On the month of its 75th birthday, The U.S. Social Security System has become the subject of intense debate over the best way to ensure its long-term viability. A recent EPI paper stressed that the system will remain financially sound for decades to come, and EPI has been a vocal opponent of proposals to reduce benefits, including raising the retirement age above 67, which would reduce future benefits for millions of workers.
Top incomes escape taxes
In an op-ed in the Sunday New York Times, EPI Economist Monique Morrissey outlined why the best way to preserve Social Security would be to slowly raise the cap on taxable income:
Do you want to know how much LeBron James pays in Social Security taxes each year? Bill Gates? Oprah? Your dermatologist? $6,622. That’s the maximum anyone pays in Social Security taxes, because earnings above $106,800 are not taxed.
Morrissey said that raising the cap on employee contributions would help correct an imbalance resulting from disproportionate income growth at the top of the earnings scale: The current $106,800 annual income cap on Social Security taxes means that 16% of earnings in the U.S. are not taxed by Social Security. She said this amounts to “a huge windfall for the rich and a terrible shortfall for the benefits program.” Morrissey also said that eliminating the cap on employer contributions would also help close projected shortfalls in future decades:
Look at it this way: If we get rid of the employer cap, the Miami Heat would need to shell out about $900,000 in Social Security taxes on Mr. James’s reported $14.5 million salary next year.
Not all Americans are living longer
EPI Vice President Ross Eisenbrey, meanwhile, published a top ten list of reasons that the retirement age should not be raised. Although such a policy may seem logical at a time when more Americans are living and working longer, Eisenbrey stressed that longer life-spans are not the problem with Social Security. Because Congress raised the retirement age in 1983, the ratio of working years to retirement years will be no higher in 2022 than it was in 1983, he said. Eisenbrey points out that what has really hurt Social Security in recent decades is the trend of rising income inequality: In 1983, 10% of all earnings were above the taxable earnings cap, but today, with the shift of income to the highest earners, 16% of all earnings are not subject to Social Security taxes.
Eisenbrey also noted that while overall life expectancy in the United States has increased, gains have not been achieved across the board. Lower-income men have seen life expectancy increase by just 1.1 years since 1982, compared to five years for higher-income men. Among low-income women, life expectancy has actually declined since 1982.
GDP: From bad to worse
On August 27, the U.S. Bureau of Economic Analysis provided another sign of a stalled economic recovery when it lowered its estimate of second quarter economic growth to an annualized rate of 1.6%, from an initial estimate of 2.4%. Considering that even the initial estimate for second quarter growth had marked a sharp downturn from the first quarter, this latest downward estimate is troubling, said EPI Economist Josh Bivens.
“Without the stream of spending provided by the Recovery Act, the economy would have contracted outright,” Bivens wrote in a response to the revised numbers. “This is most troubling, as Recovery Act money is almost spent and will provide no boost to growth going forward. The case for more action from policy makers to support the recovery and return the job market to health is now overwhelming.”
Scott speaks about lost manufacturing jobs
On August 25, EPI International Economist Robert Scott testified at a hearing of the Coalition for a Prosperous America about the staggering loss of U.S. manufacturing jobs since 1998 and the way that free trade agreements contributed to that loss. Scott said the country had lost six million manufacturing jobs since 1998, and that trading partners’ unfair practices—such as currency manipulation, labor rights violations, and subsidies—had made it difficult for American companies to compete with overseas manufacturers. Scott stressed that increasing exports alone was not the answer. “In general, we import 50% more than we export, so a 10% reduction in imports will have a bigger impact on the trade deficit and employment than a 10% increase in exports; reducing the trade deficit is the key to increasing U.S. manufacturing employment,” he said.
Fastest growing jobs pay close to minimum wage
While millions of well-paying American manufacturing jobs have vanished, many of the jobs being created are in low-paying occupations. EPI’s Economic Snapshot lists the five fastest growing occupations in the United States and shows that all but one of them – registered nurse – pay a wage that is below the median wage of all occupations. The fastest-growing occupation, food preparation and serving, paid a median of just $8.28 per hour in 2009, equating to an annual salary of $16,560, which is below the poverty threshold for a family of three.
Upcoming
In the wake of criticism surrounding the use of test results to evaluate teacher performance, a growing number of school districts are adopting a value-added modeling, or VAM system to allow for more sophisticated comparisons. On Aug 29, EPI will publish a paper co-authored by a group of prominent education academics and policy makers, outlining multiple problems with the VAM system.
EPI in the News
Nightly Business Report quoted Economist Heidi Shierholz in a story about the rise in weekly jobless claims, which earlier this month reached 500,000 for the first time since last November. Shierholz said the report showed that the labor market was backtracking from gains achieved earlier in the year. A Huffington Post op-ed by Arianna Huffington also quoted Shierholz about the need for more policy action to create jobs. The economic case for more intervention, Shierholz said, “is about as clear as they come.” The Detroit Free Presscited EPI data on lost manufacturing jobs in a story about all-around economic uncertainty.