All posts by Gerald E. Scorse

Democrats Could Revive a Reagan Tax Reform

Conservatives have every reason to love Ronald Reagan. He cut taxes hugely on high incomes. Once a union leader, he became a ruthless union-buster. He warred endlessly against welfare.

But the darling of the Right made one sharp Left.  His landmark Tax Reform Act of 1986 called for equal taxes on income from wealth and income from work. For the first time in over 60 years, there would be no preferential rate for capital gains. Income earned sitting by the side of the pool would be taxed the same as income earned by cleaning the pool.

Reagan’s equal-tax policy was bartered away in fiscal horse trades during the Bush I and Clinton Administrations. Bringing it back for good has quietly become a favorite Democratic position heading into the 2020 election.

Advocates of lower taxes on capital gains argue that they’re needed to “boost entrepreneurship, investment and growth.” Without them, they say, America’s dreamers wouldn’t be able to attract the seed money they need to turn big ideas into reality.

Opponents think otherwise. Just for starters, tax breaks on gains “give a windfall to the wealthy and make long-term budget problems even worse.”

There’s no question that low capital gains rates lopsidedly favor the rich. For 2019, the Tax Policy Center estimated that more than 75 percent of the tax benefits went to those with incomes of $1 million or more. The average gain was $155,000—a big number lifted by the big tax-rate difference between investment income and work income.

George W. Bush cut the rate on both long-term gains and dividends to a modern-day low of 15 percent. President Obama raised it to 20 percent and added an Obamacare surcharge on the investment income of high earners. Even with those increases, taxes on unearned income remain far below the top marginal rate of 37 percent on income from work.

The Tax Policy Center also noted that having dual tax rates was an open invitation to use “sophisticated financial techniques to convert ordinary income…to capital gains. For top-bracket taxpayers, tax sheltering can save up to 17 cents per dollar of income sheltered.” (Of course, the shelters themselves are only for the wealthy: nobody else can afford the tax experts it takes to set them up.)

Nobel economist Paul Krugman and billionaire investor Warren Buffett have their own strong views on capital gains taxes.

To Buffett they couldn’t matter less:

I have worked with investors for 60 years and I have yet to see anyone—not even when capital gains rates were 39.9 percent in 1976-77—shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off.

The claim that tax favors on capital gains foster economic growth is part and parcel of what Krugman calls a zombie idea, “an idea that should have been killed by evidence but refuses to die.” Despite years of looking, he writes, “Nobody has ever been able to find clear evidence of a link between high-end tax cuts and growth.”

Presidential candidate Joe Biden favors equal taxes on all income, but with a huge asterisk: his proposal would apply only to incomes of $1 million or more. The Reagan law had no such threshold—and Biden shouldn’t have one either.

The percentage of households reporting capital gains and dividends reaches well into double figures starting with incomes of $75,000 to $100,000. For incomes of $100,000 to $200,000, it’s already at 23.3 percent. From $500,000 to $1 million, it’s almost three-quarters.

Inequality in America isn’t really about the top 1 percent, it’s more like the top 20 percent. Tax policies deliberately shaped to favor the Top Twenty are one of the reasons (for chapter and verse see the Richard Reeves book Dream Hoarders.)

If Democrats take control in 2021 they should bring back Reagan’s equal taxes on income from wealth and income from work.  For everybody, non-millionaires and millionaires alike.

• This article first appeared at

The post Democrats Could Revive a Reagan Tax Reform first appeared on Dissident Voice.

My Unexpected Move from Adman to Taxman

Writing TV commercials was fun but retirement would be heaven. I could do whatever I pleased. I’d get to spend weekday afternoons at Yankee Stadium with the sun shining down on the boys of summer.

Then a new world appeared out of the green. I invested my profit-sharing in the stock market. I discovered that newspapers had business pages as well as sports pages. I puzzled over terms I’d never seen before (such as basis prices, which I’ll return to). Looking back I realize this was just the start of an endless tax education.

All federal tax laws are pieces of a giant Rube Goldberg, the Internal Revenue Code. Informally called the tax code, it’s often called unprintable names by thousands of Americans.

I can’t speak to their reasons but I came to have my own. For more than a generation Republicans have promoted the zombie idea that cutting taxes raises revenue. It was the perfect cover for rigging the code with provisions that hugely favor the wealthy.

I’d always written for a living. Now I started writing for a cause: tax fairness.

