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False Beliefs Have Led to a Social Security Scare

2:00 pm

Teresa Ghilarducci, When I’m Sixty-Four: The Plot Against Pensions and the Plan to Save Them. Princeton, NJ: Princeton University Press, 2008. Copyright Â© 2008 by Princeton University Press. Reproduced by permission.

"People living longer is a flimsy justification for weakening pensions and compelling older people to work more."

Teresa Ghilarducci is the Schwartz Professor of Economic Policy Analysis at the New School for Social Research in New York City. In the following viewpoint she attacks what she calls "three common beliefs" that Americans have about the Social Security system. She maintains that people living longer is a result of retirement benefits, not the cause of a crisis. She argues that there will be no labor shortages and that pension coverage could be extended to more people by eliminating the tax subsidies for individual retirement accountsâ€”such as 401(k) plansâ€”which mainly benefit high-income people.

As you read, consider the following questions:

What does the author imply caused the increases in longevity seen in the United States?
What are the three ways pension income could become more insecure, as suggested by Ghilarducci?
According to the author, does the percentage of individuals receiving pensions improve as individual retirement plans overtake defined benefit pensions such as Social Security?

Americans seem to believe these three ideas:

Life expectancy is increasing, so we should work longer.
The United States will suffer labor shortages as the population ages.
Pensions are unaffordable.

These three propositions are invalid, and for these reasons: People retiring earlier could be the reason for increased life expectancy; a lower future rate of growth in the labor force will increase wages, not cause labor shortages; and there are other ways (besides shifting tax breaks away from high-income employees, who would save without the subsidy, to middle- and lower-income workers who would benefit from them) in which governments and employers play a strong role in a functioning pension system.

Let us consider each proposition.

First False Proposition

Americans should work longer because the are living longer. Using almost every measureâ€”entry into the labor force at young ages, longer hours of work, relatively later retirement ages, and higher labor force participation of parents with young childrenâ€”Americans work more than workers in most developed nations. Societies in different nations deal in different ways with the scarcity of timeâ€”time for work and time for leisure. Mothers with small children in the United States work more than mothers in France, the United Kingdom, Germany, and Japan. French and German workers have on average fewer years of education than U.S. workers, suggesting that French and German citizens start work sooner, but they also end their work careers at much younger ages. If Americans work longer and reduce their time in retirement, they will be pulling even further away from other nations in valuing leisure.

However, in the United States, as in any nation, not all groups are able to retire. Not everyone has enough pension savings. Not everyone lives to the same age. Here is the problem: life expectancy is increasing, yesâ€”but not for everyone. There is a growing gap in longevity between those with college educations and those without.

Although large amounts of retirement leisure, through better pensions and longer lives, is a sign of a rich economy, the recent increases in the United States in the expected time in retirement resulted from longer lives, not from more valuable pensions. The largest leap in longevity rates came after 1965: when Medicare extended health insurance coverage to almost all the elderly; larger Social Security benefits reduced the adverse health effects of low income; and traditional pension plans let workers who wanted to, especially those in physically demanding jobs, retire before age sixty-five. People living longer is a flimsy justification for weakening pensions and compelling older people to work more. It is an anemic course of reasoning because the argument is based on the assumptions that (a) workers do not value free time as they age, and (b) older people can do the new jobs, and (c) people are not living longer because they are improving their health by retiring sooner.

Elderly Limited in Work Capacity

Assumption (a) is false because, as the nation grew richer, work hours fell and vacation time soared. Assumption (b) is false because there is little evidence that the ability of older people to work longer has improved. Since 1981, the share of older workers reporting limitations in the ability to work stayed steady at between 15% and 18%. Jobs demanding heavy lifting, stooping and kneeling, and overall physical effort are declining, especially for men. However, older workers report a 17% increase in jobs involving a lot of stress and intense concentration. Older women report a 17% increase in jobs requiring good eyesight. As to whether the computer has made jobs easier for older workers, the jury is out.

