Category: working

The reality of capitalism, whatever its strengths, is that it can be brutal on individuals. Our history is marred by mistreatment, exploitation, and abuse by companies against their workers and communities. These abuses are as well-documented as they are disturbing.

Early last century, companies writ large discharged workers when they became too old to continue working, after years of paying wages that were barely adequate for daily expenses. It was not a question of employees being disciplined and saving for retirement; they simply weren’t paid enough to be able to save. Old age or poor health often meant poverty so acute that suffering was assured, and the end of life soon followed.

The Answer: Social Safety Nets in The New Deal

During the 1920s and 1930s, the voices of the people were being heard in Washington, D.C. The efforts resulted in the New Deal and included the creation of the Social Security Administration. At that time, people’s well-being was finally put first.

“Among our objectives I place the security of the men, women and children of the Nation first.”

Franklin Delano Roosevelt – June 8, 1934 [1]

The premise of the Social Security System is straightforward: create a Social Security Trust  (the Trust) funded by payroll contributions, split between employees and employers, to provide for people during retirement.  It was not intended to be a mechanism for getting rich. It was to ensure people could retire without the threat of poverty.

In 1977, the US implemented an automatic increase in the salary cap to which Social Security taxes, or FICA, would apply. [2] In 1983, the Greenspan Commission reworked the SS system to ensure the trust could remain healthy. [3] The basic underpinnings of the plan were:

1. The wage pool remains about 65% of Gross Domestic Product (GDP) [4]
2. Social Security tax /FICA covers 90% of the wage pool [3]
3. Wage distribution remains steady, so the cap covers 90% ongoing [3]

At the time, roughly 6% of workers were paid wages that rose above the wage cap. [3]

It is also important to note that health insurance benefits, which are part of the wage pool but not subject to FICA taxes, were about < 3% of the wage pool. [5] 

Note on GDP: the GDP is the total value of goods and services produced within a country. Think of it as the country’s collective revenue or sales. The growth in GDP is a combination of increased productivity (i.e., workers produce $ 1,000 of goods per hour in one year, and then $1,050 the next; the productivity increase was 5%). There are components to productivity growth, but that’s the basic idea. The other component is inflation. That averages about 3.7% per year over 50 years. [6]

The Dismantling of our SSA Underpinnings

We are being told by Social Security Administration Commissioner Frank Bisignano and Centers for Medicare and Medicaid Services (CMS) Administrator Mehmet Oz, the current administration, as well as companies and many wealthy people, that the SS Trust Fund is running out of money because too many people are reaching retirement age. Their solutions are to tell us to work more years and accept fewer benefits. Their solutions ignore the underlying reasons the Trust is having trouble.

The primary factors in the erosion of trust involve the transfer of wealth from the workers in the wage pool to the wealthier people in the country. This isn’t a left-wing mantra. It’s math. It also has implications beyond SS.

As workers became more productive and the GDP grew, companies increased profits at a much faster rate than wages.  By 2024, the Wage Pool was down to 56% of GDP. [4] 

By 2024, the FICA wage cap coverage fell to 82%. [3] This happened because higher-income earners saw their wages increase at a faster rate than those of the general working population. We did not see a proportional increase in the number of workers who were raised above the cap.

In 1983, 6% of workers had salaries above the pay cap. In 2024, that percentage was the same. [3] 6% have wages above the cap, and 94% have wages below the cap.  The FICA coverage dropped from 90% to 82% because wages were disproportionately funneled to high-income employees.

This had a material impact on the Trust. If a worker earns $50,000 a year and receives a 10% wage increase, the full $5,000 increase is subject to FICA taxes and helps fund the Trust.  If an employee earns $1,000,000 and receives a 10% wage increase, none of the $100,000 increase is taxed. 

Because the wealthier got disproportionately wealthier, there was a very real negative impact on the Trust.

Health insurance premiums in 1975 accounted for less than 3% of the wage pool. [5] The cost of health care rose faster than the GDP (of which it is a part). As a result, health insurance premiums accounted for about 7% of the Wage Pool in 2024. [5]  That is an additional 4% of the Wage Pool no longer contributing to the Trust.

The Trust Could Be Fully Funded & FICA Tax Lower

The Trust funding deficit is about $41B per year. [7] There are several ways to view the three key factors and to address their impact on the Trust funding deficit. 

If our experience had matched all the assumptions of the Greenspan Commission, the Trust would be flush. I’ll show the math for these, but here is what was planned that didn’t happen.

If:

• The wage pool had kept pace with GDP, FICA tax revenue would be + $190B/year; [8]
• The tax cap covered 90% of wages, FICA tax revenue would be + $115B/year; [8]
• The Health Care Ins was still 2.7%, FICA tax revenue would be + $50B/year. [8]

If all three remained in the same ratios as 1983, the combined impact would be +$387B / year. [8]

How Much GDP would have to stay in wages to fund the Trust?

With Health Insurance Premiums held at 7% of the Wage Pool and the tax cap still covering only 82%, the Wage Pool’s share of GD would need to be only 58% vs the current 56%. [8] 

This would bring the labor from $16.2T to $16.8T, generating an additional $42B to fully fund the Trust.

So, instead of cutting labor share from 65% of GDP down to 56%, if it were 58%, our SS Trust would be fully funded.

Mechanisms Behind the Shift

I am not going too deep into the elements that encouraged the shift. Part of it is the cultural acceptance of the wealthy’s edict and changes to the legal standing of companies and organizations per rulings of the Supreme Court in the 1970’s.

• SCOTUS 1976 ruling: Money equals speech – opened the path to unlimited political spending. [9]
• SCOTUS 1978 ruling: Corporations have the same speech rights as individuals. [10] 
• Top marginal tax rate cut from 91% (1960) to 28% (1986), now 37% [11]
• Union membership collapsed from 35% to < 10% [12]
• Financialization: stock market became the dominant wealth engine
• Globalization compressed middle-class wages

The first two points opened the door for corporations, organizations, and very wealthy individuals to influence politicians and legislation in ways average individuals cannot. The changes we’ve seen over the last 50 years have been much more favorable for the upper class and large companies. This is a direct result of their influence on our representatives.

Flexibility for Funding the Social Security Trust

While I looked at GDP as a source of funding for the Trust, the fact is there is plenty of money in the economy to fund the Social Security program.  It’s a question of the willingness of those with power and wealth to do so. The fact is, the SS Trust could be easily funded with a $29T GDP. [13] We are talking about $41B.  

When the upper class tells you that you are the problem because you don’t work enough, don’t accept it. They are the problem. They made these decisions, diverted GDP, increased their wages, and detracted from the Trust.