Social Inequality, Retirement Security, and the Future of Social Security

Social Security was a cornerstone of the mid‐century social contract that led to broadly shared prosperity in the three decades following World War II. Since the 1970s, economic shifts and a neo‐liberal turn in economic, labor‐market, and tax policy have led to a declining labor share of national income as well as levels of income and wealth inequality that are extreme both in historical and comparative context. Decades of slow and unequal wage growth have led to a projected retirement income crisis for today's workforce. This cannot be addressed through expansion of tax‐expenditures on individual saving, which actually serve to exacerbate inequality. This article argues that while Social Security's contribution and benefit structure were adequate through the 1970s, they now need to be updated to reflect changes in the economy since then. To account for slow and unequal wage growth, Social Security benefits should be expanded and the system's tax cap eliminated. And to account for the stark and growing inequality of income from capital, investment income should be incorporated into the system's contribution and benefit base, and the estate tax restored to its 2000 level and dedicated to Social Security. These reforms would position Social Security to be the cornerstone of a new social contract for the twenty‐first century.