Election years can produce some pretty crazy legislation, with members of Congress scrambling to win their constituents’ affection with ideas that vary in their seriousness and wisdom.
This year, Democrats, led by U.S. Sens. Chuck Schumer of New York and Elizabeth Warren of Massachusetts, have a doozy: Send a $581 check to every Social Security recipient in America, and pay for it with by closing a supposed corporate loophole.
This idea is as politically crass as it sounds, and it’s worth knowing exactly why. But more importantly, it underscores why Democrats, who belong to the party that created Social Security, have become deeply unserious about how they plan to maintain and reform the program.
The idea for the one-time payment doesn’t come out of nowhere: It’s supposed to make up for the lack of a cost-of-living adjustment in Social Security this year. The COLA for next year also will be very small at just 0.3 percent.
But the reason for no cost of living increases for Social Security this year is… the cost of living hasn’t risen! Are Democrats becoming inflation truthers now?
Schumer says that the inflation rate doesn’t accurately reflect the cost of living increases seniors face. Ever the New Yorker, Schumer suggests that the typical measure of inflation is misleading since it’s held down by a big drop in gas prices this year, as if seniors don’t buy gas (or heating oil).
To be fair, the federal government thinks seniors may have faced slightly higher rates of inflation than the general population over the last 30 years, but other economists disagree. So maybe we should move Social Security to this new measure of inflation to help protect seniors down the road — but Schumer and Warren want votes right now.
The proposed payment has no connection to any more accurate definition of the cost of living. It’s $581 because the salaries of America’s top 350 CEOs last year rose by an average of 3.9 percent, and $581 is 3.9 percent of the average Social Security benefit. The actuarial assessment of such a benefit calculation, I believe, is “I can’t even.”
So how are Democrats going to pay for this? They want to eliminate an incentive for corporations to pay their CEOs with performance-based bonuses rather than guaranteed salaries, claiming it’s a “loophole.”
As it stands, corporations are not allowed to count CEO salaries that exceed $1 million as a business expense like they do other salaries. But if the above-$1-million payment is a performance-based bonus, they can write it off.
Whether this is good economic or social policy is up for debate. For what it’s worth, the 2014 Republican attempt at corporate tax reform proposed eliminating it, too. But it does seem to have encouraged more CEO pay to be tied to performance. It’s fine if Democrats want to risk undoing that, but they’re being remarkably mendacious by calling it a “loophole” that benefits CEOs. It was created with a very specific, arguably progressive, purpose.
So this legislation really sets a new bar for politically motivated policymaking. But it also shows how unserious Democrats are about fixing our long-term fiscal picture to save Social Security.
Whether you think the performance-pay tax incentive is good policy or not, ending it will raise revenue—which the federal government needs to maintain its current spending trajectory. Spending the revenue on a one-time, unnecessary payment is totally irresponsible. Moreover, it could create expectations for future one-time payments that the program cannot afford (for the worst-case scenario, see what “13th checks” did to cities like Detroit).
Although Democrats contend that the bill improves Social Security’s fiscal picture (by drawing revenue from a new source), it’s really a step in the wrong direction.
If Democrats just want to do more to help low-income Social Security recipients, that’s fine. In fact, the top Republican minds on this issue, including former Social Security trustee Andrew Biggs, agree that it makes sense to boost benefits for low-income recipients over time.
But Republicans propose paying for that by curtailing benefits for wealthier seniors. This one-time payment would instead boost everyone’s benefits, wasting tax revenue on seniors who don’t need it.
As it happens, that’s how Democratic plans for Social Security work: They levy massive new taxes, and then spend basically all the new revenue on new benefits.
Making Social Security work for future generations will involve preserving or strengthening the program for people who need it, curtailing the growth of benefits for the people who don’t, and moving it toward long-term solvency. If we get new revenue, the new revenue needs to go to shoring up the program, not indiscriminate new benefits.
Democrats have shown increasingly less interest in such a reform, and this election year giveaway shows that they regard Social Security as a political piggy bank, not an institution worth taking seriously and preserving.
Patrick Brennan is a contributor for Opportunity Lives. You can follow him on Twitter @ptbrennan11.
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