What would happen if the benefits paid through our current social insurance programs were paid as wages instead?
Some wages would be income tax-free, due to our progressive system, but all would incur Federal Insurance Contribution Act (FICA) tax obligations. FICA taxes mainly fund Social Security and Medicare.
Interestingly, and most likely unintentionally, the Green New Deal, championed and promoted by populist politicians like Alexandria Ocasio-Cortez, does just that: It turns social insurance program benefits into wages, with a guaranteed public jobs program.
If Benefits Spending Became FICA-Eligible Wages
While this would add a decade of security to the Social Security trusts, the program’s cost makes it unviable. But computing the total cost, including the effects of increased labor participation, reduced benefits from social insurance programs, and increased FICA-eligible wages, unveils a potential savior for those trust funds.
To be clear, this isn’t a commentary on the benefits of the Green New Deal. It’s a commentary on how one side effect of one part of that proposal could create positive cash-flow for the Social Security and Medicare trust funds, and, ultimately, a path to altering the estimated 2035 depletion date.
Here’s what caught my attention: according to Sen. Edward Markey (no relation to the brilliant financial writer with the same last name), the Green New Deal public jobs program is intended to provide “a job with a family-sustaining wage, adequate family and medical leave, paid vacations, and retirement security to all people of the United States.”
To do this, the government would need to add 9.7 million full-time-equivalent jobs, to lower fractional unemployment to 1.5%, according to Center on Budget and Policy Priorities (CBPP) estimates.
The CBPP based its estimates on the U.S. Bureau of Labor Statistics’ U-6 measurement, which includes underemployed and discouraged workers, unlike the commonly reported U-3 figure. The 9.7 million jobs come with a $543 billion price tag.
However, the CBPP and Green New Deal supporters argue that much of this cost is likely to be offset through the reduction of other current government spending, increased income taxes, and increased consumption taxes.
Now, stop for a minute; don’t get lost in the politics.
Think about this: If all Americans have access to guaranteed jobs, that allow them to sufficiently provide for their family (sustaining wages, vacation, health insurance, and retirement) then would we still need:
- Unemployment Insurance? ($33 billion annually — not adjusted for spike during poor economic periods)
- Medicaid? ($368 billion annually)
- A slew of other programs, like the Children’s Health Insurance Program, and Temporary Assistance to Needy Families? ($173 billion annually)
There would still be some people in poor health who wouldn’t be able to work, so we might still need Medicaid. But, with guaranteed access to jobs, why would we need the other programs? If you need financial assistance, then we’d give you a shovel, and you could dig roads, rebuild Manhattan, or help construct a filter for cow farts to improve the environment.
Also, if we can find jobs for the unmotivated, computer-game-addicted, socially awkward millennials, couldn’t we also find work for most of those who have health conditions? This could possibly eliminate Medicaid altogether. That would turn $574 billion in social insurance spending into social wages…
Even so, let’s stick with the CBPP’s measly, paltry, minuscule $543 billion social insurance spending conversion estimate.
Trust Fund Math
Shifting $543 billion per year in social insurance spending into the social wages category would put $67 billion in the Social Security (OASI) and Disability Insurance (DI) trust funds. This would prevent the trust from dipping into its reserves until roughly 2024. That’s about 4 years later than is currently projected.
(For reference, I’ll be using the combined effect of the contributions against the combined balances of the “OASDI” trust funds [technically, they’re separate), and I’m only using the intermediate assumptions provided in the 2019 Social Security Trustees Report, using the 2019 Social Security Trustees Report’s intermediate assumptions.)
Is 9.7 million additional jobs a good number? Wouldn’t guaranteed employment increase the potential labor force? Wouldn’t some who aren’t “wanting” a job, become job wanters? And, not in the least, if a private-sector worker made less than the Green New Deal program minimum, then wouldn’t they consider shifting from private to Green New Deal? Yes, to both, and both increase program costs.