As for why assumption (c) is false, consider this: Retirement time itself boosts longevity. Retired men do not age as fastâ€”their health deteriorates at a slower pace than for men who are still working, but both are alike in many other ways. Retired women are in better health than they would have been had they still been working. This evidence suggests that longevity itself improved because people retired! If older people are compelled to stay in the labor force longer, this could reverse the progress society has made in increasing life expectancy for American people over age sixty-five. This is unfortunate for the less obvious reason that the impressive longevity improvements have shrunk what would otherwise have been a severe decrease in average retirement time. In short, as older people work more and experience more unemployment, they will likely encounter health difficulties, especially if they experience downward mobility in their status at work. They will become less able to do a job well, and they will have less time to care for themselvesâ€”sleeping, exercising, preparing and eating meals. So, instead of improved longevity being a reason why older people should work more, it is a fact that older people who worked less improved their longevity.

Second False Proposition

The United States will soon suffer labor shortages as the population ages. This proposition implies that there is a labor shortage and older people have to help solve it. This is false for several reasons.

One reason is that labor shortages simply do not exist. What is called a "shortage" in any market merely describes any situation where demand exceeds supply. Reasonably, employers reckon labor supply will meet labor demand only when wages increase or the job offer is made more attractive. To paraphrase Wharton Business School economist Peter Cappelli, this is unlikely to be a problem for public policy. Should pensions be made more insecure because the generation coming after the boomers (in 2008, the oldest baby boomer turns sixty-two and the youngest boomer turns forty-five) is smaller and employers would rather not raise wages? There are three ways pension income will become more insecure, thus making older workers more likely to work:

the erosion of employment-linked defined benefit pension plans and development of a system of commercial, individual-based pensions (401(k) type plans) to replace them;
the projected decline in Social Security benefits; and
upward pressure on noninsured health care costs.

Third False Proposition

Pensions are unaffordable. Many argue that the greatest threat to pensions is the enormity of their expense, implying that pensions must shrink because they are not affordable. For example, Boston University’s Laurence Kotlikoff and coauthor Scott Burns argue just that in their brisk-selling book, The Coming Generational Storm, a title that announces the boomers’ retirement as if it will be a disaster as severe as a tsunami. The truth is that the money now spent on pensions is largely wasted and could be used to extend pension coverage to millions more Americans.

Yes, the government does spend a great deal on pensionsâ€”above the expense for Social Security programs and Medicare. The expense is through the system of tax breaks for voluntary employer and individual retirement plans: defined benefit plans, all defined contribution plans (including 401(k) plans), individual retirement accounts (IRAs), and other retirement savings vehicles. Contributions to these plans and investment earnings on the contributions are not taxed; only the pensions paid out at retirement are taxed, but commonly at a much lower tax rate than when the employee was working. The tax-favored treatment for retirement plans has been, until 2006, the largest of all categories of federal government tax expenditures. In 2009, taxes not collected on pension funds and contributions will be the federal government’s second-to-largest tax expenditure. The government’s largest tax expenditure will be employer contributions for medical health insurance premiums. Employers‘ contributions are government tax expenditures because the contributions are exempted from income tax. This means the government forgoes revenue and "spends" that forgone revenue on the tax break.

The Puzzle of Pensions

What remains puzzling is why, despite the huge and growing tax subsidy for pensions, pension coverage has stagnated. The puzzle is explained by the changing structure of the tax subsidy. The tax subsidy for 401(k) plans mostly benefits higher-income workers. Higher-income workers (and indirectly their employers) pay higher income tax rates under the progressive income tax structure; so a tax break is worth more to higher-income workers relative to the same tax break for lower-income workers. This means that workers at different earnings levels, say each contributing 10% of their salary to a pension plan, receive widely different tax breaks from the federal government.

