There’s a phrase sometimes used in political discussions that essentially stands in as a shorthand for Occam’s Razor, the principle that can be boiled down to the notion that the simplest explanation is often the correct one. The phrase I’m referring to is “It’s the economy.” In evaluating the mood or temperature of the American public, both media and political elites tend to search for overly complicated, vague and ephemeral reasons for why people hold certain opinions when the simplest explanation is often the correct one. Economic fears and anxiety drive a lot of people’s beliefs, whether those beliefs are correct or incorrect. And, as the world has become far more complex and difficult to navigate economically, so increases the amount of anger, irrationality, paranoia and fear coursing through the veins of the average person. The phrase, “It’s the economy,” acts as a shorthand to remind people that many problems are eventual fallout from economic precarity and volatility, and are often not as complex as we want to make them.
The notion that the world and the economy are becoming increasingly difficult to navigate certainly isn’t new, but it’s becoming more frighteningly accurate over time. A recent article from The New York Times details the financial struggles of senior citizens in America, with much of the article being framed around Social Security taxation, which is something of a surprise to many seniors. The thrust of the article revolves around the increasing complexity of managing one’s finances and navigating the proverbial sharks in the financial waters, just while trying to keep one’s head above water. The article highlights 72-year-old Jennie Phipps, a single woman who was caught off guard by the taxation of Social Security. “It’s not that I didn’t know about the tax, but, in my head, I didn’t calculate it,” she said. “I’m always surprised at the end of the year by how much I owe.”
Luis Rosa, a certified financial planner in Los Angeles, says in that same Times article that it’s becoming increasingly difficult to navigate the economy without a financial adviser. “A lot of people who don’t work with a financial adviser are very surprised to find out that Social Security benefits can be taxable,” he said. “Then they have to take more money out of their IRAs to compensate for the difference, and it becomes a never-ending cycle of taking money out to pay taxes and then paying taxes on that money. It’s not good.”
Despite the need for sound financial advice, many people don’t have access to financial advisers, so they’re left to navigate the economic headwinds on their own. This is an increasingly fraught path in the 21st century, as Jeremy Shipp, a certified financial planner in Richmond, Virginia, explains in the Times piece. “People sometimes still manage their money as if they’re living in the Great Depression because that’s how their parents handled things,” Shipp said. “That speaks to the way financial mindsets are passed down through generations. Grandpa and Grandma and Mom and Dad never paid taxes on their benefits, so they’re very surprised.”
The Times article highlights the increasing difficulty seniors have in managing their money, and Social Security taxes, which many seniors are unaware of, are yet another obstacle. Phipps, mentioned earlier, is a good example of how many seniors view Social Security as a lifeline and are usually operating on tight monthly budgets. Phipps, for example, owed federal income taxes on 85% of her most recent benefits, which defeats the purpose of Social Security in the first place. Social Security is meant to be a minimal financial safety net for senior citizens, and taxing the benefits is extremely regressive, counter-productive and counter-intuitive.
After the passage of the Social Security Act in 1935, benefits weren’t taxed at all for nearly the first 50 years of Social Security’s existence. However, that changed in 1984, when taxation on benefits was signed into law by President Ronald Reagan. Then, in 1993, President Bill Clinton signed legislation that expanded tax thresholds, making up to 85% of benefits taxable for recipients with incomes of more than $34,000 ($44,000 for joint filers). Since 1984, both Social Security payments and federal income tax brackets have continually shifted upward to combat inflation, but the income thresholds that result in a recipient’s benefits being taxed haven’t budged. So, as a result, by 2022, 48% of recipients were paying tax on some of their benefits, compared to 10% when the tax began in 1984. Many states, on the other hand, do not apply state income taxes to Social Security benefits. Starting in 2022, New Mexico no longer taxes most Social Security benefits for seniors, legislation that the NMBA is proud to have worked on and helped push into law.
It’s no surprise that taxing Social Security benefits began in the 1980s and ‘90s, as those are the decades when the neoliberal turn began in earnest, and counter-intuitive ideas like taxing benefits for seniors started to gain bipartisan support in Washington, D.C. From the 1930s to the 1970s, it would be fair to describe the economy in the United States as managed capitalism, which included antitrust enforcement, a strong social safety net, protections and steadily rising wages for workers, access to affordable housing and healthcare, and reasonable but strong regulation of major industries. However, in the 1970s, when economic growth stagnated, the American economy was steadily transformed into a much more neoliberal model, which had fully taken hold by the 1980s.