April 13, 2006 was a breakout day. My article about capital gains and basis prices, “One tax tweak that’s worth billions,” ran in the San Francisco Chronicle. After five-plus years and dozens of rejections, I was finally in print.

I sent that article (and all those since) to the tax-deciding House Ways and Means committee and the Senate Finance committee, to the majority and minority leaders of both houses, to my two senators. Beside writing articles, I’ve testified in writing at Congressional hearings.

Not that it does much good. Almost nothing I’ve pushed for has gone anywhere. Almost everything I’ve pushed against has stayed in place or gotten worse.

Estate taxes are a perfect example. Back in 2000 there was a $675,000 per-person exemption from federal estate taxes. The 2020 exemption is $11,580,000 (more than $23.1 million for a couple). According to a Census Bureau estimate, estate taxes in 2018 would actually be paid in only 0.07 percent of cases. Putting it another way, the so-called “death tax” is a non-tax 99.93 percent of the time.

Another handout to the haves is a loophole called the stepped-up basis. It allows appreciated assets to be passed along with the appreciation simply wiped away; only post-inheritance gains are subject to taxes.

Imagine how shocked and happy I was when my first cause became law, tucked into the rescue package passed at the height of the 2008 financial crisis. David Cay Johnston made me almost as happy when he mentioned it in one of his books on taxes: “For stocks, mutual funds and bonds…Congress now requires brokerages to report the basis of these investments, a reform wrought partly after my reporting on this issue and the work of others, including Gerald Scorse…”

I had another surprise upper just last month. Teresa Ghilarducci’s Forbes blog linked to an article of mine and backed the position it took.

So it goes for an adman-turned-taxman, grateful for “the positive psychological benefits associated with a concept now known as mastery: practicing an activity at which you have no previous level of expertise, and experiencing gradual improvement over time.”

Here’s hoping for a lot more time and a lot more improvement.

(Epilogue: The coronavirus pandemic has become the latest excuse to comfort the comfortable. The CARES Act helps millions, but it takes extravagant care of the haves.)

Pandemic Fallout Includes Handout to Rich Retirees

The coronavirus pandemic is worlds apart from the financial meltdown of 2008-09. Even so the government’s response was identical in one telltale way. Congress once again gave a special dose of tender loving care to taxpayers who need it the least.

The 2008 bailout suspended annual required minimum distribution (RMDs) from retirement accounts. Surprise, surprise, the same tax break showed up in the $2.2 trillion stimulus signed by President Trump.

Waiving RMDs is welcome news for the well-heeled. They have plenty of income outside their IRAs and 401(k)s. They’re fine with passing up a distribution, and seriously happy to avoid the taxes that come with it.

(A quick history: The first retirement accounts didn’t need any waiver to avoid taxes. In addition to untaxed contributions and tax-free capital gains, there were no mandatory distributions either. The party ended when lawmakers finally laid down a time limit. A 1986  tax reform mandated minimum distributions starting at age 70 1/2. It’s been reset at 72 effective this year.)

The new waiver lets retirees off the hook for 2020. The hook is still in, though, for the millions who actually rely on their accounts and can’t get along without withdrawals.

They’ll be forced to do what the affluent have been spared from doing. They’ll have to liquidate holdings at prices battered by the fastest stock market crash in U.S. history (including three record drops in the Dow over just eight days). Wall Street has rallied since its late-March low but remains well in the red for the year.

The stimulus bill did slightly better for younger workers. Account withdrawals prior to age 59 ½ normally incur a 10 percent penalty; taxpayers financially harmed by the pandemic won’t have to pay that penalty. Income taxes can be spread out over three years, but the full amounts remain due. There’s also an option to repay the distribution back into a retirement plan.
Withdrawing savings ahead of time, however, carries a penalty all its own. David Certner, the legislative counsel and policy director for the AARP, put it this way:

It’s never a good idea. It’s particularly not a good idea when the market is down. But for people who are in really bad shape, this may be their one emergency alternative.

Now for a look at the waiver from a fiscal perspective: the government will be losing billions at the worst possible time.

The stock market racked up giant gains last year. RMDs are based on account balances as of December 31, so the taxes on distributions were certain to hit new highs. Revenues have steadily trended up as millions of boomers reach minimum distribution age. Coupled with the market’s 2019 performance, bumper RMD taxes should be flowing into the Treasury.

Now most of those dollars will likely be staying in the pockets of taxpayers whose pockets are already full. At the same time, Congress will be shoveling money out the door in the biggest national bailout ever.

