CO-AUTHORED BY ERIC KINGSON
Will today's children inherit a nation with even greater income inequality than we have now? The Congressional Budget Office thinks so.
CBO just released its 2015 Long-Term Budget Outlook, which includes projections about the future of Social Security. Conservative commentators are using the CBO report to undermine confidence in the program by pointing out that Social Security's shortfall -- modest in size and still many years away -- is projected by CBO to be larger than it estimated a few years ago.
But these projections include a shocking assumption: CBO is projecting increased income inequality in the future!
No question, rising income inequality hurts Social Security's financing. While most Americans pay Social Security contributions on all of their earnings, the wealthiest pay on only a portion of their income. The rich contribute a smaller and smaller portion of their income to Social Security, while all or most of the wage growth goes to them. The result is that Social Security's revenue is lower than what it would have been with a fairer distribution of income.
But this myopic focus on Social Security misses the larger picture. The important takeaway from the CBO report is the projection that without a change in policy, income and wealth inequality will only increase.
Virtually every politician today bemoans our rising income and wealth inequality. And for good reason. It is hollowing out the middle class, making higher education harder for most students to afford without incurring massive debt and giving a handful of individuals far too much influence over our government. If today's trends continue, this rising inequality could eventually lead to instability and civil unrest. As a matter of simple prudence, as well as morality, it should be reversed.
To effectively reverse this trend, it is imperative to recognize that this rising inequality didn't happen by accident. It is the direct result of government policy -- an upward redistribution of wealth -- that began several decades ago. These government policies enrich already wealthy individuals and corporations at the expense of everyday Americans.
Part of the story is the allocation of government spending and taxes. Massive increases in military spending directed to the building of planes, drones, ships and weapons systems reward highly paid top executives of large corporations. Drastic domestic spending cuts harm ordinary Americans and undermine the common good. The huge cuts in federal income and estate taxes overwhelmingly and disproportionately benefit those at the top.
Another source of upward redistribution has resulted from privatizing government functions, which has eliminated good public sector jobs. The government often winds up paying more for inferior services. And corporations profit enormously by replacing middle class public sector jobs with ones without benefits or security.
Another way that income and wealth is redistributed upward is by the weakening of labor laws, so that workers lack the strength or the leverage to bargain effectively with their employers. And deregulation injures worker safety, the environment and, other protections benefiting all of us, while the resulting higher profits of corporations, freed from these social costs, enrich those at the top.
Still, another cause of the upward redistribution are the 1983 cuts to Social Security. Still being phased in, those cuts disproportionately reduce the benefits of low- and middle-income workers.
If we do not want CBO's projections to become a reality, we must reverse these policies and look for solutions to the damage that inequality has already caused. The last time that we had large and growing inequality was during the so-called Roaring Twenties, which ended with the Great Depression. As part of the response, we enacted Social Security. We should learn from the past. We should now expand Social Security.
Expanding Social Security is an obvious, efficient and powerful solution to the nation's looming retirement income crisis. It is a solution to the squeeze on middle class families. And, if its benefits are expanded and the wealthy required to pay their fair share, it can play an important role in establishing a fairer, more balanced distribution of the nation's income and wealth. Indeed, Social Security does more than perhaps any other institution, public or private, to offset lost wages, reduce income inequality and build a strong middle class. An expanded Social Security could do even more.
The question of whether Social Security should be expanded or cut is a question of values, not mathematics. Social Security's actuaries, who have been projecting Social Security's future since 1934, produce the legally mandated annual Social Security Trustees Report to Congress. The actuaries' projections are the gold standard -- not CBO, which has only been producing projections of Social Security's long range for just a little more than a decade and lacks the necessary actuarial expertise.¹
But under either the actuaries' or CBO's projections, one thing is crystal clear: We can afford the cost of expanding and fully paying for Social Security. What we cannot afford is our corrosive, perilous and growing income and wealth inequality.
An expanded Social Security will reduce that inequality. A diminished Social Security will increase it. The choice awaits us.
¹Demographic assumptions, like fertility rates and total population size, have the dominant impact on long-range Social Security projections. Actuaries, not economists, are the ones professionally trained in making these assumptions.