Recent Social Security reform doesn’t fix unfair spousal benefits

The budget compromise forged by Congress and the Obama administration at the end of last month makes two fundamental changes in Social Security. First, it denies a worker the opportunity to take a spousal benefit and simultaneously delay his or her own worker benefit. Second, it stops the “file and suspend” technique, where a worker files for retirement benefits then suspends them in order to generate a spousal benefit.

Unfortunately, neither of these changes gets to the root issue: that spousal and survivor benefits are unfair, although the reform redefines who wins and who loses. Social Security spousal and survivor benefits are so peculiarly designed that they would be judged illegal and discriminatory if private pension or retirement plans tried to implement them. They violate the simple notion of equal justice under the law. And as far as the benefits are meant to adequately support spouses and dependents in retirement, they are badly and regressively targeted.

As designed, spousal and survivor benefits are “free” add-ons: a worker pays no additional taxes for them. Imagine you and I earn the same salary and have the same life expectancy, but I have a non-working spouse and you are unmarried. We pay the same Social Security taxes, but while I am alive and retired, my family’s annual benefits will be 50 percent higher than yours because of my non-working spouse’s benefits. If I die first, she’ll get years of my full worker benefit as survivor benefits.

Today, spousal and survivor benefits are often worth hundreds of thousands of dollars for the non-working spouse. If both spouses work, on the other hand, the add-on is reduced by any benefit the second worker earns in his or her own right.

An historical artifact, spousal and survivor benefits were based on the notion that the stereotypical woman staying home and taking care of children needed additional support. That stereotype was never very accurate. And today a much larger share of the population, including those with children, is single or divorced. Plus, many people have been married more than once, and most married couples have two earners who pay Social Security taxes.

Where does the money for spousal and survivor benefits come from? In the private sector, a worker pays for survivor or spousal benefits by taking an actuarially fair reduction in his or her own benefit. In the Social Security system, single individuals and married couples with roughly equal earnings pay the most:

  • Single people and individuals who have not been married for 10 years to any one person pay for spousal and survivor benefits, but don’t get them. This group includes many single heads of households raising children.
  • Couples with roughly equal earnings usually gain little or nothing from spousal and survivor benefits. Their worker benefit is higher than any spousal benefit, and their survivor benefit is roughly the same as their worker benefit.

The vast majority of couples with unequal earnings fall between the big winners and big losers.

Such a system causes innumerable inequities:

  • A poor or middle-income single head of household raising children will pay tens of thousands of dollars more in taxes and often receive tens of thousands of dollars fewer in benefits than a high-income spouse who doesn’t work, doesn’t pay taxes and doesn’t raise children.
  • A one-worker couple earning $80,000 annually gets tens of thousands of dollars more in expected benefits than a two-worker couple with each spouse earning $40,000, even though the two-worker couple pays the same amount of taxes and typically has higher work expenses.
  • A person divorcing after nine years and 11 months of marriage gets no spousal or survivor benefits, while one divorcing at 10 years and one month gets the same full benefit as one divorcing after 40 years.
  • In many European countries that created benefit systems around the same stereotypical stay-at-home woman, the spousal benefits are more equal among classes. In the United States, spouses who marry the richest workers get the most.
  • One worker can generate multiple spousal and survivor benefits through several marriages, yet not pay a dime extra.
  • Because of the lack of fair actuarial adjustment by age, a man with a much younger wife will receive much higher family benefits than one with a wife roughly the same age as him.

When Social Security reform eliminated the earnings test in 2000 and provided a delayed retirement credit after the normal retirement age, some couples figured out ways to get some extra spousal benefits (and sometimes child benefits) for a few years. After the normal retirement age (today, age 66), they weren’t “deemed” to apply for worker and spousal benefits at the same time, allowing them to build up retirement credits even while receiving spousal benefits. Other couples, through “file and suspend,” got spousal benefits for a few years while neither spouse received worker benefits.