Waiving RMDs is tax policy tilted toward the upper incomes. The timing makes it financially foolhardy as well. The waiver might last only a year, just as the first one did. Even so, a government already starving for revenue may never make up what it’s now passing up.

Some have argued that now isn’t the time to worry about who gets what, or for what reasons, or anything else. All that can come later; the only thing government should concern itself with at the moment is doing everything possible to help as many people as possible.

Point taken. We’re all in this together. It’s an extraordinary time demanding extraordinary measures. Nothing else matters.

All the same, suspending RMDs has little to do with going all out for America. It has everything to do with going all in for those at the top.

Same old, same old. Here’s to a post-pandemic with fewer tax favors for the haves.

SECURE Act Leaves Millions of Workers as Insecure as Ever

Tweeter-in-chief Donald Trump constantly bashes “do nothing Democrats.” In fact, it’s Mopey Mitch McConnell who’s the do nothing man, refusing to act on nearly 400 bills passed by Pelosi’s House.

One big Democratic initiative did manage to become law, pushed through as part of a late-2019 budget deal. Titled the SECURE Act, it’s the latest effort to reshape and repair America’s private-sector retirement system.

SECURE stands for Setting Every Community Up for Retirement Enhancement. The bill doesn’t come close to doing that, partly because the job is so huge.

Despite extensive use of 401(k)s, IRAs and the like, millions of employees simply aren’t saving enough to carry them through the Golden Years. Another 55 million workers, largely low-income, don’t have workplace access to any retirement plan; they could easily join the huge numbers of seniors already managing on little more than Social Security.

Two provisions of the Act aim at lowering the no-access numbers:

Most promising, the law removes a barrier that’s been keeping small businesses from joining together to form multi-employer plans. Another new rule allows regular part-timers to enroll in 401(k)s if they’ve worked 500 hours for three consecutive years or 1,000 hours in a single year.

Both changes take effect in 2021. Now for some already in place.

There’s no longer an age limit for putting money into traditional IRAs. Contributions formerly had to end at age 70 ½; now they can continue as long as workers stay on the job. Especially for those who aren’t saving enough, saving longer gives them a chance to save more. (The new rule already applies to 401(k) and Roth accounts.)

Annuities have arrived for 401(k)s. The lion’s share of retirement savings gets invested in the stock market. That’s not the safest place, as investors have just re-learned the hard way. Annuities by contrast provide a lifetime income stream, and the new law “eases the way for employers to tuck annuities into 401(k) plans.”

In another major change, the Act ends so-called “stretch” IRAs. President Obama tried and tried again to get them repealed. Ironically, his wish is now a done deal signed and delivered by President Trump.

Non-spouse inheritors were once allowed to keep IRAs active for decades (stretched, in other words). No longer: with slight exception, the accounts now have to be cashed out in 10 years.

There was strong fiscal reason for the repeal. Total tax revenues from those finally-closed IRAs will reach an estimated $15.7 billion over the next decade—almost enough to pay for all the bill’s provisions. (It’s a rare instance of legislation that should ultimately take in nearly as much as it spends).

In the end the SECURE Act could have done much more to live up to its name.

The big shortfall is its lack of any direct impact on workers without access to retirement plans. The law could have set up universal payroll-deduction IRAs, an idea endorsed by candidates Obama and McCain in the 2008 presidential race. Obama’s Administration kept pushing the idea, once estimating that automatic IRAs might reach around 80 percent of low and middle-income workers.

That’s what could have happened but didn’t. The law also disappointed in the other direction, doing something it shouldn’t have. It handed a tax break to those who need it least.

Most retirement accounts call for taxable required minimum distributions. These already had a late start, not kicking in until age 70 1/2. The new law pushes the starting age back to 72. The later date helps only those who can wait pretty much forever to tap their nest eggs. It’s also the most expensive of all the bill’s changes, costing the Treasury more than half of what it stands to gain from the repeal of “stretch” IRAs.

Summing up, Democrats deserve some praise for maneuvering the SECURE Act through Congress. They also deserve some blame for not going further toward improving our vastly improvable retirement system.

P.S.  The coronavirus pandemic is outside the scope of this article. Going forward, a bad retirement situation is almost certain to become even worse.

Even the Democrats Do Favors for the Rich

In 2017 a Republican-controlled Congress passed a tax cut hugely tilted to corporations and the wealthy. In the waning days of 2019, the Democratic-controlled House did a kind of me-too. It pushed through a retirement bill with a provision that gives billions to those in the upper tiers.

