By Federal Reserve estimates, there is about $67 trillion of household wealth in the United States. According to the Congressional Research Service, 74 percent of this, or $50 trillion, is controlled by 10 percent of the population. Wealth is much more skewed than income. The top 1 percent own roughly 35 percent of the country’s wealth but only 17 percent of its income. My fear is not that we end up looking like Europe but rather that we look like the bifurcated societies of Latin America.
The wealth and income makeup of our society can be likened to a long game of Monopoly: A handful of players have done phenomenally well, owning Boardwalk, Park Place and the like; the rest are frustrated, somewhat demoralized but desperate to become competitive in the game. When I played Monopoly as a child, the winners would often offer the losers money, property or debt write-offs to encourage another round of play. America’s winners face the same dilemma: Do we want to encourage more rounds of play for ourselves, our children and grandchildren by putting the U.S. retirement system on a clear path to solvency without hurting those who have not participated in the financial rewards of the game so far? To be clear, notwithstanding the game’s current outcome, Larry Kudlow is correct when he asserts that “Free-market capitalism is the best path to prosperity,” because creating wealth is society’s first order of business.
Here’s the math. According to the Wall Street Journal, the top 1 percent of the United States’ 115 million households have a net worth of $6.8 million or greater. The top 5 percent have a net worth of $1.9 million or greater. If just the top 1 percent of wealthiest households gave up their Social Security income, assuming two-thirds of these households are of retirement age and will receive benefits averaging $30,000 a year, more than $200 billion would be saved in the first 10 years. That would contribute greatly to resolving the projected funding gap. If Social Security is gradually phased out for the wealthiest 5 percent of households, beginning with just a 10 percent benefit reduction, the savings climbs to nearly $500 billion over 10 years. Remember, wealthy households received a windfall of sorts with the recent changes to estate tax law, a tax pioneered by Republican Theodore Roosevelt, and continue to benefit from a discount of as much as 40 percent in calculating estate taxes when privately held businesses are passed on.
Some will say, “That’s my money; I paid into Social Security.” There are at least three reasons they ought to reconsider. First, it is a gift to be fortunate enough to give back to your country. When confronted with an existential threat from a foe, our troops step up; the looming shortfall between Social Security’s revenue and obligations represents a serious threat to our future. Second, wealthy people have benefited greatly from the rise in general asset values over the decades, and the worldwide easing of monetary policy by central banks is sending the balance sheets of the wealthy further skyward. Third, entitlement spending on Social Security will increasingly crowd out public investments necessary to maintain a growing economy and stable society for future generations.
Yes, there would be challenges to implementing such an approach. But current law already requires wealthy households to generate a balance sheet for estate tax purposes. Add in thoughtful measures such as a reasonable new age limit and “chained CPI,” and the Social Security shortfall could be solved.
After Jonas Salk invented the polio vaccine, Edward R. Murrow asked, “Who owns the vaccine?” The doctor answered, “Well, the people, I would say. There is no patent. Could you patent the sun?” Even against the backdrop of hedge fund managers demanding that their income be taxed at capital gains rates or the carried-interest boondoggle, our leaders fail to ask for sacrifice among those who can most afford it.
Nearly two-thirds of Americans 65 and older receive half of their income from Social Security, and more than 20 percent live on it entirely. These individuals often worked for modest sums but did necessary work while others, myself included, built businesses and made investments. We shouldn’t let them down or rob future generations of the investments needed to secure their future.