These games were played by a select few, although the numbers were increasing. Social Security personnel almost never alerted people to these opportunities and often led them to make disadvantageous choices. Over the years, I’ve met many highly educated people who are totally surprised by this structure. Larry Kotlikoff, in particular, has formally provided advice through multiple venues.

So is tightening the screws on one leak among many fair? It penalizes both those who already have unfairly high benefits and those who get less than a fair share. It reduces the reward for game playing, but like all transitions, it penalizes those who laid out retirement plans based on this game being available. It cuts back only modestly and haphazardly on the long-term deficit. As for the single parents raising children — perhaps the most sympathetic group in this whole affair — they got no free spousal and survivor benefits before, and they get none after.

The right way to reform this part of Social Security would be to first design spousal and survivor benefits in an actuarially fair way. Then, we need better target any additional redistributions on those with lower incomes or higher needs in retirement, through minimum benefits and other adjustments that would apply to all workers, whether single or married, not just to spouses and survivors.

As long as we keep reforming Social Security ad hoc, we can expect these benefit inequities to continue. I fear that the much larger reform required to restore some long-term sustainability to the system will simply consolidate a bunch of ad hoc reforms and maintain these inequities for generations.

This column originally appeared on PBS Newshour’s Making Sen$e.

Assessing “Wrongs,” Mainly on the Young, to Pay for “Rights”

What happens when the claim to some financial right from the government creates some financial “wrong” somewhere else?

That is, when the government’s balance sheets don’t balance, and there aren’t enough assets to pay for claims on them, someone must get short-changed. If that “someone” must accept unequal treatment under the law, has the right been matched by a “wrong?”  These issues have now arisen for underfunded state pension plans, but they continue to apply in other arenas, such as the unequal assessment of property taxes in states like California. In these and other cases, the young often end up paying the piper.

Protecting rights has long been crucial to maintaining a democratic order. The United States has a long history of protecting citizens’ rights, embedded from the beginning of the nation in the Bill of Rights and, since then, in many legal and constitutional clauses. These aim largely to establish liberty and require equal treatment under the law. When it comes more narrowly to most disputes over private property and assets, there are no “unfunded” government promises; contestants simply dispute over who gets the private funds. The court effectively fills out the balance sheet when it resolves those private disputes. A higher inheritance to one party out of a known amount of estate assets, for example, means a lower amount for another. There’s no third party or unidentified taxpayer who must to contribute or add to the estate so all potential inheritors can walk away happy.

When it comes to financial “rights” established by law, the issue becomes more complicated. The latest cases getting much attention revolve around the rights of state and local public employees to the benefits promised by their pension plans, even when those plans do not have the assets to cover the claims. Some courts have determined that the promised benefits are inviolable under state constitutions, regardless of available assets; other courts have recently interpreted state laws differently, led by the bankruptcy and financial distress of state pension plans.

As another example, some states give longer-term homeowners rights to lower taxation rates than newer homeowners. Proposition 13 of the California Constitution requires that property taxes cannot be increased by more than a certain rate, effectively granting existing homeowners lower tax rates than new homeowners receiving the same services for their tax dollars.

So where does the money come from?  Saying that it can be the future taxpayer still dodges the issue of whether the allocation of benefits and costs meets a standard of equal justice.

Thus, when people lay claim to nonexistent government assets, “rights” can’t be totally separated from the “accounting” system under which they are assessed. I’m not a lawyer, but I believe courts and legislators do not do their job completely if they don’t admit to and address the following questions in any disputes on such matters:

  • How can we judge anyone’s right to some financial compensation, pension benefit, or lower tax rate without at least knowing where and how the balance sheet is or might be filled out?
  • How does the claim to a right by one set of citizens affect the rights of other citizens?

Even when courts determine that any resulting injustice is constitutional or the prerogative of the legislature, they still should do their balance-sheet homework.

