We Can Shore Up Social Security Without Harming Seniors

Every year for quite awhile now, the annual Social Security Trustees’ report evokes alarmist headlines.

“Social Security Still Going Broke (Again),” trumpets the National Taxpayers Union. Politico columnist John Goodman chimes in with “Social Security trustees: We’re going broke.”

And every year experts — and responsible news media too — explain that the Trust Fund isn’t going broke at all.

What with payroll taxes coming in, plus interest on the reserves invested in Treasury bonds, the Fund is now expected to have enough to pay full retirement benefits until 2033.

After that, it will still have enough to pay three-quarters of what retirees should get under current law until 2086.

This year’s report nevertheless projects a shortfall three years sooner than last year’s. Trustees blame the economy — specifically, lower real earnings due to the energy price spike and sluggish growth in average hours worked.

Republicans don’t fret such nuances. They blame the President for not reforming entitlement programs — as if this is something he could do without their votes in Congress.

Well, there are apparently proposals they’d be willing to support — unless they came from the White House, of course.

Back in 2010, House Majority Leader John Boehner teed up the idea of raising the retirement age again. Several leading House Democrats seemed willing to consider this, though it’s doubtful they’d stick their necks out now.

Three Republican Senators introduced an additional wrinkle last year. Once the retirement age gets to 70, index it to life expectancy — presumably in expectation that the average life span will continue to increase.

Average life span, note, not the life expectancy for low-income people. Overall life expectancy gains have masked significant — and growing — differences between richer and poorer Americans.*

The Senators also proposed changing the benefits formula so that “high earners” — those with average annual earnings of a mere $43,000 a year — would get less than they would under current law.

Presidential hopeful Mitt Romney apparently has something similar in mind — for both the age increase and the curbed benefits growth for those “with higher incomes.” Needless to say, no details here.

The modified means test is one of several schemes for reducing Social Security pay-outs.

One that’s gotten more play across the political spectrum would adopt a different cost-of-living adjustment index.

The COLA is now linked to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) — a measure based on the costs of a standardized market basket of goods and services typically purchased by households in the groups named.

Economists of diverse political leanings have suggested switching to the so-called chained (or chain-weighted) Consumer Price Index.

The co-chairs of the President’s deficit reduction commission liked this idea. So did both the concurrent Bipartisan Policy Center Task Force and the Gang of Six Congress members who later thrashed out an abortive plan to end the debt ceiling standoff.

The chained CPI attempts to reflect consumers’ behavior in response to prices as well as prices themselves — specifically the fact that people change their buying habits when prices rise. When beef prices increase, they buy less steak and more chicken, etc.

A switch to this CPI would thus slow benefits growth. But would it accurately reflect retirees’ living costs? Apparently not.

The Bureau of Labor Statistics has been maintaining an experimental CPI for elderly Americans for about 30 years now. It’s found that the index rises somewhat faster than the CPI-W, mainly because seniors spend a greater share of their budgets on health care, housing and, to a lesser extent, heating oil.

The average gap between the indexes isn’t great for any one year, but it mounts up over time. Switch to an index that rises more slowly than the CPI-W and the gap between living costs and benefits increases.

So we’ve got objections to this, objections to that. Yet everyone agrees that Social Security needs some sort of fix. And the sooner it’s made, the less drastic it will have to be.

There’s another obvious fix. Scrap the cap, as it’s commonly referred to. In other words, subject all earnings to the payroll tax rather than give a free pass to everything over a fixed amount.

The cap is adjusted annually, using yet another CPI, but nothing’s been done since 1983 to capture the increasing amount of income flowing to a relatively small number of high-earners.

As a result, the tax has become more regressive. And the Trust Fund is losing revenues that could help it stay solvent — perhaps for 75 years, the Strengthen Social Security coalition says.

Scrapping the cap alone won’t solve the problem, however.

If that’s all that’s done, then the extra revenues gained would ultimately get paid out in higher benefits because, at this point, benefits are based partly on lifetime income subject to the payroll tax.

But one could adjust the formula so that contributions above the current cap didn’t count toward benefits — or did, but only partially, as Congressman Ted Deutsch (D-FL) has proposed.

Seems to me a whole lot fairer to lift the cap than to force people in their late 60s to continue working — or fall into poverty because they can’t get work if they lose their jobs.

Also fairer than reducing benefits across-the-board when we know — or ought to — that a large majority of seniors would be hard put to pay for basic living costs, as about one in six are even now.

* A recent brief by the Economic Policy Institute addresses in detail other arguments against raising the retirement age. Heavily sourced for those who want to plunge in even further.

4 Responses to We Can Shore Up Social Security Without Harming Seniors

  1. Bingo! again, Kathryn. And, I’m so glad you pointed out the differing age expectancies between the well-off and those with low-incomes.

    My dad is nearing early retirement age, and he’ll likely be opting for it. He and my mom don’t know what they’d do without Social Security.

    He’s been a truck driver for a garment company for most of his life. He’s developed a progressive respiratory disease from some of the chemicals used on the clothing he hauls. As he noted to me in our mostly happy conversation yesterday (for Fathers’ Day): “At least I know how I’ll ‘go'”

    (He’s not one to rock the boat, so he’s barely complained to the company.)

    Diminished lung capacity is making the work tougher; and he doesn’t want it to get worse (and progress faster) by putting in another few years. Plus the stress of driving a truck on winter roads puts his blood pressure through the roof.

    Social Security has dramatically reduced the poverty seniors used to experience … see: http://speakforwe.com/do-you-want-old-age-to-be-a-sentence-to-poverty-dependence-and-misery/

    Let’s strengthen Social Security, not deny it to many of those who need it most. Unfortunately, many low-income folks will never reach the age some decision-makers would like to push it to.

  2. Kathryn Baer says:

    Thank you for this story, Michael. It’s a compelling example of why we should leave the Social Security retirement age alone. Two further thoughts:

    1. It’s not necessarily the case that bumping up the regular retirement age will also bump up the early retirement age. But it’s definitely in the bull’s eye. We see, for example, a bipartisan rallying around the Bowles-Simpson deficit reduction plan. It would link increases in the early retirement age to further increases in the regular retirement age.

    2. Your father’s story has a whole other angle—the long-standing weakness of worker health and safety regulation and enforcement in our country. It shouldn’t have been up to your father “to rock the boat.”

  3. […] our oldest anti-poverty programs — and a warning of what could happen if some of the “reforms” that are being widely promoted became […]

  4. […] as I’ve written before, would further increase the retirement age for claiming benefits. That would surely throw […]

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