder the burden of healthcare. Austerity will burden women, particularly women of color.

The politics of austerity

Even though the deficit has declined dramatically, and there is very little evidence for a long-term budget crisis, Republicans are still hellbent on shredding the social safety net. As Dylan Scott reports for Talking Points Memo, “Republicans are seizing a once-every-20-years opportunity to force a crisis in the Social Security disability program and use it as leverage to push through reforms, a long game that they have been quietly laying groundwork for since taking control of the House in 2010.” This even though the crisis they worry about is actually entirely mythical. But America is on the road toward a retirement crisis, as a squeezed private pension system and a squeezed public pension system collide.

Long story short: Millions of American are going to retire without adequate savings to survive. This will mean an increasingly despairing elderly population, but another important impact could be a large step back for women in the workplace. This crisis doesn’t show any signs of abating — young people are pushing off saving because they are racked with student debt. A Demos report finds that a student who graduates with $53,000 in debt will expect to have a lifetime wealth loss from that debt of $208,000. These debt burdens primarily affect low-income students and students of color.

The retirement crisis is not inevitable and nor is it the fault of workers. As Dean Baker has noted, most of the gap in public pensions was the result of the financial crisis of 2007-2008. Matt Taibbi points out in Rhode Island, the state government is paying $2.1 billion in fees over 20 to hedge funds, while freezing cost of living adjustments for workers at a cost of $2.3 billion over the same period. Yet hedge funds are a hugely overrated asset class, and the state government would be better off just investing in an index fund (one reason CALPERS recently divested). If retirement security is seen as a three-legged stool of Social Security, employer pensions and private savings, we can see that all the legs are being undermined. Pensions are more and more likely to be defined contribution instead of defined benefit – if workers have them at all. 401k plans extract hundreds of thousands from workers in fees. Private savings are plummeting  as incomes are squeezed. At the same time, Social Security is under assault from increasingly radical conservatives.

The Impact

The decimation of the housing sector and the war on pensions means one thing: a looming retirement crisis. Generations of elderly people will find themselves without private savings and find Social Security and Medicare have been hacked apart by Republicans, bowing to the demands of rich donors (see chart).

This will mean once again elderly poverty will be a pressing concern, even though we have spent decades making progress toward eliminating it. But much this burden will inevitably fall on the children of retirees: mainly women. Last year, the New York Timesreported on a disturbing trend: After decades of increasing, female labor force participation is plummeting (see chart).

Most disturbingly, many of these women were dropping out during prime earning years. One significant reason is to take care of elderly parents. Research by Pew shows that women are far more likely to take a large reduction in hours, take off time, quit a job or turn down a promotion to care for a child or family member (see chart).

large academic literature suggests that women will bear the brunt of the caregiving activities for elderly retirees. Research suggests that, “Daughters are twice as likely as sons to become the primary caregiver.” Richard Johnson and Anthony Lo Sasso find, “time to help parents strongly reduces female labor supply at midlife.” Research alsoconfirms that women do not care for elderly parents because they are already unemployed, but rather, “Thus, the causal relationship between employment and caregiving in late midlife is largely unidirectional, with women reducing hours to meet caregiving demands.” In a recent study Yeonjung Lee and Genan Tang find, “Results show that women caregivers for parents and/or grandchildren were less likely to be in the labor force than non-caregivers and that caregiving responsibility was not related to labor force participation for the sample of men.” AARP estimates that a caregiver over 50 will lose $283,716 in wages and benefits for men and $324,044 for women. There are costs for businesses too, an estimated annual loss of $33.6 billion in lost productivity. But the brunt of the burden is borne by the poor, women and people of color. The impact of the retirement crisis could set back the progress of women in the labor force by decades.

The Solution

One solution to the retirement crisis is the financial sector, which benefits the rich while undermining the wealth of the poor. Rep. Chris Van Hollen has laid out the best way to do that; his recent proposal is centered around a financial transaction tax projected to raise $1.2 trillion in revenues. The tax wouldn’t just raise revenues; there is strong evidence it could reduce market volatility and rent-seeking (rampant on Wall Street). The money raised from the tax should be used to bolster the social safety net slowly being shredded by the right. It should also be used for public investment in infrastructure.