In some arenas, the courts have made clear that the lack of underlying funds limits the rights of people to some promised benefit. The United States Supreme Court has stated, for instance, that Social Security benefits can be changed regardless of past legislative promises. This system is largely pay-as-you-go: benefits for the elderly come almost entirely from the taxes of the nonelderly. Because promised cash benefits now increasingly exceed taxes scheduled to be collected, even the pay-as-you-go balance sheet has not been filled out: some past Congress promised that benefits would grow over time without figuring out who would pay for that growth. Legislators can rebalance those sheets constitutionally without violating the rights of a current or future beneficiary. Whether they do so fairly is another matter.

When the courts have leaned toward treating as unalterable the rights of some citizens to unfunded promises made in the past, however, they have directly or indirectly required some unequal treatment under the law, with the young often paying the piper.

Our Urban Institute study of pension reforms in many states reveals that efforts to protect existing but not new state pensions almost always requires the young to receive significantly lower rates of total compensation than older workers doing the same work. Worse yet, we have determined that to cover unfunded liabilities from the past, some states are adopting pension plans that grant NEGATIVE employer pension or retirement plan benefits to new workers, essentially by requiring them to contribute more to the plan than most can expect to get back in future benefits.

In the case of California’s limited property tax increases, new, younger homeowners are required to pay much higher taxes than wealthier, older, and longer-term homeowners.

In these cases, it seems fairly clear that the “rights” of existing state workers or homeowners leads to an assessment of “wrongs”—unequal taxation of unequal pay for equal work—on others, mainly the young, to fill out the balance sheets.

As I say, I’m not a lawyer, but I do know that 2 + 2 does not equal 3. When the courts say that you are entitled to $2 and I’m entitled to $2, they can eventually defy the laws of mathematics if only $3 is available. It’s not that the declining availability of pension benefits to many workers and rapidly rising taxes are problems to be ignored. It’s just that assessing wrongs or liabilities on unrelated parties to a dispute is unlikely to represent equal justice under the law or an efficient way to resolve public finance issues.

America’s Can-Do New Year’s Resolution

How about a national new year’s resolution for 2015? Here’s my suggestion: let’s resolve to restore our can-do spirit, sense of destiny, and vision of frontiers as challenges rather than barriers. Let’s remember that fear and pessimism multiply the negative impact of bad events, whereas optimism reinforces positive outcomes. Think of Louis Howe, who added “the only thing we have to fear is fear itself” to Franklin Delano Roosevelt’s first inaugural address, or Henry David Thoreau, who wrote that “nothing is so much to be feared as fear.”

Now, seven years after the start of the Great Recession, it’s a good time to reflect on just how lucky we are as a nation and on the vast ocean of possibilities that lie before us. If we don’t see those possibilities, we’ve simply turned our back to them—and forgotten how America became America in the first place. In Dead Men Ruling, I attack viciously both the notion that we live in a time of austerity and the politics that sells pessimism as a way of clutching onto our piece of the national pie.

No one knows the future, of course. But the evidence points strongly toward the potential of a people whose can-do spirit helped it establish the first and now longest-lasting modern democracy, conquer frontiers of land and space alike, enhance freedom at home and abroad, and lead in the industrial, technological, and information revolutions.

Though income tracks only some of our general gains in well-being, we’re hardly poor. Our GDP per household is about $145,000, and real income per person is more than 75 percent higher than when Ronald Reagan was first elected president. We are richer than before the Great Recession. And, even projections of slower growth imply that average household income will rise by around $24,000 within roughly a decade.

We have available goods and services of which kings and queens of old could not have dreamt: not just the very visible gains in ways of communicating and entertaining ourselves, but fresh fruit and vegetables year round, life expectancies and health care far beyond those of our parents and grandparents, and continually improving automobiles, shelter, clothing, travel options, plumbing, and building architecture.  And much more to come.

