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[00:00:00] David Sirota: Hey there and welcome to this week's special bonus episode exclusively for the levers paying subscribers house speaker Kevin McCarthy has been toiling away on an effort to wrangle his fellow Republicans to agree on a proposed plan to raise the debt limit Into 2024 For a while there was talk in the air of Social Security cuts a proposal that somehow keeps coming up over and over and over again The latest reports now suggest that Republicans may back off that and try to balance the budget with spending cuts on stuff like food stamps On this week's bonus episode I speak to Matt Bruenig. He's the founder of the People's Policy Project We talk about an editorial he wrote for Politico entitled Before Slashing Social Security Cut 401ks Now you may not know this but the 401K system disproportionately benefits the very wealthy. It's one of the largest redistribution programs in America when it comes to the math of who benefits and who doesn't It's redistributing money up the income ladder Matt and I talk about that in the context of proposals to cut Social Security -- Social Security which actually supports the middle and working class of this country. Matt and I talk about why proposals to cut social security keep coming up and why 4 0 1 tax breaks for rich people's retirement is almost never talked about as something to limit or end. Also talk about how other countries do their retirement benefits and what we could glean from them if we were willing to learn some basic lessons Thanks again for being a supporting subscriber and for funding the work we do here at The Lever Now here's that bonus segment

[00:01:51] David Sirota: Hey Matt, how you doing?.

[00:01:53] Matthew Bruenig: Now I'm doing good. How are you, dude?

[00:01:54] David Sirota: Good. Uh, another, another year, another, uh, set of, uh, proposals or at least a rhetoric about cutting social security. So we wanted to check in with you who's tracked The on again off again. Are we gonna cut Social Security or are we not gonna cut Social Security?

[00:02:12] David Sirota: The idea is now wafting through Washington. I feel like it's always kind of wafting through Washington, like every, every few years. there's the talk of, of the debt and the, the deficit. And of course, social security, is talked about as a way to to cut the debt.. You had a fascinating piece in Politico that was a much different take and the headline was before slashing Social Security Cut 401ks and the subhead was, don't let rich people off the hook.

[00:02:43] David Sirota: Okay, so let's talk about 401ks and, and rich people versus Social Security. Why don't you make your argument about 401ks and who they disproportionately help in contrast, uh, to the social security system.

[00:03:01] Matthew Bruenig: Sure. Yeah. So I mean, to take a step back, it's useful to, you know, just note that we have a, uh, a multi-faceted retirement system in the US, Social security is one prong. And then we have another prong, which are these defined contribution accounts, which include 401ks, IRAs, um, and you can also throw defined benefit pensions in there.

[00:03:21] Matthew Bruenig: And that's kind of seen as the private accounts. , but in fact they receive a tremendous amount of government subsidy. And periodically the CBO will put out a. Estimating where those subsidies go. You know, distributively speaking, how much go to the rich, how much go to the poor. And the last such report they put out, they found that 58% of all, uh, subsidies that go to 401ks and IRAs and, and, and programs like that, uh, go to the richest fifth while, uh, less than 2% go to the bottom fifth, and then even the middle fifth only get 10 and a half percent, which is about half of what they would get if they were distributed in an even share.

[00:04:00] David Sirota: So these are subsidies, meaning, meaning, tax benefits, right?

[00:04:03] Matthew Bruenig: Correct. Yes. Uh, when you put money in these accounts, they're not taxed. And so there's a tax benefit that comes from it.

[00:04:10] David Sirota: So overall, It's one thing to say, okay, most of the tax benefits or a disproportionate amount of the tax benefits are going to higher income brackets, uh, when it comes to, uh, define contribution plans like, uh, like 401ks. And, and just to, to be clear so that folks don't hear this as jargon, define contribution.

[00:04:35] David Sirota: The idea is that that's when you put money in, uh, and the only thing that's guaranteed is that the money is going in. You don't get a guarantee of what's going to come out. A, a defined benefit plan is obviously a you, you. Have a guaranteed amount of retirement income. Uh, and we have shifted, uh, to a more, uh, defined contribution system.