If a worker does not participate in a pension plan, of course, he gets nothing from the federal program subsidizing pensions…. Among workers with pensions, it is the lower- and middle-income workers who are less likely to participate in 401(k) plans than in defined benefit plans. Thus, as 401(k) plans overtake defined benefit pensions, tax subsidies grow because pension coverage shifts to high earners, while overall pension coverage does not improve. This is a waste of taxpayers’ money because tax policy toward employee benefits aims to meet public goals for retirement security. The tax breaks do not help households save more, increasing the nation’s savings in proportion to national income. The $115 billion of tax expenditures for all retirement accounts in 2004 was equal to one-fourth of Social Security contributions. Rather than increasing savings, research suggests that tax breaks mostly induce high-income households to shift savings they already have in financial assets that are taxed to tax-favored accounts….

A Cocktail of Solutions

Although these three propositionsâ€”people living longer should work longer, labor shortages will hurt the economy, and pensions are unaffordable for employers and governmentâ€”are false, they nevertheless result in a cocktail of solutions that reduces pension security: raising the retirement age for Social Security, which reduces benefits; allowing defined benefit plans to collapse; and promoting defined contribution, 401(k)-type retirement accounts. These solutions fall short of what should be an efficient and low-cost retirement system that delivers adequate levels of pensions for workers at all income levels and for different life expectancies.

Welfare Reform Violates Women’s Rights

12:00 pm

"Welfare and Women‘s Lives." This article originally appeared in the May/June 1995 issue of Democratic Left, published by the Democratic Socialists of America. It is reprinted here by permission.

Mimi Abramovitz is a professor of social policy at the Hunter College of Social Work in New York City and is the author of Under Attack, Fighting Back: Women and Welfare in the U.S.

Welfare reform has become a mean-spirited campaign to modify poor women‘s behavior and deny them their rights. This effort vilifies the marital, childbearing, and parenting behavior of poor women. Welfare reformers falsely portray recipients as "welfare queens" who prefer welfare to work, lie to gain benefits, and have additional children in order to get more aid. In actuality, cutting welfare benefits and forcing women to work will make it more difficult for them to raise and support their children. Welfare advocates and the poor must organize to prevent such punitive welfare policies.

Frances Fox Piven wrote in Democratic Left in 1994 about the faulty assumptions and cruel logic of the Clinton administration’s welfare reform proposals. No one could have guessed then just how far and how fast the public debate on welfare would swing to the right. As I write today (in mid-April 1995), the Republicans’ "Personal Responsibility Act," which is even more punitive than Bill Clinton’s "Work and Personal Responsibility Act," has passed the House and awaits consideration in the Senate. Even if Clinton vetoes this first bill [he did so in January 1996], it’s almost certain that some kind of regressive welfare "reform" will become law before the 1996 elections. Welfare reform is bad for women, because they are the direct target of a drive to modify women‘s behavior; bad for children, who will see less of their mothers; bad for labor, who will face more competition for fewer jobs; bad for the poor, because it makes them poorer; and bad for the middle class, because their programs are next.

So we on the left have our work cut out for us. Just as the right patiently laid the groundwork over twenty years for its assault on the public sector, we need to do the slow work of building cohesive movements for social justice. A crucial part of this work will be raising public consciousness of welfare as a feminist issueâ€”not just in the superficial sense that most welfare recipients are women, but also with the understanding that the availability of welfare affects all women‘s ability to resist sexist workplaces and family structures.

Welfare reform has turned into a mean-spirited campaign to modify women‘s behavior and dismantle the welfare state. When Aid to Families With Dependent Children (AFDC) was created in 1935, Congress’s intention was to cushion poverty and to enable mothers to stay home with their kids. AFDC has never performed either of these functions well, and feminists and the left have criticized it for years.

