• Gleckman on Social Security

    Howard Gleckman puts forward six ideas for Social Security reform.

    1. Create a respectable minimum benefit for low-income workers, increase some widows’ benefits, and create an additional benefit for the very old (say, 85 or older).
    2. Raise the retirement age, including the minimum benefit age of 62. An extra year of work would solve about one-third of the program’s funding problems. More and more of us can work into our 70s and a modern Social Security system should reflect that.  It makes no sense for government to signal that we should stop working at 62 when we are likely to live for two more decades.
    3. Protect those who work physically demanding jobs. While the percentage of older Americans who do manual labor is shrinking, those who do this work need to be protected. Long overdue reforms in Social Security’s badly broken disability system would help.
    4. Increase contributions and reduce benefits for high-earners. Everybody would still get some benefit—Social Security is not welfare and must retain its status as social insurance. But there is no reason why it can’t be made more progressive.
    5. Preserve the defined benefit nature of Social Security. Adding an additional savings component is a good idea. But the public is not interested in taking on additional risk with their retirement.
    6. Be absolutely transparent about benefits and structural changes. Whatever Congress does, there should be no surprises. As it is, many young people have no confidence in Social Security. Reforms should restore their faith in this key piece of the old-age safety net. But government should also be clear that in the future Social Security will only supplement—and not replace– other retirement savings for middle- and upper-income retirees.

    I believe there are two main benefits of acting sooner rather than later to address Social Security.

    • Doing so now will expand the options available, making an increase in the minimum benefit (option 1) and protecting those workers in physically demanding jobs (Option 3) more likely. Such tweaks would at least partly address differences in lifespan gains across different income groups that are an issue with eligibility age increases.
    • Since Social Security pays cash benefits that are indexed in one way or another to inflation, any fix agreed to should work as expected, and Social Security could truly be ‘off the table’. In this way it is very different from any health reform plan (Affordable Care Act or any other), whose savings will be more difficult to predict, and will require mid-course corrections and endless tinkering, simply because purchasing health care is more complicated than mailing checks.
    • Item 4 should be item 1, and it’s really the only item needed. The current payroll tax scheme isn’t just a matter of “could be made more progressive”, it’s incredibly and horrifically regressive. Thanks to the payuroll tax, a freelance translator (close to home example) earning, say, US$65,000 a year (dreaming) is paying a higher incremental tax rate than a middle manager at an insurance company making twice that. It’s seriously insane. And there’s no need to raise the eligibility age*: just drop the cap on payroll taxes and all the funding problems are solved. That still leaves the SS tax as grossly regressive, of course. It should be reformulated as a percentage surcharge on your income tax payment. But that’s me dreaming again.
      *: As lots of other places point out, life expectancy _on reaching 65_ hasn’t gone up all that much over the last 30 years.

      • @David Littleboy
        I follow all your points. Soc sec does have to be reformed at some point, and it is more of a political than a policy issue. My main point is the longer you wait, the fewer are the options. Going sooner makes it more likely that the types of things you are worried about will be addressed in the ways you want. However, the last step is a deal where both sides hold hands and jump off the cliff and like some parts of the deal and hate others.

        • “My main point is the longer you wait, the fewer are the options. ”
          That is, of course, true. But it’s true for anything. As foosion points out, SS simply isn’t broken for a very very long time. And as foosion also points out, raising the eligibility age hurts people with shorter life expectancies, who happen to be, in the current US, the poorer demographics. So I find it extremely worrisome that the leading proposal to improve the financial standing of SS on that otherwise fine list is an unacceptable one. And it’s frightening that people aren’t seeing how cruel that proposal is.

    • I recently read Jed Graham’s A Well-Tailored Safety Net, and though I don’t completely agree with every single detail of his proposal, the framework he built is so strong that I can’t find any faults in it. It addresses all six points Howard Gleckman made regarding a successful proposal, and the book also addresses each of your two points regarding why we need Social Security reform now rather than later. The only changes I can think of that I would for sure do would be to increase the wage cap to hit 90% again and to make the personal account system operate like the TSP for federal government employees to give individuals some flexibility.

      • @Mike
        I especially like Graham’s old age protection aspect in Social Security…that benefits rise with increasing age to address the real issue of outliving your private retirement savings.

    • Social Security is fully funded for 25-30 years (and the date full funding ends generally keeps receding) and can pay 75-80% of benefits for over 75 years. Cutting benefits today to deal with a possible problem that far out seems a bit premature.

      SS already reduces benefits for high income earners. Benefits are taxed if other income is high enough. Making benefits more progressive would just reduce political support without doing much for finances, unless you set the trigger very low. SS seems on the chopping block despite overwhelming support by the public not to touch benefits and at most to raise the cap on income subject to SS tax.

      Raising the retirement age is regressive, as poorer people generally don’t live as long.

    • I like one and four, they push SS toward what it should be a welfare program. I see no reason to keep SS from becoming welfare. I would prefer to create a respectable minimum benefit that everyone gets. With perhaps allowing those who work physically demanding jobs to start getting the benefit at 62 and others later like maybe 70.

      Good suggestions though, but I would bet it will not happen until there is a real crisis that the median voter feels. It is political suicide to address the long term problems now.

    • Oh and I should say that the reason for addressing SS is that the tax discourages working the taxed economy and so if it is an unnecessary expenditure like higher SS payments to those who earned more we should not tax for it. A lower SS tax may push fewer people to work for cash (under the table compensation) and fewer people (mostly wives) to produce for in family consumption.

      • In theory taxes discourage people from working. In practice, there’s no evidence that higher taxes reduce GDP, employment, etc. For a recent example, compare Clinton and Bush