Of course, it’s part of our human condition to focus on the next problems, the ones we haven’t solved. Such striving provides the very basis for continued growth. Your hard labors, your dedication and sacrifices, and your everyday efforts to care for older and younger living generations may not make news. But they do make the world go around.

Our mistake comes from paying attention to those in politics, the media, or our own community who turn our mutual problems into excuses for personal attacks or a sense of helplessness rather than calls for further joint and individual efforts. We know the temptations: for the media, if it bleeds, it leads; for the politician, if it smells, it sells; for the business, if it deceives, it succeeds. But there’s no reason that either they or we need fall prey to such tricks.

If some current debates aren’t as enlightened as they might be, we can still sense progress from where they might have been a generation ago. We don’t debate whether cops should discriminate against different groups—an issue my brother-in-law confronted while working for the FBI in Little Rock, Arkansas in 1957—but instead how to pay proper respect to each person, civilian and cop alike. We don’t debate whether people should have enough food to eat but whether graduate students should collect food stamps. We don’t debate whether to help the disabled but how to extend efforts toward the mentally ill, the autistic, and those who are too old to be treated in school settings. We don’t debate whether to protect the old but whether our old age programs emphasize too much middle-age retirement rather than the needs of the old. When we engage these debates, whether on the same or different sides, most of us concentrate on how to do better, how much government efforts help or hinder progress, and how to shift our resources toward more effective or productive efforts.

In the end, the case for progress rests not on some wild-eyed dream but on the simple notion that we stand on the backs of those who went before us. Available knowledge expands. It doesn’t recede—even if at times we let our minds recede through laziness, prejudice, and fear of the new, or we reinforce political institutions that protect their power or status by blocking advancement.

That’s where we Americans are especially lucky. The can-do spirit, the entrepreneurial urge, and the freedom to try new things have been among the greatest strengths of our people, who continually find new paths forward and ever-broader vistas.

So my optimism is easy to explain: I trust in you. Happy New Year.

If I Care About Economic Mobility, Should I Vote for MIT or… MIT?

I’m pleased that politicians from both sides of the aisle are focusing on economic mobility. In life, the deck gets stacked fairly early and connections play a big role. In an open and democratic society like the United States, it’s not so much that a person can’t get a hit; it’s that one person steps up to the plate with three balls and no strikes, and the next with no balls and two strikes. The odds that the second person ends up with a higher batting average than the first after 10 times at bat is just about nil.

One reminder of how connections and early stacking of the deck reinforce each other came in the mail a few days ago: a chance to cast my vote for the officers of the American Economic Association (AEA). I’m supposed to select five people from nine candidates. The list shows some diversity along lines now somewhat demanded by society—that is, three women and one person of color. But, seven of the nine—and all six white males—have a connection with the Massachusetts Institute of Technology, or MIT (five PhDs and two faculty), so I have to vote for three MIT-connected economists at a minimum. Harvard lost its usual spot; only five of the nine have a major connection, including three with bachelor’s degrees from there. In fact, only one of the nine does not have a Harvard or MIT connection—though she has taught at Princeton, which usually gets at least token representation in this annual vote.

I know many of these candidates and have great respect for them. But I doubt that most of them believe fully in the hierarchical system from which they are now beneficiaries.

A number of years ago I had two colleagues who had done all but dissertations (ABDs) in history at the University of Virginia, ranked as one of the better schools in the country for that subject. Both were told by an adviser it wasn’t worth the trouble to write their dissertations. Jobs teaching college history and requiring a PhD, they learned, were so rare that they were already doomed: they were from too low-ranked a high-ranked university.

The financial industry has an extensive old boy (and occasionally old girl) network with the Ivy League. One of my daughters went to Princeton; though a biology major, she was recruited to join Wall Street (she didn’t accept). A former research assistant I knew got an MBA from the University of Texas at Austin when it became well-known for its rigor. Despite doing quite well, he later complained that without the Ivy League connection he couldn’t even get interviews with  Wall Street firms.

