Social Security Reform

By: Jeff Nygaard
Z Magazine, April 1999

A society's system of Social Security deals explicitly with a fundamental human issue: What do we, as a society, do about human suffering? The key word being "we." Whose responsibility is it to address the suffering created by a system that produces more than enough for everyone, but leaves some in desperate need? Because Social Security touches every working American's life in a very tangible way, and because the right wing has created an atmosphere of crisis around this social program, we have a rare opportunity to make some quite radical proposals that will appeal to millions of people in this country.

Social Security in the United States is a program that pays cash benefits to workers, and dependents of workers, who suffer a loss of wages due to death, disability, or retirement. Almost all wage-earners are taxed to provide benefits. It is financed by payroll taxes on wages up to about $70,000, with one-half paid by workers and one-half paid by employers. Benefits are based on past earnings, with low-income workers getting back a higher percentage of their wages than high-income workers receive. Social Security was and is intended to be the "third leg" of the so-called "three-legged stool" of retirement income. The other two legs are your own savings and the private pension you get from your employer. In theory.

However, the majority of Americans now do not get private pensions, and the problem is worse among women, people of color, part-time workers, low-income workers, and workers in small companies. In addition, wage inequality has been increasing, and this partly explains why fewer people than ever are able to save any significant amount for their retirement, since they have to spend all their income on living. So the "third leg" of the three-legged stool increasingly becomes the only leg. Consequently, people are trying to balance on a one-legged stool, and that's hard to do. Especially since the average monthly benefit for a low-wage retiree is now $537 per month. For two-thirds of elderly people in the United States, Social Security provides over half of their income: for 3 in 10 it is 90 percent of their income; 16 percent of all seniors live on their Social Security check and nothing else, and 78 percent of African Americans over age 70 do so.

The success of the right-wing assault on Social Security is based on a shrewd recognition of the fact that, for all of its popularity over the years, there is some measure of unhappiness with the program as it exists, and the numbers above give an indication of why.

The right-wing attack on Social Security plays on people's legitimate dissatisfaction with an inadequate program. Clearly there are features of American Social Security that are sound and should be retained, such as portable benefits that follow workers from job to job, and cost-of-living adjustments that protect benefits from the erosion caused by inflation. But, overall, our Social Security system is a "good news/bad news" affair. To illustrate:


  • Good news: Social Security has reduced poverty among the elderly in the U.S. from 35 percent in 1959 to under 11 percent now, which is a lower rate than for the population as a whole. Bad news: What kind of anti-poverty program leaves 1 in 9 people still poor?


  • Good news: Social Security includes disability and life insurance protection, and it is provided to everyone, without regard to the health of the individual. Bad news: have you ever tried to apply for Social Security disability benefits? Or to live on them?


  • Good news: Married women who have spent their lives working in the home, without pay, receive cash Social Security benefits if they live longer than their husbands. Bad news: Pretty paltry benefits, especially compared to men. Older women are almost twice as likely to be poor as their male counterparts.


  • Good news: Social Security benefits continue as long as you live. Bad news: You call this living? All but the highest-income workers try to get by on under $900 per month. Also, rich people live longer, so they end up getting more in total lifetime benefits. Add to that the fact that Social Security taxes are regressive (all wages are taxed at a fixed rate, but wages in excess of $68,400 are exempt), and it's even less fair.


  • Good news: Social Security benefit amounts are tied to the income you earned when you were working. Bad news: Social Security benefit amounts are tied to the income you earned when you were working. So, even though the benefit formulas are progressive, low-income workers still get less, even though they need it more, for the reasons stated above.


  • Good news: Social Security is a very popular program. Bad news: At the moment, many people seem to support specific proposals that would effectively destroy it.


  • Good news: Two-thirds of respondents in recent surveys are smart enough to realize that Social Security benefits are not sufficient. Bad news: Benefits are not sufficient.


  • Good news: Surveys show that most people would be willing to pay higher taxes to maintain the system. Bad news: They may have to.


The ascent of the "New Democrats" has given rise to the saying, "Give people a choice between a Republican and a Republican and they'll choose a Republican every time." Indeed, the pattern in American-style "multiple-choice democracy" is increasingly one in which corporate interests settle on a series of business-friendly choices and then let "the people" choose among them. The discussion of proposals to reform Social Security is a wonderful illustration of this pattern. All of the myriad plans currently on the table essentially boil down to one of two choices: Cut back the system or destroy the system.

The proposal to destroy the system is known, somewhat misleadingly, as "privatization." Privatization would dismantle the current system of taxing all workers to pay benefits to those who need them, and replace it with a system of Personal Security Accounts (PSAs) wherein each worker would set aside money for their own retirement, along the lines of the current IRAs or 401(k) plans in the private sector.