The House’s gift to the well-off was part of a deal finalizing federal spending for fiscal 2020. In a tweet summing up the agreement, tax expert Len Burman called it “the Zombie Extenders [aka tax breaks] and Fiscal Irresponsibility Act of 2019.”

In the case of retirement policy, nothing was as fiscally irresponsible as moving back the age for required minimum distributions (RMDs) from 70 1/2 to 72. An estimate from the Joint Committee on Taxation put the price tag for that change at $8.9 billion over the next decade.

And the number will only keep growing, with all those billions going to people who don’t need a dime.

(By comparison, the Taxation committee estimated the next-highest cost in the retirement bill at $3.4 billion. That money though will go to a good cause: shoring up the pensions of over 10 million workers in underfunded multiemployer plans.)

Getting back to RMDs, they provide the payback that seniors owe America for decades of tax breaks. Contributions to all retirement plans except Roths are tax-deductible; capital gains in all plans, Roths included, accrue tax-free. On the back end, through voluntary withdrawals and RMDs, the Treasury finally recovers long-forgiven taxes.

Withdrawals from retirement accounts are taxed at ordinary income rates. They can begin at age 59 1/2, and for those who need the money they often do. Those who don’t need it have long enjoyed a huge tax break. They could hold off making any withdrawals and paying any taxes for another 11 years (while balances kept growing and compounding all that extra time).

Their late-starting RMDs have cost the Treasury in the tens of billions. Now, thanks to the longer wait time passed by Democrats, they’ll cost billions more. The rationale is that life expectancies have risen, so the RMD starting age should rise as well.

That may sound like a good reason, but there’s a better reason to do just the opposite. It would make far more sense (and cost the Treasury far less) to begin RMDs earlier rather than later. There’s actually a strong case for starting at age 65.

The first year of Medicare eligibility could also be the year when retirees begin paying back for those extended tax breaks. The revenue inflow could be earmarked to bolster both Medicare and Social Security, the two most important safety net programs for the elderly.

There never was a good argument for putting off RMDs. The Treasury loses out. Those who count on retirement accounts to help them get along don’t gain anything; they’re drawing down early and often. The only real beneficiaries are those affluent enough to avoid withdrawing until it’s mandatory.

The current withdrawal rates also help out the haves. The formula that usually applies calls for a starting RMD of less than 3.7 percent. Twenty-five years later, at age 95, it’s only 11.6 percent.

At these rates account growth can easily outstrip RMDs. Balances can keep getting larger well after mandatory distributions begin.

And those low rates are likely to go even lower. The Internal Revenue Service has proposed updating the life expectancy tables that determine RMD withdrawals. If the money has to last longer, the withdrawal percentages have to be lower.

It wouldn’t hurt anybody if required distributions began sooner rather than later. And no, that wouldn’t wipe out balances; it’s not RMDs that drain retirement accounts, it’s withdrawals well beyond the minimums.

Here’s one last reason why it’s wrongheaded to further delay minimum distributions. Since 1979, incomes for the middle class (the middle 60% of households) haven’t grown anywhere near as fast as incomes for the top 20%. Those in the Top Twenty hardly need another tax break. It fails the fairness test, and the aroma test as well.

Summing up, the 2017 tax cuts ran true to form. They demonstrated once again the GOP’s laser focus on making the rich richer.

This time around, though, it was the left side of the aisle doling out the billions.

• This article first appeared at

The IRS Deserves Cheers, Not Jeers

The Internal Revenue Service (IRS) struggles every day with an infernal problem. It’s expected to separate taxpayers from their hard-earned money and leave them feeling well-treated at the same time.

They don’t feel well-treated, far from it. According to the 2019 report to Congress by the National Taxpayer Advocate: “The current state of IRS customer experience lags far behind other government agencies and the private sector”

But the IRS doesn’t lag behind when it comes to return on investment, or ROI. That’s the standard measure of “bang for the buck”—in this case how many dollars the Treasury takes in for each dollar spent on enforcement.

By that yardstick the IRS is up in the sky with Lucy. It might be flying even higher if Republican lawmakers hadn’t meat-axed its funding.