Richard Perez-Pena recently penned a piece for the New York Times detailing the lack of progress among elite colleges in enrolling low-income students (not yet a standard along which politically correct diversification levels are expected). For instance, studies out of the University of Michigan and Georgetown University find that at 82 schools rated most competitive by a Barrons profile, only 14 percent of the student population comes from the poorer half of the nation’s households.

Look at top appointees under this president and former ones. Many come from a very few colleges— particularly the ones with which the presidents are connected (Obama loves Harvard; his predecessor, Yale), or have parents who owned banks, or other crucial connections. Even in sports, which is relatively competitive, think of the quarterbacks (RGIII) or golfers (Tiger Woods) who got a start even before age 10 learning from a parent or other close contact. And do you really think that all the current Hollywood stars with famous actresses or actors as parents just came out of genetically superior material?

I could go on, and I’m sure there is not a reader among you who couldn’t expand the list. In fairness, I should add some of my own early and lucky links, such as attending St. Xavier in Louisville, KY, perhaps the top high school in the state, where my family had gone for generations.

Researchers today work long and hard at trying to figure out which policies could help create a more mobile society, one where of starting at the bottom still left decent odds of making it to the top, or where success didn’t get defined so intensely by early connections or the track on which one started. So far we haven’t been very successful, though there are clearly some government steps that can be made, such as creating more equal access to subsidies for saving. But much is still determined by how we organize ourselves socially outside of government and just what we expect from our institutions. And, in truth, a thriving society should want successful parents to teach their kids all that they can, so simplistic leveling policies can easily start to threaten both their freedom and the wider societal growth that their successful kids can generate.

Still, I think it clear that many of the ways we select and discriminate hurt our society and hinder many from achieving their potential. So do I vote for MIT, or for MIT, or not at all?

Economic Competition and the NCAA Basketball Tournaments

I love the NCAA tourneys. I grew up in Louisville at a time when basketball was synonymous with Kentucky, Ohio, and Indiana. I give the NCAA and the networks credit for building up the excitement, tension, and attention in this national event. This year, my interest was especially piqued because five family alma maters (including mine) made it to the Sweet Sixteen of the men’s tourney: Dayton, Wisconsin, Louisville, Kentucky, and Virginia.

My undergraduate school, Dayton, was among the elite in college basketball in the 1950s—and, to some extent, the 1960s. Dayton fell in status over time because, at least relative to some other schools, it started stressing academics more and athletics less. These experiences color the lessons on economic competition, both positive and negative, that I draw from the tournaments each year.

When competition flourishes, it’s hard to establish a monopoly.

Okay, Harvard did make it to the men’s tourney this year, but credentials don’t go very far when your accomplishments determine whether you get ahead. This stands in contrast to the politics of academia. High school seniors focus intensely on college admissions because they correctly sense that future success depends not simply on what they learn than but where they can make connections to get onto a faster career track. If you’re an economist, for instance, your odds of a top job in either a Democratic or Republican administration multiply one-thousand-fold if you have a Harvard connection at some point in your education as opposed to, say, a University of Connecticut one. It’s tough finding a job teaching history almost anywhere if your PhD is not from a ranked university, no matter the brilliance of your work. The NCAA appeals to the common person, I think, because we identify with any field where anyone with enough talent and effort can succeed.

Create a level playing field (court), and you’d be amazed at the amount of upward mobility.

Many of my fellow social scientists despair of the lack of upward mobility in American society, with young black men especially singled out as left behind. Yet notice their success in basketball, where there’s pretty much a level playing field from the time of birth. If you can run circles around me on the court, I can’t rise above you by turning to Daddy’s friends or the connections available only in higher-income communities. (Then again, maybe I can succeed in athletics by convincing the Olympic Committee to adopt some new sport played by an elite few. How many kids in inner-city Detroit have access to $100,000 bobsleds or a “playground” for luges?)