A more structural issue is the nature of uncompensated work in a capitalistic society. While it is unlikely that we can decimate patriarchy in the near future, one solution could be socialize it. By turning over caregiving, early childhood education and other labor that is currently performed by women (without pay) to the public sector, women will be free to pursue their own interests. Labor that was once uncompensated will now be performed for decent wages creating millions of public sector jobs (massive cuts to public sector jobs have also taken a toll on female employment). Further, we should ensure that both women and men have access to parental leave, sick leave and an adequate pension. These reforms will be costly, but the $1.2 trillion that a financial transaction tax would raise could easily cover these costs. Our tepid commitment to gender equity will be rendered useless if continued austerity falls entirely on the shoulders of working women.

This piece originally appeared on Salon.

How America can fix the racial wealth gap

One of the most persistent but unaddressed problems in the United States is our massive racial wealth gap. Wealth provides an important cushion from the threat of unemployment, medical emergency or other unforeseen events. Wealth can also help pay for college, the start of a new business or the purchase of a first home. However, most Americans struggle with debt. A recent Federal Reserve Report finds that of Americans who had savings before 2008, 57 percent reported using up some or all of their savings in the aftermath of the recession. However, wealth and debt are not distributed equally (see chart).

The racial wealth gap is caused by the fact that wealth is passed from generation. As Gregory Clark notes in his recent book, “The Son Also Rises, the residual effects of wealth remain for 10-to-15 generations. Given that most Americans are only four generations removed from slavery and one generation away from segregated neighborhoods, restrictive covenants and all white colleges, the only truly surprising fact is that the racial wealth gap is not larger. America is also uniquely susceptible to persistent wealth gaps because of our low inheritance, estate and capital gains taxes and the fact that what minimal taxes exist our fraught with loopholes. In 2010, the richest 400 households took home 16 percent of all capital gains (a sweet $300 million each), but paid the same tax rate as a worker making $80,000. At the same time, a loophole in the tax code has allowed the wealthiest to avoid $100 billion  in estate and gift taxes since 2000. On the other side, our public school system is profoundly discriminatoryour neighborhoods deeply segregated and access to credit is racially discriminatory. As Thomas Piketty recently demonstrated, “In terms of total amounts involved, inheritance has thus nearly regained the importance it had for nineteenth century cohorts” (see chart).

The biggest myth of the racial wealth gap that must be demolished is that education or rising incomes can eradicate it. As Matt Bruenig has persuasively shown, this argument is laughably absurd.  College educated Blacks have less wealth than white college drop-outs (see chart).

Bruenig also shows that high income Blacks and Hispanics also have less wealth than whites (see chart).

Between 2007 and 2010, all racial groups lost large amounts of wealth. However, the wealth reduction fell disproportionately on Hispanics and blacks, who saw a 44 percent and 31 percent reduction in wealth (compared to an 11 percent drop for whites). This was due to blacks and Latinos disproportionately receiving subprime loans, both because of outright lending discrimination and housing segregation.A recent research brief by the Institution on Assets and Social Policy finds that the wealth gap between white families and African Americans has tripled between 1984 and 2009. They find five main factors responsible for driving the gap, which together explain 66 percent of the growth in inequality. The factors, in order of importance, are number of years of homeownership, household income, unemployment, college education and financial support or inheritance.

The most frustrating problem with the racial wealth gap is that it is not abating. While half of whites say that “a lot” of progress has been made towards Martin Luther King Jr.’s dream,  the data show that the racial wealth gap has only increasing since 1983 (see chart).

What is to be done?