Treasury figures put the agency’s ROI at roughly $5 for each $1—a return of 400 percent. A report from the Government Accountability Office cites even higher enforcement returns, from $11 to $13 for each $1. In late 2018, the non-partisan Congressional Budget Office (CBO) evaluated the IRS as a way to reduce the deficit. By the CBO’s calculations, increases in the agency’s budget could cut federal red ink by $35 billion over the decade 2019 – 2028.

ROI dollars made not a dime’s difference to the GOP, which sent Congress off on an IRS budget-slashing spree. Rep. Dave Joyce (R-OH) remembers it fondly: “I know that when we were in the majority [from 2010 – 2018]…we took great pleasure in cutting the amount of money that was going to the IRS every year.”

The cuts also warmed the hearts of tax cheats and potential cheats. With enforcement funds gutted, audits have become far less likely.

By 2017, for the first time since 1953, the IRS had fewer than 10,000 auditors. That led to 675,000 fewer audits, 42 percent less than in 2010.

Audit rates plunged as well, especially for upper-income taxpayers. Rates for incomes from $200,000 to $10 million and up were roughly 80 percent lower in 2018 than in 2011. Audits of low-income Americans dropped too, but not nearly as much. In fact, Americans earning under $25,000 had a higher audit rate in fiscal 2018 than those with incomes up to $500,000.

Missteps by the IRS fed into the budget-cutting fervor, and share the blame for the staff reductions and service shortfalls that inevitably followed. When President Trump’s 2019 budget proposed another $738 million cut, Americans for Tax Reform said the agency itself had supplied the hatchet: “While IRS bureaucrats claim the agency is underfunded, the IRS has proven…that it cannot properly use the resources it already gets.”

Trump would later switch sides and ask for a small increase in fiscal 2020 IRS funding. His budget request also proposed additional money “to expand and strengthen tax enforcement.” It would cost $15 billion and generate $47 billion in revenue.

Besides ROI, there’s a second good reason not to bash the IRS.

Most Americans never even think about cheating on their taxes. They’ve been warned away by the words on their W-2 statements, “This information is being furnished to the Internal Revenue Service.” No surprise, the tens of millions who get W-2s lead the nation in tax honesty: they report 99% of their income from work.

Plenty of taxpayers, however, do their own income reporting. Their numbers come only from them, verified by no other source.

It’s an open invitation to play fast and loose, and do they ever. The IRS estimates that self-reporters fail to report almost two-thirds of what they make at work. Their under-reporting is the biggest single part of America’s tax gap, the difference between taxes owed and taxes paid.

The gap now totals $458 billion a year. Until Congress makes all workers subject to third-party reporting, the IRS is the only way to recover at least some of those billions.

In 2005 Stephen J. Dubner and Steven D. Levitt co-authored the best-selling book Freakonomics. In a 2006 op-ed, they let taxpayers in on a bitter truth:

Unless you are personally cheating by one-fifth or more, you should be mad at the I.R.S.—not because it’s too vigilant, but because it’s not nearly vigilant enough. Why should you pay your fair share when the agency lets a few hundred billion dollars of other people’s money go uncollected every year?

Instead of getting mad, let’s hear some cheers. Saddled with an infernal job, decimated by budget cuts, the IRS fights a lonely fight for all honest taxpayers. And remember, its ROI is sky-high.

Rich Getting Richer Via Tax Policies

“I’ve been rich and I’ve been poor. Believe me, rich is better.” This famous quote has always been true, but never as true as today. After decades of dominance by the right, here’s the 2019 version:

“I’ve been rich and I’ve been poor. Believe me, rich is insanely better.”

The insanity stems from tax policies. Marginal income tax rates plunged starting in the 1980s, hitting their modern-day lows under President George W. Bush. After rising modestly during the Obama Administration, they fell again under President Trump.

Rate cuts generate only part of the current bonanza. Tax breaks passed by various Congresses account for the rest, hugely increasing the billions that flow to the haves.

So, insanely, taxes really are making the rich richer. With inequality soaring, they’re widening the income gap instead of making it smaller.

All taxpayers get at least modest breaks, but the big money goes to those who need it the least: income is redistributed upward, with disproportionate shares going to the top percentiles.

The most blatant example literally “wills” capital gains (and capital gains taxes) away. With the stroke of a pen, when assets such as real estate and equities are passed along to heirs, all unrealized capital gains are wiped out. The assets are revalued and given a new basis price, their worth at the time of transfer.

It’s called a step-up in basis, and it can happen again and again. As a result, wealth can pass untaxed from one generation to the next.  (Retirement accounts get no such break, but non-retirement holdings do — and guess who has those.)