Money still matters—a lot.

As the tourney goes on and my position in the office bracket pool falls lower, I start turning to my cynical side and some negative lessons. Though there’s close to true competition among athletes, schools still compete on more than talent. Large state schools have done quite well in recent decades with the move toward big-money sports and huge TV rewards, perhaps even more so in football than basketball because of the expense involved. Multimillion-dollar coaching salaries, extraordinary facilities, the latest in physical therapy, and multiple support staff to develop statistics or simply run around as lackeys—you name it, each of these can add to the probability of success. Given this world, I shouldn’t admit that I’m still thankful to former Wisconsin chancellor Donna Shalala for bringing big-time sports success back to Wisconsin; it’s not surprising that Miami hired her away after her stint in the Clinton administration.

Those who take maximum advantage of the letter of the law often do well.

Consider the new Kentucky style of “one and done”: recruiting players who never intend to study or complete more than a year of school once they become eligible for the NBA draft. It works. It’s easy to cast Kentucky coaches in the same light as those traders on Wall Street who gain by faster computerized trading or better access to soon-to-be public information. Or multinationals that shift their profits with the flip of a switch to some low-tax country. It may all be legal (or almost legal), but dodges like these don’t generate growth in a capitalist economy or additional value for watching sporting events. In many ways, the relative advantage for these winners comes mainly from avoiding having to compete under the same rules as everyone else.

The working stiff still gets shafted.

Everyone knows that there’s big money to be made in major college sports. One way to get rich is to leverage the work of others, then claim a large share of the total rewards from the enterprise for yourself. Perhaps the few college basketball players who make it to the NBA might claim that their college training was a good investment. For many other big-time college sports athletes, the reward can be a 50+ hour workweek at almost no pay and a loss of other educational opportunities (see Joe Nocera’s take on unionization of players as employees).

Suppose society is willing to pay $1 billion to be entertained by the NCAA tournament. The players can’t get paid, though they might get some very nice meals or plush accommodations, so much of the $1 billion is up for grabs by coaches, athletic department personnel, and others—some of whom walk away with huge rewards at their athletes’ expense. The NBA also gets a free training ground and media promotion of its future players.

To be fair, the school receives some of the profits, and it divides the funds among money-losing athletics or (god forbid) academics. Still, the working stiff doesn’t have much say in the matter one way or the other.

My new book, Dead Men Ruling, is now available to order.

Finding an Opportune Way to Expand the Earned Income Tax Credit

President Obama announced only one major new proposal during last night’s State of the Union address. Here’s what he said:

I agree with Republicans like Senator Rubio that it [the EITC] doesn’t do enough for single workers who don’t have kids. So let’s work together to strengthen the credit, reward work, and help more Americans get ahead.

Having worked on the EITC and other wage subsidies for a long time (and having introduced them at a crucial stage of tax reform efforts in the 1980s), I say it’s about time they were back on the table. Particularly since the onset of the Great Recession, policy discussions around helping those with lower incomes have focused on unemployment insurance, food stamps, and government-subsidized health insurance. Employment needs to move toward the front of our public policy agenda.

As necessary as these other social safety net programs might be—and am not trying to assess their merit here—they generally do not encourage people to stay in the workforce. Like the welfare of old, before the onset of reform of what then was Aid to Families with Dependent Children (AFDC), they provide the greatest benefit to those who do not work at all.  While it’s debatable whether a simple EITC expansion increases total labor supply, there is almost no doubt that per dollar of cost it increases employment more than many other social welfare provisions.

Employment has been a vexing and growing challenge for the American economy. The share of all adults who work—also called the employment rate— was declining even before the Great Recession, particularly among the young and the near-elderly. Indeed, a declining employment rate represents a far bigger and longer-term issue than unemployment, since the NON-employment rate includes both those who are unemployed and those who drop out of or never join the labor force.