There are several important public policy changes that can alleviate the racial wealth gap. The first is to prevent the further accumulation of debt. While debt is often seen as a problem attributable to individuals, the academic literature is clear that broader economic forces are at largely responsible for the run-up of debt. Credit card debt is particularly harmful for people of color who often face discriminatory lending practices. A recent study of credit card debt finds that people of color pay a far higher IPR on average than white borrowers. The CARD act has already been a boon to consumers, but underlying drivers of debt, such as rising inequalityretirement insecurity and lack of health insurance must also be addressed.

Higher education debt must also be addressed. Research from Demos finds that if “current borrowing patterns continue, student debt levels will reach $2 trillion sometime around 2022.” However, student debt is not distributed equally, but rather falling primarily on students of color and low-income students. That’s because in our age of austerity, governments are spending less money on higher education, shifting the burden of paying for college onto students. Federal and state governments need to step up and fund an investment in the next generation.

On the other side, however, we must also foster wealth-building initiatives. Historically, homeownership has been a pathway to the middle class, but deep residential segregation means that Blacks and Hispanics often own homes that are far less valuable than white homes (see Table 3). Further, in the wake of the crisis many banks are buying up foreclosed houses and renting them out. That means income for people of color is no longer becoming wealth for people of color, but rather wealth for rich bankers.  One solution would be a first-time homeowners tax credit that is weighted to benefit low and moderate income households, rather than the mortgage interest deduction, which favors the wealthy. FICO credit scores should replaced with more reliable credit measurements.  But the ideal way to reduce wealth inequality, not only between people of color and whites, but also between the richest .1 percent and the rest of us, is a baby bond.

A baby bond is an endowment given to Americans at birth and maintained by the federal government until they are 18. The bond functions in a similar way to Social Security and can be sued to pay for college, buy a house or start a business. Hillary Clinton, in fact,briefly floated the possibility of a baby bond during her 2008 campaign, although the modest $5,000 sum she proposed is certainly smaller than ideal. Britain brieflyexperimented with a baby bond proposal, although it later became the victim of Tory Austerity.  Dr. Darrick Hamilton and William Darity Jr., leading proponents of  a baby bond, propose a progressive bond that caps at $50,000 for the lowest wealth quartile bond could close the racial wealth gap in three generations.  Their proposal would be given to three-quarters of Americans (based on wealth eligibility). They estimate that such a program would cost $60 billion a year, about one-tenth of the 2014 defense budget.

The baby bond need not increase the deficit. A recent CBO report finds that right now, tax credits primarily benefit the wealthiest, at a cost of nearly $1 trillion a year. This money could easily fund an extensive baby bond program that would, over time, eliminate the racial wealth gap. Another option would be to restore progressivity to our tax system. Because the baby bond program would not be explicitly targeted at people of color but rather would benefit most Americans, it could easily win broad support (much as Social Security is currently untouchable). Any presidential candidate should make the baby bond a central plank of their 2016 if they want to seriously address the problem of wealth inequality. Without such a proposal, wealth, and therefore political power will become increasingly concentrated in the hands of a small elite. It may already be too late.

This piece originally appeared on Salon

The GOP’s libertarian time bomb: Why “going Rand” would be an electoral disaster

The time has come again for a perennial theme in politics: the idea that Republicans should “go libertarian.” The questionable premise, forwarded most recently by Robert Draper and Emily Ekins, is that the Republican Party could sweep up millennials, who are “socially liberal” and “economically conservative,” by adopting a more libertarian message. The ascent of popular startups like Uber and Airbnb — which have about them a decidedly libertarian flavor — has only strengthened this supposedly conventional wisdom.

Here’s the thing, though. The data show that this is an unlikely possibility, but more problematically, doing so would actually decimate the Republican base. The truth is, libertarianism is antithetical to conservatism.

The Republican base, broadly speaking, is made up of five often-overlapping coalitions: business conservatives who seek low taxes and low regulation; foreign policy hawks who seek a strong defense budget; social conservatives who fear moral anarchy; racists and nativists worried about immigration and affirmative action; and elderly retirees who rely on Social Security and Medicare. This coalition is already difficult enough to maintain, but in the future it will become more difficult.