In another fiscal favor to the rich, income from wealth is taxed at a lower marginal rate than income from work. The federal rate on long-term capital gains and dividends is 20 percent, well under the 37 percent top rate on income from wages and salaries. The highest earners do pay an Obama-era surcharge of 3.8 percent on investment income; even so, they still save more than a third compared to the tax on income from labor.

This break in particular acts as rocket fuel for income inequality. With income from capital becoming an ever-greater share of total income, a lower rate drives up the fortunes of wealthy Americans and leaves middle America farther and farther behind.

Tax expert David Cay Johnston ran the Internal Revenue Service numbers.  From 1961 through 2013 (the latest year for which data is available), the 400 richest Americans saw their federal income taxes drop from 42.4 cents on the dollar to 22.9 cents. For 2013, adjusted for inflation, that gave the top 400 an average $195.4 million in extra after-tax income. The vast majority of Americans took home more dollars too: an average of $6,812.

It’s the ratio, Johnston wrote, “that may take your breath away.” After more than 50 years of deliberate tax policy choices, here it is:

For each dollar of increased after-tax income enjoyed by the vast majority in 2013, the top 400 enjoyed $28,684 more. That’s $28,684 to $1.

The ratio can always go higher and probably already has; it came before the Trump tax cut, which delivered its own special breaks to the rich.

One of those more than doubled the estate tax exemption, raising it from $5.5 million to $11.4 million for an unmarried person. A couple can shield twice that amount, or $22.8 million.

It was a major anti-estate tax victory, but only the latest in a streak going back to 2001: the exemption back then topped out at $675,000, or $1.35 million for a couple. Legislation passed in that year gradually raised the totals to $3.5 million/$7 million by 2009. Congress later upped those exemptions as well, and the 2017 law has raised them to new highs.

According to “death tax” propaganda, estate taxes amount to double taxation of a lifetime’s hard-earned income. According to the facts, “unrealized capital gains account for almost half of the fair market value of estates.” Under the stepped-up basis (see paragraphs 7 and 8), those gains will never be taxed, period.

Let’s end with an exclamation point. From 2014-2023, two tax breaks alone will put the haves up by an estimated $1.984 trillion. Just from lower taxes on capital gains and the stepped-up basis, those who need nothing will be up by nearly $2 trillion.

That $2 trillion should be going to the common good, not to the well-off. Congress can make it happen by ending tax breaks that do little more than make the rich richer.

• This piece first appeared at

A Wall Street Boost for Social Security

The aging of America is putting the squeeze on Social Security. About 10,000 baby boomers turn 65 every day and the number is heading even higher. Ready or not, our retirement system faces its first major overhaul in decades.

Lawmakers should listen to Warren Buffett before they settle on any new payroll tax or benefit schedules. “I’m a card-carrying capitalist,” Buffett says, “I believe we wouldn’t be sitting here except for the market system.”

Social Security should become a card-carrying capitalist too. It should invest part of its $2.8 trillion trust fund in the stock market, specifically in broad-based, low-cost index funds.

Call it a Wall Street boost for Social Security. It could make the coming overhaul less costly for workers and employers alike. It would effectively give tens of millions of low- to middle-income workers their first share ever in the market. Lastly, it’s the smart thing to do: research has shown the reward easily justifies the risk.

Trust fund dollars have always been invested in ultra-safe government securities. The idea of seeking higher returns by putting some of the money into stocks has been proposed before, but it’s never gone anywhere.

The coming reform (the first since 1983 and only the second ever) gives Congress a chance to begin making up for lost time.

And for lost opportunities too. By mid-March of 2019, the S&P 500 had risen by more than 300 percent from its financial-crisis low in March 2009. According to Goldman Sachs, the index’s annualized gain of over 15 percent represents one of its best decades ever.

The huge bull run didn’t add a penny to the Social Security trust fund. In fact, the fund’s return over the same decade was lower than usual: many of its holdings were paying (and still are) abnormally low interest rates.

All the more reason to make sure a stock market boost becomes part of the overhaul. Let’s give the trust fund its first chance for substantial gains. Let’s keep pushing back the year the fund runs dry. The program’s trustees now estimate it’ll happen in 2035. If Congress doesn’t act before then, benefits will have to be cut by roughly 25 percent.

Both parties are well aware of the crunch. As usual these days, they’re gridlocked on what to do.

