Part one of this series, which ran yesterday, discussed the role the Social Security Trust Fund’s treatment played in appearing to decrease the cost of government. Part Two looks at how the Social Security Trust Fund’s treatment has likely served as a precedent for today’s corporate scandals.
Contrary to popular rhetoric, the Social Security tax was never designed to be less advantageous to those with higher incomes. The more income one has, a lesser proportion of that income actually goes to pay the Social Security tax coffers. Only earned wages are subject to the tax, while all inherited wealth and investment income are excluded. Middle and low-wage earners realize no benefit from the Social Security Trust Fund until retirement, while those with high income or inherited income begin to realize an immediate gain from both the higher untaxed portion of their income, and that higher portion’s time value. The untaxed portion of income is obviously available for investments and is perennially served up (along with successful market players) to potential investors by Wall Street as “examples” of how to provide for one’s future. Of course, anyone who invests money they cannot afford to lose will always be fair game on Wall Street, though the emphasis in any message to investors is one of safety.
For approximately forty years the Social Security tax on workers has grown while the corporate share of general tax revenues has decreased. The effective overall tax rate for the wealthiest one-percent also decreased. The double jeopardy for middle-wage earners is that increases in the Social Security tax usually result in the loss of American jobs. Employers begin to resent having to forward money to government that previously existed in their own coffers, while “lowly” wage earners only experience the tax as a footnoted dollar amount on a pay-check. All the while we’re witnessing the downsizing of the middle-class.
A lot of us just know we can out-smart, out-maneuver a market even though the majority of financial professionals have never been able. How are we explaining that a huge majority of citizens (most anyone over forty) do not find they are among the moneyed elite—if the market is that easy? After all, money doubles in only seven years at a mere ten-percent interest. In the booming, growing market we saw for more than a decade, most certainly each and every stock broker, all bank personnel, every financial planner, every municipal fund, even most citizens over thirty-five, should be very flush by now. Every financial professional that failed to make a huge majority of their clients rich along the way would also be in litigation.
We might want to think twice about sacrificing a security system with the ability to come through for us regardless of whether our employers practiced honest accounting, or even remained in the market; regardless of our ability to earn income in old age; regardless of whether our stock-brokers churned our accounts, or our portfolios failed to perform; and regardless of our race, religion, or profession. Simply changing financial accounting rules temporarily (and temporary it will be) for corporations or a few individuals while failing to address a fundamental, ongoing unfairness in our tax system will not remedy this nation’s ills. Readdressing the Social Security Trust Fund, however, to more fairly represent workers could likely force the nation to also more fairly address both the personal income tax and the corporate income tax. Imagine that.
In the spirit of fairness to CEOs, they simply knew how the game was played. They mimicked the diversion of Social Security funds from a separate fund to a general fund. Small and medium businesses followed suite. Every administration since President Lyndon Johnson has invited contemporary CEOs to do the same thing with employee pension funds (funded mostly by wage earners) that lawmakers did with the diversion of Social Security revenues (funded entirely by wage-earners). The bills for mega-mergers and acquisitions must be paid now and eliminating jobs to reduce costs still cannot guarantee the availability of funds for CEOs in need of operating expenses. While corporate executive compensation exploded, pension funds became the easy target. It is such little wonder corporate executives so willingly testified before Congress they believed in their innocence. Government has served itself up for decades as the role model for borrowing from a pension fund to supplement an operating budget, while snubbing the fund’s true asset—its hardworking, wage earning citizens.
The further migration of pension revenues from the daily operations budgets of transnational corporations out to shareholder “interest” payments was now readily accomplished and rarely questioned. Wreaking havoc on complicated financial scenarios and a convoluted tax code is easy (as many expatriates discovered), when the real target is a nebulous “public interest.” The tax code easily buries individual treasures that lie beneath its excessive pages only to be pulled up on an “as needed” basis by corporate tax lawyers, acting as modern day pirates for a corporate aristocracy. Yet the behavior of policy makers of the last two decades—and some CEOs of today—is all the more aggravating exactly because each had options less harmful to public and employee interests, respectively.
Part three of the series runs tomorrow, and explores our failure to address and validate what constitutes the “public interest” and its consequences.
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