And a “libertarian” message would only further erode the base.

Business conservatives seem like they would be the most open to a libertarian message. After all, lower taxes and less regulation are amenable to both groups. But Republicans are already very pro-business and anti-regulation; to go further in order to pull in a few more libertarians would entail (1) decreased fiscal or monetary intervention, or (2) the elimination of corporate subsidies. Both of these moves would alienate business conservatives, who, after all, rely significantly on government support (to the tune of $92 billion in 2006) and accept the need for countercyclical spending policies. Libertarians might struggle to support Republicans doling out farm subsidies year after year, subsidizing exports and bailing out big businesses and banks, but business conservatives demand it.

Foreign policy hawks would also find many of the core tenets of libertarianism — skepticism of foreign interventionism, opposition to the NSA and a healthy loathing of the military-industrial complex — to be problematic. Republicans could try to peel off support among libertarians by opposing torture, closing Guantanamo and investigating the NSA, but it’s tough to believe that the party of Bush, Cheney, Wolfowitz and Rumsfeld would be able to garner much trust. The swift turn of Rand Paul from libertarian anti-interventionist to foreign policy hawk attests to the difficulty in going this route.

Social conservatives would likely be the most difficult challenge to libertarians. Libertarians tend to support individual  liberty:the right to gamble, drink, smoke, watch pornography, take one’s own life, participate in any form of sexual activity and use drugs. Needless to say, these views would be incredibly problematic for the moral majority coalition, which still forms an incredibly important part of the Republican base. It was Hayek who wrote in “Why I’m Not A Conservative”: “The conservative does not object to coercion or arbitrary power so long as it is used for what he regards as the right purposes… like the socialist he regards himself as entitled to force the values he holds onto other people.”

While it’s often considered impolite to note in public, a rather significant base of Republican power is still nativism. Witness the hysterical response to Central American refugees, the baseless claims against Obama’s citizenship, and the opposition to any immigration reform that doesn’t include a moat full of crocodiles across the border. But most libertarians are strongly supportive of open borders. Libertarian economist Bryan Caplan calls it, “The Efficient, Egalitarian, Libertarian, Utilitarian Way to Double World GDP.” In a world when even the “reasonable” Republicans are still spouting xenophobic drivel, witness Ross Douthat’s columnworrying that “the bills under discussion almost always offer some form of legal status before enforcement takes effect, which promises a replay of the Reagan-era amnesty’s failure to ever deliver the limits on future immigration that it promised.”

Finally, there are the elderly retirees, whose support Republicans maintain by making sure that any spending cuts fall on the backs of the poor – not the old. One wonders how they would receive the Cato Institute plan to turn Social Security into private savings accounts subject to market forces. Many would balk if a politician called Social Security “federally mandated generational theft,” but this is how Nick Gillespie regards it. Social Security and Medicare are sacrosanct and any attempt to reform them is likely a “third rail” that would lead to electoral death for the politician that tried.

The problem with libertarianism is mainly that few people agree with its ideological assumptions — but will often come to the same political answer. But this means that most people will be “libertarian” on some issues, rather than use a libertarian mode of thinking to get there. So people may be programmatically libertarian, but ideologically disagree with fundamental assumptions. As political scientist Seth Masket writes, “Basically everyone agrees with libertarians on something, but they tend to get freaked out just as quickly by the ideology’s other stances.”

These contradictions are obvious, and Draper’s widely discussed piece touches on some of them. For instance, there is Mollie Hemingway, who claims to be a libertarian, but is anti-choice and rejects gay marriage. She argued that although “‘people should be free to organize their own lifestyle,’ the state had a unique interest in protecting heterosexual marriage, because it was ‘the relationship that’s ordered to producing children.’” She might want to turn to Ayn Rand, who argued that, “but it is improper for the law to interfere with a relationship between consenting adults” and noted that “abortion is a moral right — which should be left to the sole discretion of the woman involved; morally, nothing other than her wish in the matter is to be considered. Who can conceivably have the right to dictate to her what disposition she is to make of the functions of her own body?”