In a privatized system, workers would still have the same amount of tax (or more) taken out of their paychecks, but they would now be required to invest part of it into the stock market. When they retire, they would get their money-however much it might be-to do with as they please. These plans thus call for only partial "privatization." The government would still require that you pay taxes, but instead of that money becoming public property used to protect everyone, it would be placed in the private stock and bond markets. It is more accurate to call these plans "marked-based" plans than "privatization" plans.

After a slow start, numerous liberal and progressive think tanks and publications have pointed out why this would be a disaster for most workers. Such an individual, market-based system would remove the "social" from Social Security, and the fact that all the risks in the system would fall on individual workers would remove the "security." As in any market-based, individualized system, the most suffering would be borne by those with the fewest resources at their disposal; that is poor and working-class people. As one might expect this alternative is promoted by rich and owning-class people.

Given the extreme nature of the various market-based plans, a plan to merely cut back the current system is being presented as the "liberal" alternative. Ideas such as raising the retirement age, reducing the cost-of-living adjustments, and increasing the averaging period for calculating benefits also would hit hardest on poor and working-class people.


Alternative Visions

Over the past 100 or so years, most industrial societies have come to recognize that, in addition to these individual reasons for dependency, there are also social reasons why people cannot support themselves. They acknowledge that, under capitalism, there will always be people who are willing and able to work but, for reasons that have to do with how the society is structured, cannot support themselves. That's exactly why we have Social Security.

It's called Social Security because it recognizes that there are social factors that threaten the security of individuals and that therefore demand a social response. Article 25 of the Universal Declaration of Human Rights states that every person has "the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his [sic] control."

It should be no surprise that most people born and raised in the United States think about Social Security in very narrow and limited terms. This is because the American system of Social Security is narrow and limited. A look at a few other wealthy countries confirms this. Australia, Canada, Denmark, France, Germany, Italy, New Zealand, Norway, Sweden, and the United Kingdom all have national systems of universal health care and maternity leave; the U.S. does not. Each of these countries has a national program of income assistance for families with children; the U.S. does not. The U.S. alone lacks a national system of insurance against unemployment and workplace injury (our state-run systems provide widely varying degrees of protection from state to state).

The Social Security program that we currently have in the United States came about as an alternative to several more progressive proposals being debated in the 1930s. Unlike the current corporate-led debate about Social Security, the original campaign for social insurance was led by poor people and workers. As early as 1931, the National Hunger March on Washington climaxed with the presentation to Congress of a Workers' Unemployment and Social Insurance Bill. Kenneth Casebeer summarizes that "bill" as a series of five demands:


  1. Immediate adoption of a federal system of unemployment insurance, guaranteeing full wages for full or part involuntary unemployment;


  2. This is to be available to all categories of wage labor without discrimination by race, sex, age, origin, or political opinion; no person to be deprived of benefits for refusing to take the place of a striker or to work for less than union rates;


  3. Full funding from war preparation appropriations combined with sharply progressive taxation on all incomes above $5,000 [$60,000 in 1998 dollars] with no levies on workers;


  4. Administration by elected worker committees; and


  5. Social insurance for loss of wages through sickness, accident, old age, or maternity.


On February 2, 1934, legislation including their five demands was introduced into the House of Representatives by Minnesota Farmer-Labor Party Congressman Ernest Lundeen. The official "Workers' Unemployment and Social Insurance Bill" (HR 7598 and subsequent versions) was the most popular, and came the closest to becoming law, among several progressive predecessors to Roosevelt's Social Security. Over its congressional lifetime from 1934 to 1937, more than 70 municipal governments around the country endorsed the Workers' Bill, as did innumerable ethnic and mutual aid societies and organizations of the unemployed. Many African-Americans and women supported it, as it was the only bill that treated all citizens equally.

There was intense opposition from the private insurance industry (in which Roosevelt had worked before becoming president) and the American Medical Association. In addition, a powerful group of Southern Democrats in Congress in the 1930s was opposed to any federal mandate that would require that benefits be paid to African-America tenant farmers and domestic workers; these workers were thus excluded from the system until the 1950s. Similar racist desires to keep state-based "separate and unequal" systems in place resulted in the failure to establish national systems of unemployment insurance benefits and workers compensation as part of the New Deal; that legacy survives to this day in our inequitable state-based programs.

Despite its ultimate defeat, the existence of a radical alternative like the Workers' Bill shaped the discussion of Social Security and forced President Roosevelt to put forth his limited but still essential Society Security Act of 1935. Despite its limitations, the current system does in fact provide some very real protection from market forces, and thus has remained Roosevelt's, and the nation's, most popular social program.


