SOCIAL SECURITY:  FROM SCAM TO SCANDAL IN 65 YEARS.
By Doug Dowd

Of course it's been better than nothing, considering only the great number
of old and survivors it has kept at or above the poverty line; or so we are
told.  But at least two points:  about 40 percent of families over 65 have
an annual income of under $15,000 (only a bit over the official poverty
line), including benefits; only about 30 percent have an income over
$25,000:  repeat, including benefits.  That is, over two-thirds of families
over 65 have an annual income of under $25,000.  And then one must consider
how poor you have to be at or under the poverty line

Like social security itself (as will be seen), the "poverty line" suffers
from congenital defects.  It was set in 1964, as new prez LBJ was seeking to
put his "war on poverty" together.  He needed a definition of poverty if he
was going to war against it. After a lot of scurrying around, the line was
set at $3,000 for a family of four.  The basis for that figure -- I kid you
not -- was a modification (downward) of the amount estimated by the Office
of Civil Defense ($3,995) as necessary for a family to get by in a
post-nuclear attack world:  one-third for food, one-third for rent, the rest
for bandages.  (Only the last part is my joke.)  Since 1964, believe it or
not, and despite economic hell and high water (especially of rents for
low-income families), the basis has remained unchanged (in
inflation-adjusted dollars).  So, what began as a cruel farce has descended
further into deeper tragedy.

To which it must be added (and here again, our social security comes off
badly) that in Western Europe a family is deemed to be in poverty when its
income is less than half of the national median.  Were we to adopt that
standard, the percentage of U.S. families in poverty would rise by 50
percent.  The median family income here is about $40,000; that leaves
something like half of social security beneficiaries living in poverty.
Still better than nothing, of course:  two cheers for social security.

Let's make that one cheer.  In what follows we set aside the indecent
probabilities of ongoing privatization and and crisis proposals, of which
much has been said in Z and elsewhere.  Instead, our focus will be on the
original Social Security Act (1935).  Of its many defects, the two examined
were two sides of the same coin.  The metaphor is apt, for the 1935
legislation was not about security for all, but money:  who would pay the
least as a percentage terms of their income and get the most in dollar
benefits after retirement.  The main means for insuring that was the
adoption of payroll deductions to finance benefits.  It was a bad start;
just how bad jumps out when you look at the details. .

Congress couldn't have been expected to hew to the standard
"from each according to ability, to each according to need."  But there must
have been some who knew that the Founding Fathers assumed that the costs of
governmental activities should be borne -- as they quaintly put it -- by
"ability to pay."

Ability to pay was stood on its head in the Social Security Act (and "need"
ignored as though it were a four-letter word). In all other industrial
capitalist nations the financing of governmental pension programs is from
the general fund, itself built upon a tax structure of one degree or another
of progressivity (that is, where not just amounts but also rates go up in
terms of ability to pay).  The Act of 1935 provided a) for financing on a
50-50 basis, half from worker, half from employer, and b) that benefits
would be proportionate to their contributions.

Sounds fair, until an even closer look; therein we find the sweetest kicker
of all (if you're well off).  Payroll deductions are structured so as to be
regressive; that is, the opposite of "ability to pay":  payroll deductions
are now at 7.65 percent of income -- up to a maximum of $62,000.  After
that, nothing.  So:  If you're at the median income of $40,000, you pay
$3,060.  But let's say you're doing pretty well, making $62,000.  You pay
$4,570.  Or you're doing a helluva lot better, at $620,000 a year.  You pay
$4,570.  And $6.2 million?  Also $4,570.  Fair's fair.

In a nutshell, the worse off you were while working, the worse off you will
be when you stop working (even worse, of course, for there is no longer your
wage); symmetrically, the better off you were, the better off you will be.
Put differently (and more to the point), the more you need the less you get;
the less you need, the more you get. And that's not all of it:  in a
definitive Brookings Institution study of 1972, The Payroll Tax for Social
Security) (by senior statistician John Brittain) it was established that
employers on average -- by hook or by crook -- manage to deflect half of
their contributions to the employees, whose effective rate is thus closer to
12 than to 7.65 percent -- and that was before the shift to the Right began.

How did such a lousy law get written?  Well, the "Second" (or liberal) New
Deal was just a-borning in 1935, with popular discontent and organizing
taking place both left and right of center.  The main writer of the
legislation was a nice enough professor, Edwin Witte, of U. of Wisconsin (I
knew him years later).  He began with a justly-financed social security
program, but soon was convinced that if a decent social security bill were
proposed it would never get anywhere.  Remind you of Clinton and health
care?  As with Clinton in 1993, et seq., so it was in 1935:  that is, with
some good leadership from the "bully pulpit" and from labor (and
economists), et al., something much better could have been accomplished with
social security and -- very probably -- with much else.  The easy way was
taken, paving the way for subsequent compromises.

Among the latter was that the Act didn't even apply to a large percentage
(the neediest percentage) of those in agriculture, retail and other
services, etc.  However, it was better than pre-1935; Clinton's Compromise
on health care meant matters would become worse than before 1993.  But he
feels our pain.

The Act of 1935 was hotly-opposed by the insurance companies:  their slogan
was "all the security you want, as long as you can pay us for it."   Now
they are joined by all of Wall Street.  During the depression Wall Street
had ceased to be a big player in politics; now it's the biggest.  They want
as many as possible of those countless billions of contributions to keep
their bubble expanding.  They've been willing to pay for what they want, and
they're getting their way -- not just in D.C. but, via the media, in the
"hearts and minds" of Mr. and Mrs. America.

There were better alternatives in the 1930s, there are of course better
alternatives now; those alternatives organized for and put forth from the
bottom up.  Not just the financial sector, but all of business wants to
"commodify" social security and everything else -- you get what you pay
for -- except what butters their own bread.  But that's not the end of the
problem:  Congressional incomes put them in the top 10 percent of the
population.  Add perks and (for many) investment income, and (for almost
all) what might indelicately be seen as bribes, and what you have at the top
of income, power, and wealth may produce some kind of trickle down to the
rest of us; but what's trickling is not orange juice.  All of which applies
to health care also -- among other matters -- in that they have legislated
for themselves and the military not only marvy pensions, but even marvier
health care.

What might a reasonable alternative be?  Suppose we cannot now take the very
large jump of getting ridding of the payroll deduction.  OK.  So, we fight
to turn it rightside up:  exempt all those from payroll deductions whose
incomes are below the family median of about $40,000; tax all incomes above
that on a roughly progressive basis:  e.g., 1 percent for the first $10,000
above the median, 2 percent for the next you name it amount, and up to a
maximum of, say, 7.65 percent, over $100,000, going down to a minimum of 5
percent over half a million.  And disallow any benefits whatsoever to those
whose incomes have been in excess of (pick a number) $250,000 for the
preceding 10 years. (This is getting to be fun.)

Move the rates around as one might, a little more here, a little less there;
so long it were progressive, the poor (or not well-off) who had never made a
contribution (or very little), would be assured of benefits set by what
would keep them in (let's call it) a secure and healthy zone, until death
did them part.  And the rich?  Ishkabibble.  They'd still be rich.

Unrealistic?  Impossible?  Depends on us.