Or what of Murray Rothbard’s claim that “the parent should not have a legal obligation to feed, clothe, or educate his children, since such obligations would entail positive acts coerced upon the parent and depriving the parent of his rights. The parent therefore may not murder or mutilate his child, and the law properly outlaws a parent from doing so. But the parent should have the legal right not to feed the child, i.e., to allow it to die.” Hemingway is a programmatic libertarian — she likes some proposals, but rejects the radical individualism libertarianism truly entails.

And those are on the issues where Republicans are supposed to agree with Libertarians. Nick Gillespie touches on the minor contradictions in an interview for Draper’s piece:

Republicans always saw libertarians as nice to have around in case they wanted to score some weed, and we always knew where there was a party. And for a while it made sense to bunk up with them. But after a while, it would be like, ‘So if we agree on limited government, how about opening the borders?’ No, that’s crazy. ‘How about legalizing drugs? How about giving gays equal rights?’ No, come on, be serious. And so I thought, There’s nothing in this for me.

He leaves some equally problematic things out: legalized prostitution, restrained foreign policy, massive defense cuts, abolishing social security and Austrian economics. None of these will curry favor with the Republican establishment. The question is not whether there are a large number of Americans who would be excited by libertarianism; the question is whether the Republicans could maintain their current coalition and also court these voters — this seems unlikely.

Then there’s the fact that Rand Paul, once an ardent libertarian, has had to step back on numerous positions. There’s the fact that Gary Johnson alienated the base and Ron Paul looked loony in 2012, opposing the Iraq War, calling for an end to the federal reserve and arguing that the government should legalize all drugs. Ronald Reagan, who successfully used libertarian rhetoric (see: A Time for Choosingeschewed it when governing. The Republican Party has long used libertarian rhetoric while pursuing statist policies. The Mercatus Center, a libertarian think tank, ranks the 50 states based on “freedom,” but weights “tax burden” as 28.6% of the metric and “freedom from tort abuse” as 11.5%, while “civil liberties” only account for 0.6% of a state’s score and “education policy” 1.9%. In Mercatus-land, alcohol, gun and cigarette freedom rank above marriage freedom, and abortion goes unmentioned. A libertarian turn for conservatives would be nice — libertarians actually hold the free market views conservatives claim and actually accept the importance of reason and individual liberty. But this is the reason it will never happen: True libertarianism would decimate the Republican base, so instead a half-hearted libertarianism prevails — stripped of policies, it subsists on empty rhetoric. But then again, the last few Republican rebranding efforts have been empty rhetoric, and so will this one.

This piece originally appeared on Salon.

The Battle to Save Social Security

The establishment consensus is accurately summarized by Martin Feldstein, “Preventing an explosion of the national debt requires slowing the growth of the benefits of middle-class retirees.” But the truth is the opposite: the middle class and poor need more help than ever.

David Callahan has written here at Policyshop that cutting Social Security is the wrong culprit in the deficit debate and is more important than ever with over 4 million seniors are living in poverty. Duncan Black argues in USA Today that, “The majority of people nearing retirement will not have sufficient funds to retire with anything resembling economic security and comfort.”

There has been a disturbing spike in poverty among the elderly, reports the Philadelphia Inquirer,

Poverty among the elderly is growing. And deep or extreme poverty – defined by the government as a single person earning $5,700 a year or less – has taken a jump that even experts find astonishing.

For men over age 65 nationwide, the rate of deep poverty increased 23 percent between 2011 and 2012, according to analysis by the National Women’s Law Center, a nonprofit advocacy group. For women, it went up 18 percent. Overall, that means a total of 442,000 elderly men and 733,000 elderly women were living in deep poverty in America in 2012, the center’s figures show.