Values and Principles

Here is a set of our values, and accompanying organizing principles that we can use to come up with a genuine alternative in the debate about Social Security.


  1. Solidarity. Organizing principles: Universal and Mandatory. In a Social Security system, this means that everyone pays in when able, and everyone draws out when needed; it's universal. For the good of all, everyone must be required to participate. If people are allowed to voluntarily "opt out" in search of a better deal for themselves, the system loses its character of solidarity, and it goes broke in the bargain. If a Social Security system is not universal and mandatory, it is not "social," and therefore fails the solidarity test.


  2. Justice. Organizing principles: Redistribution and Progressivity. In a truly just system, all recipients would receive benefits sufficient to live in dignity. To move in this direction within our indisputably unjust economic system, it will be necessary to redistribute a large amount of income. Although our current system does have a progressive benefits schedule, the payroll tax upon which it is based puts the heaviest burden on working class and poor people. We need to move toward funding Social Security through progressive taxes on income and wealth, while moving toward a universal flat benefit equal to a living wage. There should be no means test or requirement of previous earnings to receive benefits; all residents should be entitled to live in dignity.


  3. Security. Organizing principle: Insurance. The only way to have the "security" that is promised by a system of Social Security is to set it up as a system of insurance. Insurance is a system that guarantees protection for its members; that's the "security" in Social Security, and it should be secure to every person in the society.


  4. Democracy. Organizing principle: Public. Since it is the "free market" that has produced the gross income inequality that we see in the United States, we can hardly expect a market-based system of "Social Security" to solve that problem Only a program conceived and run by a democratic, publicly-accountable body (that is, the government) has any chance to reflect the values of the majority of the population, values that include the three mentioned above.


Before we begin the project of building a better system of Social Security, we need to organize to defeat the attack on the existing system. Flawed though the system is, any move toward a system of pre-funded, individual, private retirement accounts, would make it dramatically worse for the majority of Americans. Defeating the move to a market-based system is thus necessary, but not sufficient, to carry out a campaign around reforming Social Security.

In the short term, then, we need to:


  • Beware of any proposal that includes the terms "voluntary," "opt-out," or "generational war." These are coded attacks on the principle of solidarity.


  • Keep in mind that individual accounts emphasize the accumulation of private wealth, making the system less redistributive, and thus less of an anti-poverty program.


  • Demand that the current program remain public and its management continue to be in the hands of the Social Security Administration, keeping it more efficient, more reliable, and more secure than the market could ever be.


  • Insist that benefits continue to be guaranteed by the federal government and that any shortfall be financed from general Treasury revenues.


  • Resist, in principle, the idea of an individual, market-based system of personal accounts, popularly known as "privatization." Under such a system, values of solidarity, justice, and security would give way to market values of individualism, self-interest, property rights, and luck.

In the longer term, we need to formulate a positive proposal that states that what we want in a system of Social Security, based on clearly articulated values. Without such a proposal, it is unreasonable to expect anything other than cutbacks in the program; the only question will be how many and how large.

Such a proposal to bring the Social Security system into closer accord with our values will have to grow out of discussions within our organizations. Here is a list of four suggestions which might serve as a starting point for those discussions. We want:


  • A national system of benefits for unemployment, and for income loss due to sickness, old age, maternity, workplace injury, or any other disability. Also included should be a basic family allowance.


  • A system that is financed entirely through progressive income and wealth taxes, with benefits guaranteed by the federal government.


  • Benefits to be set at a level equal to a living wage, as determined by regional councils of recipients. These councils would take into account local conditions and costs of living when setting benefit levels for the local population, and these levels would serve as a wage floor for local economies.


  • Universal health care. The real fiscal crisis we face is the system-wide explosion of health-care costs. We are currently rationing health care based on wealth, and this is unjust. We spend more on health care as a percentage of our national product than any other industrial country.


Social Security is, and always has been, one of the most popular social programs in the world. Those who talk of bankruptcy and insolvency for Social Security, and who warn that Social Security "will not be there for us" when we need it, are either expressing a profound lack of faith in American democracy, or an intent to undermine it. Possibly both.

At this historical moment, the federal government is the only institution in this country with the power to set significant limits on the corporate agenda. Right now we are in the middle of a debate about the future of a program that touches the lives of every American, and no progressive alternatives are on the table. This could be the organizing opportunity of a lifetime. Let's not miss out on it.

Jeff Nygaard is a free-lance writer and activist in Minneapolis, and the founder of the Social Security Project in Minnesota.

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