[00:04:58] David Sirota: I think the, the question on, on the numbers before we get into where we should go is how much are we talking about here, right? Like how, how, how big is the overall amount of money and resources that are going to effectively subsidize defined contribution plans like 401ks for the wealthy? Is it a little bit of money? Is it a lot of money?

[00:05:18] Matthew Bruenig: Yeah, so this year the uh, joint Committee on taxation puts it at 371 billion, and that's just on the federal level. States usually also follow suit and don't tax this money. It's hard to get a tally on that. You'd have to go to all the 50 states and numbers just don't exist, but you know, you can pretty much ballpark it around half a trillion a year.

[00:05:39] Matthew Bruenig: You know, another 130 billion from the states at least. Um, and to give a, you know, a kind of a comparison there, the entire social security, uh, uh, spending each year is only a trillion a year. So it's about half as big as that. Um, and that's not an apples to apples comparison it's to be even bigger, uh, than that if you start taking in, if you try to do more of an apples to apples thing, but, You know, it's at least in the way that you think about cost to the government, it's, it's half a trillion compared to 1 trillion for the social security, uh, uh, spending. So it's, it's right up there.

[00:06:15] David Sirota: Okay. And, and, and to be clear, one, one other distinction is that social security is funded by people's payroll taxes. Uh, these are sort of, uh, if not ad hoc, they're just kind of tax subsidies that are kind of floating out there. I guess, I guess the point I'm trying to make is, is that the Social security money is just taken out of people's paychecks.

[00:06:36] David Sirota: Whereas these tax benefits, I mean, they're in the tax code, but they're not, it's not a kind of direct money goes into the, into the, the payroll tax system, into the Social Security Trust fund. There's just these, these tax breaks. So I think then the political question is, Why do you think that whenever there's this national debate about the deficit and the debt, the first and foremost thing that politicians start talking about is social security and and Medicare, and not the 401K defined contribution tax benefits that are disproportionately going to the wealthy.

[00:07:14] Matthew Bruenig: Yeah. You know, I think there's two things though. First, as you point out, is who, who benefits the social security program? Of course, it benefits everyone who makes it to old age and, you know, gets their 40 quarters and whatever. But it's really, really, really primarily, like hugely beneficial to lower income workers or middle income workers, uh, because it replaces a large share.

[00:07:36] Matthew Bruenig: They used to be earning before they retired. As you get up higher in the income distribution, the income replacement from social security gets lower and lower. It may only replace 10% of your income if you were making $200,000 a year, $300,000 a year. So for really high earners, Social Security is not the big thing for them.

[00:07:56] Matthew Bruenig: For them, the big thing are these 401ks and individual retirement accounts. That is really what they rely upon in retirement. And so I don't think it's unreasonable to say, well, hey, you know, who, who runs politics in America? Who, who funds the, the parties? Who, uh, who, who, who represents us in Congress?

[00:08:14] Matthew Bruenig: These are people who are depending more on these kinds of funds, and so, They're less prone to, uh, to want to cut those. Uh, the other thing is that these, uh, non social security programs, these other retirement programs, they're all kind of asset based in one way or another. And so that means they go through the financial system and banks and financiers and the people who manage these accounts.

[00:08:37] Matthew Bruenig: And I mean, there's tens of millions, hundreds of millions of accounts depending on, on how you add it. They're all getting fees from these accounts, um, you know, tons and tons and tons of fees. So it's a big money maker for, for banks. Um, and it's, it is the system that more affluent people rely upon. So I think it, it tends to get spared

[00:08:55] David Sirota: So you've got essentially a, a, the donor class and then Wall Street writ large. It's kind of in coalition to protect these tax benefits, uh, and create a political coalition around the protection of those tax benefits in comparison to the social security system, which. Doesn't have as much necessarily as much political power or at least money to political power, uh, behind it.