Republicans think the problem can be solved with just two words: stingier and shorter. Their proposals would hit future recipients with the double whammy of lower benefits and a later retirement age (an idea Buffett has also floated).

Democrats have lined up solidly behind a bill that goes in the opposite direction. It increases payouts by two percent and sweetens the formula for cost-of-living adjustments (COLAs). The money to pay for it would come from higher payroll taxes, especially on the biggest earners.

Payroll taxes are currently not collected on wages greater than $132,900. The Democratic bill would tax all earnings over $400,000. The rate itself (levied on both workers and employers) would rise 0.1 percent per year from 2020 to 2043, going from the current 6.2 percent to 7.4 percent. The system’s actuaries say these changes would keep the fund solvent into the 2090s.

All well and good, but adding a Wall Street boost could make the reform even better. The tax increase could be smaller. The trust fund’s solvency could be extended into the 22nd century. Millions of workers without workplace retirement plans could reap some of the same stock market gains as workers who have them.

Alicia H. Munnell lives and breathes retirement policy. It was her calling card for a top job in the Clinton Administration. Since then she’s been a professor at Boston College, where she founded and directs its Center for Retirement Research. In 2006 she co-authored the definitive book Social Security and the Stock Market.

It’s a probing, scholarly work. It doesn’t minimize the risks, including the political risks of putting the government in charge of investment decisions. It cites hundreds of facts, including these:

After all, stocks yield 7 percent after inflation and bonds only 3 percent.

Two types of government pensions in the United States already invest in equities with no apparent ill effects,” the Thrift Savings Program for federal employees and state and local pension funds.

Adding the Social Security trust fund to the list would make that three. As Warren Buffett knows, it’s really no more than a bet on the future of America. If that’s not a good bet, what is?

• This article first appeared at

Two Days in Tennessee in 1953: A Racial Memory

Memories can last forever. This is one of my forevers, still touching me deep after 66 years.

It’s 1953 and I’m 17, a cub sports reporter for the Jamestown (NY) Post-Journal.  A close friend breaks into professional baseball down South. The paper sends me off to work up a feature story.

Come with me now to Maryville, Tennessee, to an America I never knew existed. Join me on the bus as I meet Jim Crow—up close and personal, then out the window, in this country I’d never seen before.

I don’t remember the name of the place where it happened. I just remember sitting down and the bus driver walking back and telling me to move. “You can’t sit here,” he said, “only coloreds sit back here.” It was my first time ever in the South, and already I’d broken a supreme law: Whites don’t mix with blacks. They don’t sit together on buses, they don’t drink from the same water fountains, they don’t use the same rest rooms.

Separate rest rooms and water fountains were unheard-of to me, and I had my first sighting out the bus window. There stood two fountains, starkly unequal, marked in big capital letters “WHITE” and “COLORED”. The signs laid down the rules, and they were meant to be obeyed.

When the bus driver told me to change seats, I changed seats. Just two years later, Rosa Parks made civil rights history by breaking the rules.

I love baseball, and I really loved somebody else picking up my expenses, so the rest of the trip was sweet.  I heard an echo at the end though, and you will too.

The local team, the Maryville-Alcoa Twins of the Mountain States League, sat me up in the press box like a visiting dignitary. That night I was a T.I.P., a Temporarily Important Person.

My Jamestown friend showed off his stuff: a double, a single, a fine over-the-shoulder catch. The star of the game, though, fresh on his way to a decent major league career, was the black Twins right-fielder Willie Kirkland. He hit one of his 35 home runs of the summer, and got his reward in storybook fashion. His fans threw bills over the railing and onto the field. Kirkland would later scoop up the money, turning now and then and tipping his cap.

I met him after the game, shaking hands for the first time with a major-leaguer-to-be. Afterwards my friend let me in on a secret, the echo that I mentioned earlier. Kirkland and a white girl were seeing each other, and they could lose their lives if the wrong people ever found out.

It was one of the truths I learned over those two days: bitter truths about the land of the free that nobody ever told me.

What brings it all back now, 66 years later? Actually it’s happened many times; history can hardly hit home harder than it did for me back then. In this case I had a specific memory jog, the new book Unexampled Courage: The Blinding of Sgt. Isaac Woodward and the Awakening of President Harry S. Truman and Judge J. Waties Haring, by Richard Gergel.

