The following is a contribution by freelance writer Charles C. Johnson.
In his 1978 Harvard University honors thesis, current treasury secretary nominee and White House chief of staff Jacob “Jack” Lew wrote that Social Security payments should be a guaranteed right, regardless of whether the program’s “trust fund” contains enough money to distribute to beneficiaries.
And progressive income taxes, he argued — not payroll taxes — should be used to fund the program to the point where America would guarantee benefit payments beyond what taxpayers have paid into the system.
“Old age and Medicare benefits are guaranteed as a matter of right,” he noted, “even though many recipients draw more benefits than they have paid in contributions.”
TheBlaze has obtained a copy of his thesis, titled “The Ideology and Politics of Old Age Insurance in the United States.” In it, Lew complained that a belief in “the tradition of self-support and individualism” has stopped the federal government from raising taxes to fund a broader set of Social Security benefits.
Progressive taxation, he said, should replace payroll taxes as a means of funding “social insurance.”
Congress was “reluctant to abandon the principle of self-supporting old age insurance,” Lew claimed, because of a misguided focus on “financial solvency.”
“The social security trust fund, it is argued, must either be made secure or drastic changes will be necessary. Among the changes most often suggested are means tests, incentives for people who choose to remain in the workforce, reduced benefits, and general revenue financing.”
Lew dismissed these proposals in favor of more “experimentation” — including new tax approaches to funding the program.
“Congress has allowed regressive taxes to finance assistance payments, while denying progressive taxes for insurance benefits,” he lamented.
“The logic of this course is difficult to understand but appears to represent a continuation of the deeply rooted belief in the tradition of self-support and individualism which for so long blocked passage of social insurance.”
Lew referred to payroll taxes as “regressive” since they only apply to a fixed amount of a taxpayer’s income — currently $110,100. In 1978, Social Security taxes were only paid on the first $17,700 of an individual’s income.
Social Security, he wrote, was “only a beginning” in an “embattled struggle for social insurance.”
Lew, then a supporter of what he called “progressive” social insurance programs, saw Franklin Delano Roosevelt as more conservative than other political figures because he did not support “redistribution” of income.
“The old age insurance program established by the Social Security Act of 1935 was a compromise,” he claimed. “It set up a national program, but it did not take a bold step towards establishing old age security as a national obligation.”
Meeting that obligation, he observed, would require the government to guarantee retirees a fixed amount of money to live on. But the specter of Communism, Lew suggested, made that kind of solution unlikely.
“Communism at home and abroad became the target of exaggerated fears,” wrote Lew. “There was little likelihood that Congress would go a step further than the existing social insurance program and accept the principle that the government had an obligation to guarantee, or share the cost of guaranteeing, a minimum income for any American.”
Lew’s more recent arguments about Social Security have included a February 2011 comment to USA Today that Social Security spending “does not cause our [federal] deficit,” thanks to the program’s “trust fund.”
“Social Security benefits are entirely self-financing,” he wrote then. “They are paid for with payroll taxes collected from workers and their employers throughout their careers.”
The Congressional Budget Office reported in 2012 that Social Security expenditures will exceed the program’s dedicated revenues by about 10 percent, as Baby Boomers retire during the coming decade.
“That gap will grow larger in the 2020s, and by 2030, Social Security outlays will be about 6 percent of gross domestic product and will exceed dedicated tax revenues by about 20 percent,” the CBO wrote.
In fiscal year 2012, Social Security spending totaled $773 billion, nearly 5 percent of GDP.
The U.S. Senate Finance Committee voted Tuesday to send Lew’s appointment to the full Senate. That full vote is expected later Wednesday
Johnson is the author of “Why Coolidge Matters: Leadership Lessons from America’s Most Underrated President.”