With momentum building to rein in record budget deficits, Democrats are sharply divided over whether to tackle Social Security by raising the retirement age and/or raising the income ceiling that is taxed from the first $106,800 of wages to the first $170,000.
Senator Majority Leader Harry Reid and Sen. Chuck Schumer are lining up against such measures and Reid scheduled a rally on Capitol Hill on Monday to show support for Social Security and opposition to cuts in benefits.
Bur why are the only options on the table to cut or not to cut what is already a meager wage replacement scheme? Moreover, we need to acknowledge that our personal and federal financial deficits are more a function of corporate tax dodges than reckless spending. How about actually taxing the companies that got rid of pensions as a way of bankrolling more generous Social Security benefits, along with forcing them to turn 401(k) plans into real pensions?
Let's face it, while the working class is struggling to make ends meet and unemployment remains stubbornly high, the corporate class is doing just fine. U.S. corporate profits hit an all-time high at the end of 2010, according to data from the federal Bureau of Economic Analysis. Corporations reported an annualized $1.68 trillion in profit in the fourth quarter, exceeding the previous record of $1.65 trillion in the third quarter of 2006.
Not only are companies reaping profits but they are laughing all the way to the bank when it comes to overseas tax breaks. Thanks to an arm-twisting in 2009 by the CEOs of IBM, Caterpillar, Cisco and others, BusinessWeek reports that the Obama administration backed down from its proposal to raise some $160 billion by hoisting taxes on U.S. companies overseas profits. As a result of various overseas tax dodges, many multinationals pay less than the statutory rate of 35%, according to The Analyst's Accounting Observer; Big Pharma paid around 23% in 2008 and info tech companies paid about 26%.
Between tax breaks, tax cuts and the fact that hedge fund managers can pay capital gains tax instead of income tax, we've created a corporate welfare state. The corporate share of the nation's receipts has shrunk from 30% of all federal revenue in the mid-1950s to 6.6% in 2009. Since federal revenue in 2009 was $2.1 trillion, if the corporate share had stayed at 30%, that would have brought in $630 billion in revenues in that year alone.
I apologize to readers who may be tired of reading my rants about the retirement crisis, but this is the biggest economic disaster that nobody's talking about except for a recent article in the Wall Street Journal. If 85% of Boomers can't afford to retire, college graduates won't be able to find jobs. What's more, If these Boomers have to transform themselves from spenders into savers, that shift is going to take a wrecking ball to the 70% of U.S. economic growth that's driven by consumer spending.
As I said in a previous post, even if Social Security were solvent, it's downright stingy. The only workers for whom 70% of wages will be replaced by Social Security are those making minimum wage at age 65; since benefits average $1,067 a month. Given that the median wage for that age cohort is around $65,000, only a tiny minority of Americans can rely on Social Security alone. We need to force companies to bankroll a more secure retirement, whether it's footing more of the bill for Social Security and/or making 401(k) plans into actual pensions by contributing the equivalent of 9% of pay to their accounts, as Australian employers are required to do.
What's tragic about the current stand-off between the Tea Party anti-tax zealots and the Democrats is that as recently as the mid-1990s there was an actual consensus among liberals and conservatives, including the antigovernment Americans for Tax Reform and Ralph Nader's liberal Public Interest Research Group, that strove to curtail subsidies and tax breaks for business. Sen. John McCain went so far as to call for an independent "corporate welfare commission," declaring that "Congress has not got the political guts to address this issue of corporate pork." Unfortunately, I couldn't find any updates showing that this commission was ever created, more evidence that this partisan divide is turning this country into a shipwreck.