Magazine article The CPA Journal

Social Security Reform: Let's Not Forget about the Middle Class

Magazine article The CPA Journal

Social Security Reform: Let's Not Forget about the Middle Class

Article excerpt

The May 2006 CPA Journal's theme of Social Security reform was timely and relevant. It addressed the Social Security insolvency problem, noted the issue of the fund's being insolvent earlier than most government economists had forecast, and discussed possible solutions. However, the articles were somewhat unbalanced. They were skewed toward high-net-worth individuals and ignored the lower and middle classes.

First, one must understand why Social Security was created. As a direct result of the stock market crash of 1929 and the subsequent collapse of the U.S. banking system, many people were left with nothing. Their stock market investments, as well as any depository accounts they might have had, evaporated. The government realized that many retired people were left penniless. Social Security was formed primarily for the people who had not saved enough for retirement or who had seen their retirement "wealth" evaporate. Social Security was not formed for the top 20% of people in the United States who earned income and held wealth. It was for the other 80%.

In the same respect, following World War II, the GI Bill and places like Levittown, Long Island, were not intended for the superwealthy. They were intended for middle- and lower-income individuals. Keynesian policy was used for the masses and not for one economic class.

The Rise of 'You're on Your Own' Government

Unfortunately, many of our government officials today believe in the classical school of economics. If we look at the recent federal tax cuts, we see capital gains and dividend reductions that basically cater to the upper class. We do not see an interest-income deduction that would help middle- and lower-income Americans. In addition, more and more post-Keynesians, including renowned economist Jared Bernstein, have suggested that government tax policy and Social Security policy essentially say "you're on your own" to the middle class. Remember, in the 1950s through the 1970s, it was the middle class that made the United States an economic world power via productivity gains, consumption patterns, and the like.

The supply-side theory that many government officials now follow will only cause larger income gaps between upper- and lower-income groups. The middle class is quickly evaporating in the United States. (By middle class, I refer to people in urban areas of the United States whose adjusted gross income is between $40,000 and $150,000.)

What if someone invested in the Nasdaq 100 in 2000 and planned to retire in 2006? …

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