But now things have gone from bad to worse. Instead of fixing AFDC to compensate for the falling standard of living, the new welfare reform deflects attention from the sagging economy by maligning the marital, childbearing, and parenting behavior of poor women. To build support for their plans, the welfare cutters evoke false stereotypes of recipients as culturally adrift welfare queens who prefer welfare to work, live high on the hog, cheat the government, and have kids for money. The rhetoric of this assault is highly racialized. Although 40 percent of the welfare caseload nationwide is white, the reformers do not hesitate to pander to white voters’ worst instincts. Richard Nixon had his "southern strategy," Ronald Reagan had his welfare queen, George Bush had Willie Horton [a convicted murderer featured in Bush political ads], and today’s politicians have welfare reform.

Targets of welfare reform

The first target of welfare reform is women‘s work behavior. Time limits and workfare plans presume that women do not want to work and need to be coerced into the labor market. But in fact, 70 percent of all AFDC recipients do leave the rolls within two years for work or marriage. A significant number of these women return within five years because of unstable jobs, failed relationships, or the lack of child care and health benefits. The remaining 30 percent are people who cannot compete effectively in today’s labor market because of lack of education and skills, illness, disability, or emotional problems. They need supportive services, not punitive reforms.

The push for mandatory work requirements also ignores years of research showing that welfare-to-work programs have only modest results. This is not terribly surprising. First, there are not enough jobs for all those willing and able to workâ€”and the Federal Reserve works hard to keep things that way. Second, the low-paying, part-time jobs available to poor women lack benefits and union protection. Given these conditions, the administration’s promise "to make work pay for those who try hard and play by the rules" rings hollow for welfare mothers. It also devalues their work at home. Finally, cutting welfare means the loss of many public sector jobs, which for years have provided large numbers of white women and women of color a way out of poverty.

The second target of welfare reform, women‘s childbearing behavior, challenges women‘s reproductive rights. Both parties have expanded the child exclusion provision, which denies aid to children born on AFDC, and stiffened paternity procedures. These changes imply that women on welfare have large families, when in fact the average family on welfare is a mother and two children, the same as the rest of us. Forty-three percent of AFDC families have one child and 30 percent have two. Since you have to have at least one child to qualify for AFDC, this means that most women have just one additional child while on the rolls. It also suggests that women on welfare do not have children for money. But 76 researchers recently announced that there is no evidence for a link between the availability of welfare and a woman’s childbearing decisions.

The Republicans have made controlling women‘s reproductive choices the main goal of welfare reform. The stated purpose of their bill is to put an end to "illegitimacy." They say mother-only familiesâ€”encouraged by welfareâ€”have produced drug dealers, drive-by shooters, and the deficit. To end "illegitimacy," they plan a range of horrific child exclusion provisions, some denying aid to children and young unwed mothers forever. The Republican paternity procedures hold back AFDC until the state establishes paternity, which can take months, leaving even more women out in the cold. If the pregnancies persist despite these penalties, the Republicans tell mothers to turn to relatives, apply for private charity, or place their children in "orphanages."

Although only 8 percent of all AFDC households are headed by teens, the welfare reformers pander to public worries about "babies having babies." If preventing teen pregnancy were the real goal of welfare reform, we would hear more about sex education, family planning, abortion services, and awareness of the complexities of teen pregnancy.

The third target of welfare reform is the parenting behavior of poor women and men. The welfare reform debate displays a deep distrust of parenting by poor women. Supporters of "orphanages" publicly suggest that any caretaking is better than that provided by welfare mothers, even though many have hired poor women in their own homes.

In the name of promoting parental responsibility, welfare reform forces single mothers to work, shrinks the AFDC check, and otherwise undercuts the conditions for effective parenting. Forcing women to work makes it harder for mothers to supervise their children. This makes little sense, especially in neighborhoods plagued by poor schools, lack of health care, substandard housing and in some cases drugs, crime, and violence. Stricter child support enforcement clamps down on the parenting behavior of so-called "deadbeat dads." While men should be expected to support their children, welfare reform ignores that most welfare fathers are poor and unemployed, that some are already involved with their children, and that an aggressive pursuit of child support could subject women to male violence. All these efforts to enforce responsible parenting defy the research that shows that the deprivations of poverty, not the receipt of a welfare check, impair children’s development on all fronts. Although the combined value of AFDC and food stamps falls below the poverty line in all fifty states, the welfare reformers are silent on raising the grant and ending poverty as we know it.