Woodward, a black, was a decorated war hero. In 1946, just hours after his discharge, he was pulled off a bus in South Carolina and arrested for being “disrespectful” to the driver. Seconds later, within sight of the riders still on the bus, he was blackjacked in both eyes by the local police chief. He would never see again.

Once more I was back in 1953, reliving my forever memory—and America’s too, and it’s far from over down deep.

• This article originally appeared at 

Our Counterfeit Social Security Crisis

The humorist Mark Twain once called reports of his death “an exaggeration.” The same goes for the endless fearmongering and scare stories about America’s most popular government program, Social Security.

On the contrary, the nation’s safety net for seniors is in remarkably good shape. The trust fund holds government securities worth nearly $2.9 trillion, just under its all-time high. In 2092, at the end of the latest 75-year projection, the inflow from payroll taxes would still be covering roughly three-quarters of scheduled worker benefits—without increasing the tax rate or raising the retirement age or making any other change. That’s the truth and nothing but the truth, according to the 2018 annual report of the Social Security board of trustees.

Never let the facts get in the way of false alarms. As recently as mid-October, Senate Majority Leader Mitch McConnell (R-KY) claimed that cuts in Social Security, Medicare and Medicaid were the only way to lower the federal deficit. He urged legislators to “address the real drivers of the debt” and “adjust those programs to the demographics of America in the future.”

Just-retired House Speaker Paul Ryan (R-WI) spent his entire Congressional career pushing the same notions. He doubled down in his farewell address, calling entitlement reform (the GOP camouflage for cuts) “our greatest unfinished business.”

An inconvenient truth: since McConnell became the Senate leader in 2015—with Ryan already leading the House—the deficit has risen by 77 percent. Judge for yourself whether they’re genuine fiscal hawks or the common faux variety. Putting it another way, ask them to choose between a slimmed-down deficit and fat tax cuts for corporations and the wealthy. (Oh, right, they already did.)

Linking Social Security to the nation’s red ink is hugely misleading.  At the same time, it’s hugely true that demographic trends are continually pushing up total payouts. Sooner or later, Social Security will have to adjust to the new realities: longer life spans, more and more retirements (about 10,000 baby boomers turn 65 every day), fewer workers per beneficiary.

In 2018, for the first time since 1982, the latest numbers forced the Treasury to begin dipping into the trust fund to help pay benefits. That dipping will exhaust the fund by 2034. Unless Congress acts before then, payouts would have to be trimmed by about one-fifth.

Replacing 20 percent of benefits (or even increasing them, as Rep. John Larson (D-CT) has proposed) presents a modest fiscal challenge with several potential solutions. Most promising and most obvious: raise the payroll tax, and raise or eliminate the cap on earnings subject to the tax ($132,900 for 2019, adjusted annually for inflation). Going in the opposite direction, the shortfall could also be addressed with benefit cuts; e.g., lower payouts or a later retirement age.

While the fiscal challenge is modest, the political challenge is monumental. Reaching common ground on the right fix is all but certain to touch off an epic battle. (Make that uber-epic. The epic battle came with the last Social Security reform in 1983, back in the days of functional government.)

The coming struggle also offers a golden opportunity to resurrect the common good as the government’s overriding goal. The name itself reminds us that we’re all in this together: it’s Social Security, not Individual Security. Few laws speak as directly to our oneness as the preamble to the Social Security Act of 1935: “An act to provide for the general welfare by establishing a system of Federal old-age benefits, and by enabling the several States to make more adequate provision for aged persons, blind persons, dependent and crippled children, maternal and child welfare…”

In the spirit of ’35, House Speaker Nancy Pelosi (D-CA) and Minority Leader Kevin McCarthy (R-CA) should immediately begin negotiating Social Security’s second major overhaul. The trustees concluded their 2018 overview by urging “that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually.” It’s simple arithmetic: “Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits and could preserve more trust fund reserves to help finance future benefits.”

Time is money; for Social Security reform, time is humongous amounts of money.

The 1983 changes took root in 1981, when President Reagan created the National Commission on Social Security Reform (a.k.a. the Greenspan Commission). The urgency then was far greater than it is now; when Reagan finally signed the bill, the trust fund was only three months away from wipe-out. Starting 2019, we’ve got 15 years. Even today’s sharply-divided Congress should be able to do it.

Then comes the president’s signature. If Trump is still in office, a political irony would be coming around again—a Republican president signing off on the reform of an archetypal New Deal program.

Something else would be coming around again too: rumors of Social Security’s death would turn out to be greatly exaggerated.