Neoliberalism can be defined as a political model premised on the belief that free markets can regulate themselves, and maintains an almost fundamentalist view of the free market. While the free market can certainly yield spectacular economic growth, neoliberalism largely views the free market as unimpeachable and deems regulation to be an unnecessary, foolhardy constraint on perpetual growth. In the neoliberal model, the government is incompetent at best, malicious at worst, and only captive to special interests. By the 1980s and 1990s, there was a belief that the neoliberal economic model could not only create fabulous wealth, but also fix existential crises and cure societal ills and, in turn, take society to levels of prosperity never seen before.
However, the neoliberal turn contained massive blind spots that have now led to a series of cascading, seemingly intractable problems, all of which usually end in many people feeling like they’re completely overwhelmed economically. While it’s difficult to find an ideal form of governance and government is certainly riddled with flaws, neoliberalism posits that government is the entire problem and that the free market is flawless. If we inversed that ideology and said that the free market is the entire problem and government is flawless, then most people would correctly mock that as absurd. So, why do we accept the premise of neoliberalism? It has become readily apparent that perhaps the main consequence of neoliberalism is extreme market and wealth concentration. We now have entire industries controlled by a few, if not one or two, purely self-interested individuals, leading to a complete inability to address existential issues. These issues include housing, homelessness, healthcare, climate and infrastructure. We can all agree that extreme power and wealth concentration, whether done through the forces of the government or the free market, is far from ideal and leads to a myriad of intractable problems. If there are a few individuals with all the power and no incentive to fix or improve anything, then society inevitably breaks down.
Ideas like taxing Social Security, a completely counter-intuitive notion, can only arise from a neoliberal model. Neoliberalism encourages complex solutions to simple problems. People lacking the funds to live month to month is a relatively simple problem to address in the grand scheme of things, but, in a neoliberal model, no problem is simple. Taxing Social Security only makes sense if you view giving senior citizens a safety net as anything but positive. In a neoliberal model, something unambiguously positive, like the government giving senior citizens a financial safety net, must be viewed with a jaundiced eye and, eventually, transferred into the free market. Because under the logic that the free market is always correct and that government is always wrong, Social Security is viewed as a market inefficiency, an entity that can’t be profited from in the free market.
Many of America’s problems can be attributed to market and wealth concentration and the inability to get certain individuals to act in the best interest of society at large, which, ironically, are factors that advocates of neoliberal economics claim it mitigates. One claim made early in the neoliberal era was that antitrust enforcement actually weakened competition and, if the government got out of the way, market forces would remain more competitive because monopoly pricing would invite innovation and new entrants into the market. In reality, industry after industry became more concentrated and problems became more intractable. Many of the horrors that advocates of neoliberalism claim arise from too much government control have actually become a reality from its own model.
This comes back to the notion of fairly simple economic problems like being unable to afford groceries or pay rent being addressed with overly technocratic, complicated solutions. For all of the government’s flaws, one of its strengths is its ability to address a problem in a universal way without having to bear the free market in mind. Neoliberalism so thoroughly rejects the efficacy of government action that, even in cases where universal government action is the obvious solution, neoliberalism usually rejects these solutions. That is why so many problems feel intractable, because the free market often isn’t equipped to deal with larger, existential questions. It’s equipped to turn quarterly profits to generate fabulous wealth for subsets of individuals, but not to address more pressing, existential problems such as climate change, healthcare, homelessness, etc. That is why managed capitalism was so much more effective in the long run than this far more laissez-faire, hands-off approach.
The next time elite media pundits or politicians act surprised that most Americans are dissatisfied with their economic plights, just remember that a neoliberal model essentially rejects simple solutions and promotes short-term thinking and precarity. We’re now in the final stages of 40+ years of this model and currently exist in the world that it has created. Past victories like Social Security should never be taken for granted in this type of model, as a government-backed safety net goes against the very nature of the system. People must be vigilant in fighting for any form of protection or safety net they have in a system like this, because the ultimate goal is to place it in the realm of the free market, as we have seen time and time again for the past 40+ years.
