Time for Some Faux Financial Reform

The pitched battle over health care reform, won with considerable ease as predicted here long ago by the insurance, drug, and associated medical industries, can be viewed as just a warmup act for the fight over  financial reform. As the main event draws near,  eager reportorial eyes are supposed to turn to the awesome spectacle of Ben Bernanke’s Fed policing itself in the interest of protecting consumers. No. This is not a play by Dario Fo.

The base issue here is how corporate America can screw more money out of the middle and lower middle classes. They weren’t about to change health care and they sure as hell are not going to give up their authority over the nation’s wealth.

So what’s this all about? Very simply put, it is about reducing middle class America’s income by cutting entitlements. And that starts with Social Security.

Dave Lindorff on Counterpunch very neatly captures the moment:

The corporate press is weighing in with  dire warnings that this year, six years ahead of what had been predicted only a few years ago, the Social Security system would be paying out more in benefits than it takes in from the payroll tax. The reason for this earlier-than-anticipated event is the Great Recession, the paper explained. 

Well yeah. If you were 62, or 65, and you had lost your job, with no likelihood of it’s coming back, wouldn’t you, once your unemployment checks ran out, opt to start your retirement earlier than planned, so you’d at least have some money coming in each month?  Oh, and with 10 percent of the work force currently unemployed (actually close to 21 percent if you count the people who have given up looking for a nonexistent job, and those who have taken some low-paid part-time work out of desperation), there is a lot less money being paid into the Social Security Trust Fund. So with beneficiaries rising faster than anticipated, and the total national payroll in sharp decline, of course things have gone negative for Social Security earlier than originally anticipated.

So what to do about it?

Hank Paulson and Pete Peterson are both calling for benefit cutbacks, an older retirement age and other attacks on the system. Paulson of course is the the guy who as Treasury Secretary under President George W. Bush, helped engineer the real estate bubble that brought the economy to its knees, and who then engineered the sweet deal that helped his former company, Goldman Sachs, come out of the crisis as the nation’s biggest bank, fattened by tens of billions of taxpayer bailout dollars. Pete Peterson, the former ad exec turned self-described economic guru has been a perpetual doomsayer about Social Security, calling for its privatization.

But really, what’s the crisis?

A wave of Baby Boomers is about to start retiring next year (actually for those born first, in 1946, who decided to retire early at age 62, Baby Boomer retirement began in 2008), but that’s a demographic wave that will eventually pass. In the meantime, financing the benefits for Baby Boomer retirees simply means that current workers–the Baby Boomers’ children and grandchildren–will have to pay more in payroll taxes. Or–and this is what has people like Paulson and Peterson scared–Baby Boomers and their allies among younger workers, may decide to use their unprecedented electoral clout to take those extra tax payments not out of younger workers, but out of their employers. There is, after all, no legal, theoretical or even mystical reason why the Social Security payroll tax should be split 50/50, with half being paid by the worker, and half by the employer. It could easily be a 40/60 split, with the employer paying 50 per cent more than the worker, or even a 30/70 split. That is a political question. Likewise, there is no reason on earth why the payroll tax should be set at the same percentage rate for all income levels, as it is now, instead of progressively calculated, so that high-income workers would pay a higher percentage of income into the fund than low-income workers. And finally, there is no reason why the income subject to the payroll tax (the FICA tax on your W-2 statement) should be capped (currently at $106,800), or why investment income should be exempt.

The so-called Social Security funding “crisis,” which has Republicans and many Democrats warning of the system’s looming “insolvency” as though Social Security were just another AIG, could be solved simply by just eliminating the income cap, and taxing investment income.

Oh, but the conservatives wail, if we raise the payroll tax, America will become uncompetitive, and our economy will collapse.

How then to explain Germany, where social security as a percentage of GDP is much greater than in the US (40 per cent of Germany’s adult population receive some form of government income, whether in the form of retirement payments, unemployment compensation or disability payments–far higher than in the US)? Despite its high social welfare budget, and its high wages, Germany is the second-largest exporter in the world  after China, and despite Germany’s being a huge importer of goods and services, second only to the US, overall, Germany is a net exporter.

Clearly, the problem with America’s economy is not high social security costs, and the “crisis” facing Social Security is not that it is going to “go bankrupt.” It is simply that the corporate interests in America, and the wealthy, don’t want to have to pay for the system. They want the lion’s share of the funding to be paid by ordinary workers and the poor.

2 responses to “Time for Some Faux Financial Reform

  1. welcome to 3rd world..thanks for article

  2. As an early boomer who retired six months before the bottom fell out, I’ve watched my retirement savings cut by two-fifths. The staunchly Republican financial advisors who had worked so hard to convince me that I COULD retire are now advising me to re-invest my greatly-reduced distributions in hopes of making my investments last into my ninth decade… leaving me with no usable income, but with a hefty tax burden. I had meant to postpone taking a Social Security benefit until 68. Now, my husband and I live on his military retirement pension and I’ll take that SS benefit; I’ll use it to buy long-term care insurance. I may need it if I get to be as demented as Alan Simpson.

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