[00:09:23] David Sirota: Now you've got in, in your political piece about this. There is an unbelievable, uh, set of numbers that you compare and contrast with about the most, talked about proposal for cutting social security and you contrast it with what an alternate could be if the effort to raise resources was focused on, uh, defined contributions and, and, and 401K plans. Tell us those numbers.

[00:09:51] Matthew Bruenig: Yeah, so, you know, you, the Federal Reserve every three months puts out, uh, puts out these numbers called the financial accounts of the us and you can, uh, with those numbers figure out how much money is in all of these accounts. If you add up every single person's IRAs and 401ks and set IRAs and. The, the, the fine benefit if you add up all those assets, the last time they did it, it added up to 34 and a half trillion of assets across all of these accounts.

[00:10:22] Matthew Bruenig: Of course, that is heavily disproportionately held by affluent households. Uh, and so what I decided to do was, okay, let's take this proposal people are making to increase the full retirement age of social security. To 70 and see what it saves. You know, the CBO put out a, a number on that. They said it's gonna save about 121 billion over the next eight years.

[00:10:46] Matthew Bruenig: So I just said, okay, what kind of tax would you have to apply to that 34 and a half trillion of assets to raise the same amount of money over the same period, and it is a 0.03% tax. And to kind of give you a sense, uh, you know, if, if you had a $100,000 ira, that would only be $30 a year. So that gave you a sense of where the money actually is, because if you're watching this, you might think, oh, I have a hundred thousand in my 401k, maybe, or maybe 200,000.

[00:11:15] Matthew Bruenig: But that you won't be paying anything. It's the people who really have millions and millions of dollars in these accounts. Um, some people have billions of dollars in, in these accounts. Um, Peter Thiel has a, a billion dollar plus, uh, Roth, uh, IRA, that, that those are the people that would be hit by this kind of tax. So,

[00:11:31] David Sirota: Now. Now I will say, It does seem like the politics of social security, uh, are changing, uh, that you've got a situation where the Republicans kind of floated social security cuts. They didn't actually, if I'm not mistaken, they didn't propose something specific yet. There was just a lot of talk of it. Then Donald Trump kind of swooped in and said The Republicans should not propose that.

[00:11:55] David Sirota: And you know, I don't, I'm not giving credit to Donald Trump, but I will say this. There, there definitely is in, in, in the reptilian part of his brain. I, I feel like, like a, like a sense of like a political sense, an instinct like that, that's, that's not necessarily, um, uh, inaccurate in terms of what is good or bad politics on stuff like this.

[00:12:19] David Sirota: And I, so it's not to credit him, it's just to say, He kind of figured out that it's bad politics to champion social security cuts. A new national poll from C N N finds 59% majority, that's the majority of the Republican primary voters think it's essential for the Republican party nominee to vow to protect social security and Medicare from cuts.

[00:12:39] David Sirota: So as somebody who's watched these debates, do you think the politics has fundamentally changed? And if it's changed when the national, when, when the debate over the national. Uh, comes up. Do you think there's more of a chance for a conversation about, for instance, 401K tax breaks will replace the debate about social security?

[00:13:05] Matthew Bruenig: Uh, I don't, I don't think, I mean, maybe, you know, man, I would love to think my idea would, would take off, but, uh, there's a reason why the article surprised you, which is that, you know, people don't talk.

[00:13:14] Matthew Bruenig: About this at all. Um, they almost have a mental block around, well if we've gotta cut, it's gotta be the public old age programs, not the public slash private old age programs.

[00:13:25] Matthew Bruenig: Um, but I mean, it makes sense, right? If you think basically fundamentally, because some people sincerely believe this, they say, look, We're an aging society, uh, more and more of us are gonna be above the age of 65. And so we have to make adjustments to account for that. You know, it used to be only 10% of people were, uh, were retired.

[00:13:43] Matthew Bruenig: Now it's 20% or 25% or whatever. Okay, fine. So if, if you wanna make adjustments, then you gotta put everything on the board. You gotta put all the old age benefits on the board, not just this one That. Logical sense. Um, but I, it's hard for me to think Republicans would ever go that direction because, you know, they are the party at this point, demographically of, of older people.

