Nancy Altman Gets It Right About Social Security, Then Gets It Wrong

Dale Coberly: Commentary on an article by Nancy Altman that I read yesterday:

Senator Warnock’s Re-Election Is a Victory for Social Security,” Portside, Nancy J. Altman.

Nancy Altman wrote a pretty good book about Social Security [The Battle For Social Security (2005)] which I recommend. It’s readable and tells a story better than I can. In it, she explained the difference between worker paid insurance and welfare. And she told a story about how FDR intervened personally to keep his Committe on Economic Security, who wrote the plan, from turning it into welfare (“the dole”).

Unfortunately toward the end of the book she seems to have forgotten all of this and says, essentially,

“Social Security is not broken because it is paid for by the workers themselves. We can fix it with a tax on estates.”

I tried to point out the contradiction to her. She didn’t like it.

She begins the essay cited here by getting it right:

“It is important to recognize that, as a self-funded program that has no borrowing authority and can only pay benefits if it has sufficient revenue to cover every penny of the cost, Social Security does not add even a penny to the federal debt. It is not contributing a penny to the debt whose limit must be raised to avoid a default by the United States on its obligations. Nevertheless, Republicans in Congress want to cut our earned benefits so badly, they’re willing to risk an economic catastrophe to make it happen.”

And then gets it wrong:

“Fortunately, Senator Warnock won, giving the Democrats a clear majority in the Senate. President Biden and the Democrats he leads have made it clear that they are committed to expanding Social Security, with no cuts, while requiring the wealthiest to begin to pay their fair share. And Senator Warnock himself understands how important our Social Security system is.”

Social Security does not need to be expanded at the cost of turning it into welfare. There are already welfare programs that can be expanded to meet the needs of people who for reasons of their own did not pay (enough) into Social Security. And “the wealthiest” do pay their fair share. They would argue they pay more than their fair share. They pay more into Social Security than less wealthy people, and they get less back in benefits as a percent of what they paid in.

What they get is, first a positive real return on their money, guaranteed, and including, especially , an insurance benefit so that if they are no longer “wealthy” when they retire they still collect enough to live on . Thus, just like the rest of us, the are paying for what they get: insurance. The rate of return on their insurance premium is adjusted so that higher earners get less as a percent (but more in actual dollars) than the lower earners. That “less as a percent” is what enables Social Securit to pay the “more as a percent” to the lowest earners so they still get enough to live on even though they never made enough to pay enough (save enough) to see them through retirement.

This plan works. And it works very well. It has always been at risk from the people who don’t understand it. But in the past those people have usually been a small part of “the rich” who think that Social Security is welfare, for which they are paying taxes, to suport the idle poor. It is a shame that now, after eighty years of working very well, reducing poverty, and disproving the lies told about it, Social Security should be in danger of being ruined by people who don’t understand it, but think they are “saving” it for the poor.

As it happens Social Security does face a funding shortfall. This is not “bankruptcy” or “going broke. But if Social Security is going to continue to be meaningful insurance for retirement, it will need to raise the payroll tax [this is more like an insurance premium and savings account]. This is mostly because people are going to be living longer in the future and so need to save more for their longer retirement. The extra cost will eventually amount to an extra 2% deducted from their paycheck.

But if we start right away, we can reach this amount by increasing the tax one tenth of one percent per year… about a dollar per week per year for a worker earning 50,000 dollars per year. The amount goes up year after year, but the real wage is expected to go up about ten times as fast.

This is not an amount anyone will notice . . . except for the crazies running around calling it a huge burden and pretending that the young are paying for the old. The young will not be paying for the old. The young will be paying for their own retirement when they will have become “the old.” Alot of people can’t seem to understand this, because they have been lied to by a trick of language. People put their own money into Social Security and get it back with interest when they retire or become disabled. But just like a savings account or any investment, the cash they take out is not the same cash they put in. What comes out is from the cash paid in on the same day by people who are saving (paying in advance) for their own future needs. Again, people don’t understand this and we need to explain it to them.

I think you should read Altman’s book and this article. They say some things that need saying. But I hope you can realize that “making the rich pay what is called “their fair share” is turning SS into welfare, and that is exactly not the way to save it: It is exactly what Roosevelt warned us against . . .

Only you can save it . . . for yourself and your children at a price you can afford, and which you will have to pay anyway either in real taxes (where you don’t get your money back) for welfare, or by getting lucky on the market.

Social Security is safe only if you pay for it yourself. You can’t afford not to.

“Biden vows to save Social Security and Medicare in face of shortfalls,” Angry Bear, angry bear blog.