A report by the New America Foundation, co-written by Demos analyst Robert Hiltonsmith, finds that,

This consensus [that Social Security must be cut] is not only misconceived in its diagnosis but also mistaken in its prescriptions and potentially disastrous in its consequences. Retirement security is often thought of as three-legged ‘stool’ consisting of Social Security, employer retirement plans, and private savings. Social Security has been far more stable and successful than the other two legs of the stool. The reliance on these other legs of the system has resulted in a retirement security crisis for most Americans, shifting costs and risks onto individuals, even as the benefits of these programs go overwhelmingly to upper-income earners.

The report argues for a new universal flat benefit called Social Security Part B that would supplement the current Social Security system to be paid from general federal revenues. The program would be a guaranteed minimum income for seniors. Social Security Part A would resemble the current system and pay out according to wages. This would replace the confusing mess of private but tax-favoured supplements that seniors rely on today.

Concerns about the inadequacy of Social Security are finally reaching the public discussion. Sen. Tom Harkin has introduced a bill that would use a new inflation measure to calculate Social Security benefits. The new measure (called the CPI-E) would more accurately take into account the fact that seniors spend more money on medical goods.

Sen. Sherrod Brown is joining Harkin’s fight to increase Social Security benefits: “Senator Sherrod Brown is joining the push to expand Social Security, and he’s making a startling argument: Dems should go on offense on entitlements, rather than let Republicans and Beltway fiscal scolds frame the discussion as one over how much benefits should be cut, not one over whether they should be cut at all.”  He wants Democrats to go on the offensive, fighting for seniors who are finding out that their pensions are weaker than they thought.

He is joined by Bernie Sanders, who is on the budget committee working to eliminate the sequestration. Sanders writes in USA Today, “We must not cut Social Security, Medicare or Medicaid… Let’s be clear: Social Security is not an entitlement program. It is an earned income benefit that has been enormously successful in cutting the rate of senior poverty.”

Although the push-back against the “Very Serious People,” is welcome, it may appear surprising that it took so long to mobilize politicians in support of such a popular program. The political explanation for the backwards debate about Social Security is simple. Wealthy citizens have entirely divergent opinions for the average citizen and Congress is far more likely to listen to the former than the latter.  Larry Bartels, Benjamin Page and write in a 2013 paper on inequality and political preferences, “There was also a tendency for the wealthiest respondents to tilt even more than the less wealthy toward cutting back Social Security specifically.” Even while the Washington establishment discuss cutting social security, 75 percent of Americans favor discussing increasing benefits.

The explanation is simple: the wealthiest Americans don’t rely on Social Security (see chart).

Source: “Income of the Population 55 or Older, 2010” Table 10.5

As Brown explains in The Washington Post, “ ‘The Serious People — with a capital S and a capital P — all have really good pensions and good health care and good salaries…Raise the cap. There are ways we can bring a lot of money into Social Security. Some Democrats are a bit cowed by the Serious People.’ ”

At the same time, new research finds that Social Security is failing minorities and redistributing wealth from high earners to low earners. Stuerele, Carasso and Cohen concluded in 2004 that “less educated, lower-income, and nonwhite groups benefit little or not at all from redistribution in the old age and survivors insurance (OASI) part of Social Security.” This can be partially explained by the fact that poor people and minorities often lack health insurance and suffer bouts of unemployment that decreases their benefits.

Although a complete overhaul of the system, like the one proposed by the New America Foundation/Demos study, would be ideal, minor reforms are more likely to be political successful. One possible reform is to raise the cap on the Social Security tax, currently at $250,000. This would require wealthy individuals to pay more into the system. The system could also develop a more progressive benefit scheme, increasing benefits for those with low lifetime earnings unlikely to have a private pension.

The conventional wisdom in D.C. is that SS is a threat to the deficit and needs cutting. But, as J.K. Galbraith wrote of conventional wisdom, “The conventional view serves to protect us from the painful job of thinking.” Today the conventional wisdom is that Social Security needs cutting. It needs expanding, and thanks to Senators Brown, Harkin and Sanders it may well be.