Concern over employment makes wage subsidies fertile ground for bipartisan consensus, if—and this is a big “if” in these partisan times—both sides can claim victory from the deal.

Consider the history the EITC. Almost every president since Richard Nixon has signed legislation establishing the EITC, expanding it, or making some provisions permanent. And it’s been bipartisan. The  initial enactment and the largest increases all occurred under Republicans—Ford, Reagan, and George H.W. Bush, while the expansion during the Democratic Clinton administration was also quite significant.

Many who backed these legislative changes did not view the credit in isolation. They often favored it over some alternative—welfare for Senator Russell Long (the EITC’s first champion) and a minimum wage increase for President George H.W. Bush. Or they accepted the EITC as part of a broader tax or budget package. The EITC was never the subject of stand-alone legislative action.

That leads us to today, and what compromises might be supported by both political parties. I suggest two possibilities.

One, following our historical pattern, is to expand the EITC as an alternative to other efforts. At some point, recession-led unemployment insurance expansions will end. A bill to increase the minimum wage might go nowhere. Might an expanded wage subsidy be a compromise?  A broader tax or budget bill always presents possibilities. The EITC offers one way to mitigate the net impact on lower-income populations, whether offsetting  losses from new deficit reduction efforts, or ongoing cutbacks due to sequestration or dwindling appropriations.

The other is to tweak the EITC so it interacts better with other policy goals, such as reductions in marriage penalties—a cause often advocated by Republicans. The childless single workers identified by the president are not the only ones left out of any significant wage support. So also are many low-income married workers. Despite recent changes, the EITC still creates marriage penalties, particularly if a low-wage worker marries into a household already receiving the maximum credit. Such a low-wage worker often fares worse than a single person who gets nothing or almost nothing: once added to the household, the additional worker’s income can phase out his partner’s’ EITC benefits and reduce or eliminate any previous eligibility for other public benefits. Current government policy announces that it is more advantageous to stay unmarried.

Simply expand the current, very small, credit for childless single people, and marriage penalties would multiply in spades. I suggest including in any expansion low-wage workers who decide to marry or stay married, not only those single persons left out. Such an expansion would proceed largely along the same lines as the president’s, but also reduce marriage penalties .

In sum, the president’s best path to bipartisan support for the EITC is to stress more policies that favor employment, offer the expansion as a compromise from other efforts less favored by his opposition, and reduce marriage penalties.

What Should We Require From Large Businesses?

If we want successful companies to contribute to the economy fairly, what should we be asking them for? More corporate income tax? A higher minimum wage? Health insurance for employees? More profit-sharing for employees? Restricted-stock payments of highly paid executives, so they can’t succeed individually when they fail their workers and shareholders?

We’ve tried all these approaches, but at different times and in a discombobulated way.

The corporate income tax, which once raised far more revenue than the individual income tax, now applies mainly to multinational companies, which find ways to hide their income in low-tax countries. Domestic firms often avoid the tax altogether through partnerships or similar organizational structures.

The minimum wage has been allowed to erode substantially. I earned $1.25 an hour while in high school in the mid-1960s; if that amount had grown at the same rate as per capita personal income, high school kids and others would now be earning $20 instead of $7.25.

Health insurance mandates for many employers is our new form of minimum wage. The ACA’s $2,000-per-employee penalty for larger employers that do not provide insurance is essentially an additional “minimum wage” requirement of at least  $10 an hour, either in the form of a penalty or  health insurance.

Profit sharing was at one time touted as the way to instill better work habits and allow employees to share in a firm’s success. Many employees, however, put all their savings in that one investment and got stuck with huge losses when their firms declined.

A 1993 Tax Act limited to $1 million annually the amount of cash and similar compensation that could be paid to top executives and still get a corporate tax deduction. Post-reform, stock options flourished, as did a more uneven distribution of income within firms.