Undercutting women‘s gains

The current attack harms poor women and their children first and foremost for being poor. But welfare reform also fits into a broader strategy designed to take back the gains made by all women during the past thirty years. The proposed changes attack the rights of all women to decent pay, to control their own sexuality, to establish families free of abusive relationships, and to survive outside of the rigid family forms endorsed by the religious right. They do this by undercutting women‘s economic independence, weakening their caretaking supports, and threatening their reproductive rights.

Cutting AFDC benefits undercuts all women‘s economic independence by depriving women of a small but critical alternative to male and market income. Without this back-up many women facing hard times will have more trouble resisting an exploitative job, escaping an abusive relationship, or simply deciding to raise children alone. By forcing women to work, welfare reform twists the gains of the women‘s movement against poor women. Feminism has called for more choices, greater opportunities, and well-paying work for womenâ€”not coercion, workfare, and poverty-level jobs.

Welfare reform threatens the rights of all women by shifting the costs of caretaking back to the home. The attack on welfare fuels a larger attack on the nation’s health, education, child care, income support, and social service programs which among other things have underwritten the cost of family maintenance and eased the caretaking burdens of middle class as well as poor women.

Welfare reform also threatens the reproductive rights of every woman. Efforts to penalize non-marital births are not far removed from the anti-abortion movement’s challenge to women‘s reproductive choices. The foes of abortion have not yet won their battle in full. But if the government wins the right to control the bodies of poor women on welfare, it will be much easier to control the bodies of all women.

Welfare is an issue for women because politicians have built support for their attack on women‘s rights by blaming all women for the nation’s woes. Women, welfare, and now affirmative action are being scapegoated to ease the moral panic generated by new family structures and greater economic independence among women. Welfare reform enforces traditional work and family forms by disciplining those defined as "not playing by the rules." The reformers openly hope that their stiff penalties will send a message to women about what happens to those who do not marry, who raise kids on their own, and otherwise step out of role. Since any woman can be tarred and feathered in this way, we must ask: Who made the rules? Who benefits from the rules? And can single mothers even play by a set of rules that defines their family structure as out of bounds?

While the Democrats’ "Work and Personal Responsibility Act" bids for conservative votes by making welfare leaner and meaner, the Republican "Personal Responsibility Act" ups the ante by ending the welfare state altogether. It cuts welfare grants, converts major income support programs into state-administered block grants, and wipes out the federal guarantee of funds for all those who apply for aid. Without the federal back-up, fiscally strapped states will not be able to serve all those in need when the population grows or the economy sinks. You’d never guess from all the fuss that the $24 billion spent on AFDC benefits in 1994 represented only 1 percent of the federal budgetâ€”4 percent when Medicaid and food stamps are included.

Despite all this, I can end on an optimistic note. Poor and middle class women are not taking the blame, the punishment, or the coercion lying down. Since 1987, poor women have been fighting the war on the poor through such groups as the National Welfare Rights Union. This time around, they have been joined by large numbers of welfare advocates who are also working to limit punitive policies and to secure "real" welfare reform. Reversing past practice, these activists are spanning the traditional schisms between welfare recipients, feminist activists, and human service workers. The infrastructure built up during the past ten years [since 1985] of fighting right-wing social policies was mobilized on Valentine’s Day, 1995, when organizations in 38 states and 77 cities from Maine to Hawaii participated in a national day of action to stop the war on the poor. This growing network is now well-positioned to be mobilized again, and again, and again.

These grassroots actions are critical. The historical record shows that the powers that be rarely act and social change rarely occurs for the better unless pressured from below. Unless today’s politicians know that we mean business, they will not budge.

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