Two quick updates on the biggest retirement issue facing most of us, namely Social Security.
First is some good news. A new bill has been proposed in Congress that would raise the annual cost-of-living adjustment, or COLA, by tying them to the price inflation experienced by seniors. The “Fair COLA for Seniors Act” has been introduced by John Garamendi, a Democratic congressman from California.
It’s a measure Joe Biden supported publicly when he was running for president last year. And it’s supported by various pressure groups that support seniors, such as the National Committee to Preserve Social Security and Medicare.
Congress should pass the measure forthwith. For those (understandably) worried about rising government spending: The change wouldn’t be an increase in real terms, but simply an attempt to right a perceived wrong. Currently Social Security checks are increased every year in line with an official measure of inflation designed around working age Americans. That’s the CPI-W, or Consumer Price Index for Urban Wage Earners and Clerical Workers. The government uses this measure because it was the best one available when they first instituted the annual COLA, back in the inflationary 1970s.
Today we can do better, and Garamendi wants to. He wants COLAs tied instead to the CPI-E, or Consumer Price Index for the Elderly.
This isn’t a trivial issue. The biggest difference relates to medical care: Typically a far bigger issue for the elderly than for the rest of the population. Since 1982, the overall level of consumer prices in the economy as measured by the CPI has risen 190%.
Medical care? Try 450%, or more than twice as much.
The downside is that this bill wouldn’t change things nearly as much as supporters may hope. In the past 20 years, for example, Social Security beneficiaries have received an annual COLA averaging 2.1% a year.
I checked with the U.S. Labor Department, which compiles all the inflation data every month. If Social Security had been using the CPI-E, the annual increases would have averaged…2.2% a year.
Medical care, which accounts for 9% of the calculation for the regular CPI, accounts for 12% of the CPI-E.
So the change wouldn’t transform the finances of tens of millions of senior Americans. But it would at least be a step in the right direction.
Meanwhile, a second point. I was surprised by a few of the comments I got after last week’s column, when I pointed out how absurd it was that Social Security was facing a financial crisis while the richest people in America paid effectively no tax at all. And I pointed out that a simple wealth tax would fix the problem.
Many people really objected strenuously to the idea of a wealth tax, which they variously call socialist, communist, confiscation, and so on. I confess I am baffled. As long as I’ve been alive, conservatives have supported the idea of a flat tax. And that’s what a wealth tax is: A flat tax. Everybody would pay the same rate. It’s also much simpler to collect than an income tax, and much harder to avoid, so it would need a far smaller federal bureaucracy to do the collecting.
The problem is that currently we have an inverted tax code. Yes, sure, it’s “progressive”—but only on us working stiffs. The more you earn, the higher your tax rate. But then the rate suddenly plummets, like one of those continental shelves out in the ocean. That’s because we don’t tax capital, only labor.
Once you stop talking about someone making $10 million a year, and start talking about someone making $10 billion a year, taxes vanish. These people basically pay nothing at all. I just suggest they pay taxes like the rest of us.
A tax system where the peasants are taxed and the aristocrats aren’t is what they had in France before the fall of the Bastille. That’s not capitalism, that’s feudalism.
I’m not a socialist. But I’m not a feudalist either.