[00:14:05] Matthew Bruenig: Um, and, but also the party of more affluent people, well, what is 401k? But, you know, the, but, but the, the account for older, affluent people, you know, that's, that's the, the worst a case scenario for, for Republican, uh, base at this point.

[00:14:21] David Sirota: I I wanna go back to something that you mentioned about, about Wall Street. I want to zero in on that for a second. The, the effectively the inefficiency of a retirement system based on allowing private asset managers to manage, if not a public retirement system, than a kind of publicly subsidized, uh, retirement system.

[00:14:44] David Sirota: I mean, this seems like an enormous. Inefficiency. I mean, it's obviously a sort of rentier situation. How do, like, does this exist in other countries at the level that it exists here? Because we talk a lot about in, you know, the United States about, you know, efficiencies and, and, and I mean, it seems to me that wherever you look in our, in our country, the public sector, in a lot of ways, Whether it's Medicare, whether it's social security, that there's a model by which the, the public entity is doing things more efficiently than the private, uh, sector.

[00:15:24] David Sirota: This seems to be another example of that. What is the approach in other countries, uh, uh, when it comes to this?

[00:15:31] Matthew Bruenig: Yeah. You know, I mean, there is a, there is a country Australia that their system is, is similar to this. Um, and there's, this is, there are a lot of people there who make the same kind of criticisms that's extremely costly. It's called superannuation. Um, it's a similar kind of like individual retirement account type set up except you are forced to contribute into it, et cetera, et cetera.

[00:15:52] Matthew Bruenig: Um, you know, the other approach, so you have these. Based, uh, retirement approaches, sometimes called pre-funded. And those are always gonna be a little bit costly because you're gonna have to manage the assets, you're gonna have to hire people to manage and trade and all that kind of stuff. Um, and then you've got this, uh, the other approach, which is called PayGo, which is not the pay you're probably familiar with, but it's called a pay as You Go system.

[00:16:16] Matthew Bruenig: That's how Social Security works, right? Where you don't really. Intervening pool of assets. It's just money comes in and money goes out, and that's gonna be the cheapest way to do it administratively, because you don't have to have a middle, uh, asset fund that you have to manage. But even among asset backed sec, uh, asset backed, uh, retirement accounts, And asset backed retirement systems.

[00:16:41] Matthew Bruenig: You can have a private system where you have all these different entities and it's very complicated. Which asset manager are you going to use? And they're having to do all this marketing, or you can bring it into a public retirement system that still uses assets and that's gonna still be cheaper. So, like Denmark for instance, has asset backed, uh, like public pensions, but the, the funds are managed publicly and so the, the fees and the administrative costs, you know, is, is a lot lower.

[00:17:07] Matthew Bruenig: So, You know, it's one of those two options. I would say, either a public asset, back asset backed, uh, retirement plan, or just a public PayGo plan. Those are gonna be your best options. The private asset backed one is gonna be your most, most costly, and also always, you know, the most, uh, beneficial to more affluent people, you know.

[00:17:27] David Sirota: Let me ask a, a question about reporting that, that we did that, uh, uh, back many years ago. It was actually in 2016, uh, and I think I was working with Andrew Perez, the levers Andrew Perez, back when we were working, uh, for international business times. In the 2016 campaign, um, a top Blackstone executive who was supporting the Democratic ticket, uh, Hillary Clinton and the like, um, uh, sort of floated out there.

[00:17:53] David Sirota: This proposal, uh, to, if I'm not mistaken, essentially allow for, um, if social security or an additional publicly administered retirement benefit, uh, uh, retirement agency to. Part of payroll taxes, uh, and put it into, uh, investments that go beyond treasury bills beyond what the social security system does beyond, I believe even stocks into potentially, uh, alternative investments like private equity, like hedge funds and the like.

[00:18:28] David Sirota: This is what public pensions do across the country. Um, there's certain. That's certainly a more efficient way, uh, than a 401k. But there were concerns that were raised that listen, even if it's more efficient than a 401k, uh, the public pension fund model is still paying enormous fees for opaque investments, uh, that that.

