November 2010, Week 3


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Wed, 17 Nov 2010 21:52:54 -0500
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The Schakowsky Deficit Reduction Plan: A Proposal that
Actually Strengthens Social Security

By Daniel Marans
Campaign for America's Future
November 17, 2010


The first thing you need to know about Rep. Jan
Schakowsky's plan to strengthen Social Security is what
it does not do.

It does not claim to cut benefits in order to "prevent
them from being cut" in the future. It does not "fix"
Social Security with 70% benefit cuts and 30% revenue
increases and then turn around and call itself a

It does not shove middle class retirees and their
families into poverty by cutting their benefits as much
as 35%.

It does not pretend that we need to rob middle and low
income earners out of house and home to offer the very
poorest a more decent living.

It does not stick it to the overwhelmingly black and
Latino workers in physically demanding jobs by making
them work till age 69. It does not pretend that because
richer Americans are living longer, regular Americans
should work till they drop.

It does not presume that the elderly and disabled can
swap long-term care and prescription medicines for
cheaper versions when their COLAs get slashed.

In short, it does not assume that America's senior
citizens are greedy geezers "driving their cadillacs to
get their AARP discount at the Perkins," or sucking on
the teat of an extremely large cow.

No, we already know all about a plan that does those
things. It's called the Simpson-Bowles plan. Conceived
by a Wall Street banker and governor's son, for Wall
Street bankers and governors' sons. But the way the
media has reported on it, you would think the cruel
blow it strikes to the lives of American retirees,
veterans, disabled workers--and yes, children--is
somehow brave, as if they were facing up to the

Today, Rep. Schakowsky proved them all wrong. And for
that we owe her a debt of gratitude. Her plan puts
Social Security on a sound footing for the next 75
years without cutting a single benefit. Here's how she
did it, in three quick steps:

Lift the cap on taxable payroll back up to 90% on the
employee side, and eliminate it on the employer side.
This move alone erases 74% of Social Security's long-
term shortfall. Poof! Doesn't that feel good? That
means millionaire bankers and corporate executives will
have to pay their fair share for the workers they
employ--and a fairer share of their own income.

Simpson and Bowles lifted the cap up to only 90% on the
employer side. That would deliver half as much revenue
for the program as Schakowsky's plan, but the good ole
boys made it seem like a big tax increase--a compromise
aimed at wooing progressives like Schakowsky. In fact,
lifting the cap to 90% would just restore it to where
it was intended to be when President Reagan signed it
into law in 1983. It was a cap based on average wage
growth, meant to avoid a situation where we would pay
the richest in this country benefits proportionate to
their millions and billions. But because the vast
majority of income growth has taken place "above the
cap" since 1983--don't forget, the rich have been the
ones getting richer all that time--the same average
wage growth formula only covers 83% of the country's
present day earnings. Schakowsky merely takes it a step
further by making the Social Security tax more
progressive, without levying a major tax increase on
employees in the $106,800-250,000 range of income.

Treat flexible spending accounts like 401(k)s. Like so
much of recent Social Security policy, this change
boils down to perfecting reforms that were made in 1983
(when Social Security actually did face a financial
crisis). Back then, Congress decided that 401(k)s and
other employer-sponsored retirement accounts should be
considered taxable payroll for Social Security. We call
it taxable payroll, but we should call it Social
Security's benefit base.

If an individual does not contribute to Social Security
from a particular set of earnings, those earnings will
not be counted toward their Social Security benefits
later on. Treating 401(k)s as taxable payroll prevents
employers from contributing to employees' pension plans
in order to lower the payroll taxes they would have to
pay on normal salaries, and thereby depriving their
employees of Social Security protection for the
earnings they accrue in their private retirement

Expanding Social Security's benefit base to include the
flexible spending accounts often granted by employers
to cover out-of-pocket transportation, parking or child
care expenses, in the same way we do for 401(k)s, would
erase another 13% of the Social Security's shortfall.
And it is a pretty good deal for workers. Unlike
expense accounts, Social Security benefits are adjusted
for inflation and costs of living, and insure workers
and their families against lost income in the event of
death or disability.

Issue a 3-4% legacy tax on all earnings "above the
cap." Still feeling blue about the free ride the rich
are getting by not having to pay Social Security taxes
on all of their income? This option moves us just a
little bit closer to fairness, and wipes away 26% of
the Social Security shortfall in the process.

A 3% tax on the top 10% of the country's income would
be split evenly between the country's wealthiest
employers and employees for a total of 1.5% each. For
some perspective on how such a tax compares to other
popular proposals, every year that the retirement age
is raised cuts benefits for everyone by 7%, and
disproportionately affects the lower half of earners.
Merely by raising the retirement age two years, the
Simpson-Bowles plan cuts benefits by 14%.

Not only that. There is a good historical reason for us
to pay a little extra into the system, beyond the money
that we already contribute. We've been running on a
deficit since the beginning. You might say its our
legacy. Well, better put, it's the legacy of the
generation that fought in World War I, survived the
Depression, and sacrificed during World War II. That
was the first generation of Social Security recipients.
You see, President Roosevelt insisted that Social
Security begin paying benefits to Americans aged 65 and
older in 1940, even though the program had only been
collecting contributions since 1937.

Roosevelt believed that since the Americans of that
generation had served their country in the hardest of
times, the public owed them a degree of security in old
age, even if the program's revenues were not yet
adequate. We were supposed to make up the unfunded
benefits through increasing workers' contributions to
the program. But now years have passed, and we never
did. Requiring our wealthiest citizens to do so now is
not only right for the program, it is the
responsibility we carry for the legacy costs of that
first generation of beneficiaries.

Regardless of what people say, this proposal is among
the least controversial ways to shore up Social
Security's finances. It is neither a new idea, nor a
left-wing one. In fact, the centrist budget hawks Peter
Orszag and Peter Diamond proposed it way back in 2003.

There. That's it. Rep. Schakowsky's entire plan. Fair
and painless, without all of the technical mumbo-jumbo.
And we still have room to create a minimum benefit for
the poorest workers, give the oldest beneficiaries a 5%
increase, reinstate the student benefit and increase
benefits in other ways.

So the next time someone looks at you condescendingly
with that you-just-don't-get-the-deficit look and
demands to know "what your plan is," you know what to
tell `em: You support the Schakowsky plan. But when
they ask you, "If her plan is so good, why didn't Obama
have her chair the Commission," do not be afraid to
admit your ignorance. Because that is a really good


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