More recent proposals to reform the corporate income tax set minimum taxes on multinational companies, regardless of the country in which the income was earned; increase the minimum wage on all firms; bump up or reducing the mandate on larger employers to provide health insurance (by adjusting either what services the insurance must provide or the size of the penalty for not providing insurance); regulate companies to disclose how unequal their compensation packages are; and require executives, particularly in financial companies, to invest more in the stocks and bonds that couldn’t be sold immediately and would fall in value should their companies falter.

What drives all these proposals, I think, is the notion that large organizations only become that way by being successful and that they owe the public something in return for this success. At some point, almost all companies achieve their size by generating above-average profits and sales growth. The Wal-Marts and Apples and Mercks of today, the General Motors and U.S. Steels and Pennsylvania Railroads of yesterday, have or had more power and money than most. Did they get there only through the hard work and ingenuity of a few people who deserve most of the rewards? Or were they also lucky? The first out of the block? The beneficiaries of scale economies, where only a few companies would survive or the winner would take all? Did they get government help along the way, perhaps taking advantage of the basic research that served as a prelude to their development? Or the protections of a developed legal system, along with a bankruptcy law that limited their losses? If so, doesn’t that legitimize the discussion of how their gains might be shared, either with their own employees or the public?

If we truly want to create a 21st century agenda, I wonder if we could come up with better, more efficient, and fairer policies by asking the broader question than by piecemeal approaches. The corporate income tax, for instance, has been put forward by the chairs of the congressional tax-writing committees, as well as the president, as a ripe candidate for reform. Yet, however much I might favor such reform as a pure tax issue, it’s only a piece of these broader redistributional questions. Might it be better, for instance, to abandon the attempt to assess any extra layer of corporate income tax,  and instead ask larger firms to take a greater role in accepting apprentices, hiring workers during a downturn, sharing profits with workers, providing minimum levels of compensation but not necessarily all in health insurance, and restricting the ability of their higher-paid managers to walk away with bundles even while their firms fail?

Obviously, the devil is in the details. But we should at least have the conversation.

2013 Update on Lifetime Social Security and Medicare Benefits and Taxes

Our updated numbers for lifetime Social Security and Medicare benefits and taxes are now available, based on the latest projections from the Social Security and CMS actuaries for the 2013 trustees’ reports for OASDI and Medicare. Couples retiring today, with roughly the average earnings of workers in general, as well as average life expectancies, still receive about $1 million in lifetime benefits. This number is scheduled to increase significantly for future retirees and is higher for those with above-average incomes and longer life expectancies.

Little has changed on the Social Security side from our previous estimates, as the program has undergone no significant reform in recent years. Our estimates of present values of Medicare benefits for future retirees have decreased slightly from last year as slower health care cost growth has made its way into projections. By 2030, Medicare benefits (net of any premiums paid) are about 90 percent of last year’s estimates, still a significant multiple of Medicare taxes paid. (As in 2012, our numbers incorporate a Medicare cost scenario that assumes the “doc fix” and other adjustments will be extended, not the “current law” scenario in the trustees report.)

We have been publishing these numbers for a long time—and not without controversy over our intent. Our hope is simply that better and more complete information will help elected officials decide whether Social Security and Medicare are distributing taxes and benefits in the fairest and most efficient way possible, a decision we do not believe possible by looking only at annual numbers or how current, not future, retirees and taxpayers might fare. Therefore, we are delighted that in its most recent Long-Term Budget Outlook, the Congressional Budget Office for the first time also published estimates for lifetime Medicare benefits and taxes, as well as Medicare and Social Security combined. Using a slightly different methodology, CBO produces very complementary results. Differences derive from it using median-wage (rather than average-wage) workers, a 3 percent (rather than a 2 percent) real discount rate, and an assumption of Social Security claiming at 62 (rather than 65). As CBO also notes, expected benefits (and taxes, to a more limited extent) have grown over time for a number of reasons, including longer life expectancies, higher incomes, and rising health spending per person.