[00:18:52] David Sirota: That the richest people in the world are skimming fees off of stipulating the fact that that's certainly a better system than the 401K system. Where do you come down on the concerns that a system like that, that goes beyond treasury bills, goes even beyond, uh, investing, uh, the pool of money into stocks, into into opaque assets? Where do you come down on whether that's a prudent way to do things?

[00:19:17] Matthew Bruenig: Uh, you know, I, I'm not opposed to any, if you're gonna do an investment type, uh, setup like that to going into any particular asset classes, right? I mean, it would depend on the particular asset. So, For example, uh, Norway has a sovereign wealth fund. Uh, you know, that they put all their oil revenue in and it invests, uh, mostly in publicly traded stocks and bonds, but also in, um, you know, non-traded, like real estate.

[00:19:45] Matthew Bruenig: And they, even these days, they invest in renewable energy infrastructure. Um, That, that seems fine, that those would be unlisted investments. Alaska has a fund as well, the Alaska Permanent Fund, and they'll invest in, uh, certain unlisted assets. Um, so, you know, I, I think it can be fine. It's more of an investment by investment, uh, kind of decision.

[00:20:07] Matthew Bruenig: Cuz also some publicly traded companies you probably don't wanna be messing around with, you know, even just cuz it's public, that doesn't mean that it's, uh, That, uh, that that's a good place to, to put your money or an ethical place to put your money. And

[00:20:20] Matthew Bruenig: I would say one thing on this is you can have a public asset manager.

[00:20:25] Matthew Bruenig: You don't ha that you're right. The public pensions that exist right now in the US typically will, will boot the, boot the management off to a third party, and then they pay fees to it. But you can also just have. You could also just manage it in-house. And this is what we see in Alaska. They have the Alaska Permanent Fund.

[00:20:41] Matthew Bruenig: They have a separate entity called the Alaska Permanent Fund Corporations, a state owned company. It's a state owned asset manager. It's like their own little Wall Street over there, publicly owned. And they manage the fund fees not, which prevents you from having to pay fees out to to private banks. So,

[00:20:57] David Sirota: That's right. That's right. Well, I think that this piece, which we'll link to in the description of this podcast, this piece about the, the tax subsidies, the government subsidies, uh, to 401K plans and how that disproportionately benefits the wealthy. I feel like people are gonna listen to this and say, and, and, and say, A lot of people didn't necessarily know.

[00:21:17] David Sirota: And aren't necessarily in learning it, surprised by it, but it is a really important thing to consider when, whenever we hear politicians talk about cutting social security as a way to deal with, uh, the national debt or the, or the ongoing deficit. Cuz when you, as you said, when you compare it to what we're spending.

[00:21:40] David Sirota: On essentially a privatized or quasi privatized, uh, government subsidized, privatized, uh, retirement system. It really makes the numbers show, and as you said, it really shows who, uh, power answers to in our politics, Matt Brunig of the, uh, people's Policy Project. You can find the People's Policy project@peoplespolicy.org. Matt, thanks so much for your time today.

[00:22:03] Matthew Bruenig: Thank you.

[00:22:04] David Sirota: That's it for today's bonus segment. Thanks a ton for being a paid subscriber to the Lever. As I say, we could not do this journalism without you. If you particularly like this bonus episode, please pitch into our tip jar.

[00:22:17] David Sirota: The tip jar link is in the episodes description or at levernews.com/tipjar. Every little bit helps us do this journalism. Oh, one more thing. Be sure to like, subscribe and write a review for Lever time on your favorite podcast app.

[00:22:31] David Sirota: Until next time, I'm David Sirota. Rock the Boat.

[00:22:36] David Sirota: The Lever Time Podcast is a __production of The Lever and the Lever Podcast Network. It's hosted by me, David Sirota. Our lead producer is Jared Jacang Maher . You can find all of our past episodes at levertimepod.com, or on all of the major podcast players.