Social Security turned eighty years old this week. Should retirement benefits paid by Social Security be increased? That question might seem odd, because most discussions about Social Security over the last few decades have pitted critics of the system who say that Social Security benefits must be cut (with many of these critics preferring to privatize the whole system) and those like me who have argued that the system is fine as it is (or at most that it might need to be tweaked). The conversation has not, however, generally even considered the possibility of expanding Social Security. It has always, it seems, been a discussion about “solvency” and what that means, for the system as a whole and for the future of younger Americans.
The surprising thing is, however, that the substantive debate over solvency and those related issues is over. In a Verdict column earlier this week, I discussed some of the most common falsehoods that have been leveled repeatedly against the Social Security system over the past few decades. The pro- versus anti-Social Security debate is truly odd, because there really is nothing to the arguments of people who try to scare post-Baby Boomers by talking about Ponzi schemes, or the purported miracles of private accounts, or the supposedly “empty” trust fund, and so on. That does not mean that the fear-mongerers will ever give up, but they have been reduced simply to repeating false claims with ever-intensifying certitude. (See also “denials of climate change.”)
The worst that can actually be said about Social Security as it currently stands is that, depending on what happens over the next few decades, retirement benefits might—might—end up being re-set in the future. Why do I say “re-set” rather than simply “cut”? Because if, as the latest “mid-range” (but actually pessimistic) forecast from Social Security’s trustees turns out to be true, benefits starting in 2034 would need to be reduced by about 21 percent, compared to the scheduled benefit levels. But, as I described in another Verdict column two years ago, because future benefits are forecast to increase from today’s levels, the possibly reduced benefits after a cut in 2034 (or in whatever year such a thing might happen) would be roughly the same as they are today, adjusted for inflation. Compared to today, therefore, there would be no cut. Even that outcome is avoidable in many ways, but if it were ever to happen, it would hardly be the disaster that Social Security’s opponents claim.
Even though those who attack Social Security cannot win the debate on the merits, as I noted above, they have succeeded in putting Social Security’s supporters on the defensive. Large numbers of young people, no matter their political affiliations, have been misled through constant disinformation into believing that Social Security “will not be there when we retire.” Even many Democrats in Congress, as well as the Obama Administration, have foolishly put Social Security on the table in budget negotiations, believing that when it comes to retirement benefits, there is nowhere to go but down.
In the last few years, however, there has been some pushback from the progressive wing of the Democratic Party. Former Senator Tom Harkin of Iowa issued a proposal to increase (and pay for) expanded Social Security benefits for low- and middle-income retirees, and Harkin’s project has new champions in Senators Sherrod Brown, Elizabeth Warren, and Joe Manchin, as well as many other Democrats in Congress, and it is becoming increasingly popular among progressives across the country. It is also popular with likely voters, more than three-fourths of whom have told pollsters that they support expanding Social Security.
But is it a good idea? Should Social Security’s tax and benefit structure be changed to increase benefit levels for those who are barely getting by, and to make the system more economically progressive? Are there any alternatives to doing so that would avoid the political or economic pitfalls that might make Social Security expansion problematic? Unlike the debate over cutting Social Security, which is entirely one-sided, the debate over expanding Social Security is surprisingly nuanced. Even progressives could reasonably oppose Harkin’s plan, either to stand pat with the current system or to propose an alternative plan. Although I ultimately come down in favor of those who would push for expansion, I am the first to confess that this is a very difficult set of questions.
The Need for Social Security in an Age of Retirement Insecurity
The traditional way to think about retirement security in the United States has been to describe each retiree’s “three-legged stool”—the combination of a pension plan provided by the retiree’s lifelong employer, plus government-provided Social Security benefits, plus the worker’s private savings accumulated over a lifetime. A well-planned retirement could draw from all three sources, and we generally believed that nearly every worker could thus count on enjoying a dignified retirement.
Unfortunately, the rise in inequality that took shape beginning with the Reagan years devastated two of the three legs of the stool. Private pensions went the way of the dodo bird, done in partly by increasing worker mobility and partly by deliberate government policies that allowed or even encouraged companies to supplant traditional pensions with 401(k)-style plans—when, indeed, companies chose to offer any retirement security options at all.
At the same time, workers’ wages and salaries began to stagnate, with even highly productive workers seeing little or nothing in the way of raises. This made it much more difficult to save as much money as those workers might otherwise have saved, and it certainly made it all but impossible for workers to contribute to 401(k) plans in amounts necessary even to come close to replacing traditional pensions.
The net result of all of these changes has been devastating for workers’ retirement finances. One-third of retirees now rely entirely on Social Security for their retirement income, and as more and more companies drop pension plans, that number will rise. The people who have put money into 401(k) and other saving vehicles generally have not put nearly enough money into those accounts to provide even moderate economic security. The wealthy are doing well, of course, in both their working years and afterward. Nearly everyone else, however, faces an increasingly uncertain future.
These facts certainly make it clear why no one—and certainly not Democrats—should favor proposals to reduce Social Security benefits (even indirectly, such as the White House’s flirtation with the idea of reducing cost-of-living adjustments). The average Social Security benefit is currently only $16,000 per year, so if anything, we really should be looking to increase benefits. This is anything but a lavish program.
The case for a benefit increase is, therefore, quite strong. And the leading proposal to do so is fully funded, so that we do not have to go back over all of the arguments that I discussed in my Verdict column on Tuesday. The only question is whether to fight this fight now, which requires looking at both the politics and the alternatives.
The Fraught Politics of Social Security Expansion
Even before expanding Social Security recently became thinkable in Washington, progressives worried about the inherent dangers in doing anything to open up Social Security to the legislative process. That is, even if one could imagine some good ways to change the system, the political forces lined up against Social Security would surely try to hijack any legislation in order to make the system worse overall.
This meant that even relatively uncontroversial fixes to Social Security were too dangerous to bring forward. For example, many Democrats would almost surely have by now happily lifted the annual earnings cap on labor income that is subject to the Social Security payroll tax. (I actually would not have supported that particular proposal, for reasons that are not relevant here.) But people who understand the legislative process warned that the bill that would have come out of Congress would quite possibly have included many time bombs and other attempts to undermine the Social Security system.
That strategic concern, however, was based on a situation in which liberals and progressives are on the defensive: “Hey, we agree that there is a solvency problem, and we’d like to fix it now. So here is the minimalist plan to do so. Let’s do that and nothing more.” Now, however, we have a proposal to expand benefits in a way that helps the middle and bottom of the income spectrum, including proposals to finance the increased benefits.
Therefore, the initial negotiating position is no longer merely holding the line, a position from which one can only lose ground. Instead, even after the give-and-take of legislative compromise (assuming that legislative compromise is not completely a thing of the past), the side that is backed by a large majority of people might still accomplish something positive.
Such a positive outcome is not, however, guaranteed. Even extremely popular proposed laws, such as the background checks for gun buyers that were supported by 90 percent of the population after the Newtown tragedy, can still end up going nowhere. And it is even possible that the final result will be a net move backward, not forward.
The political question, then, is not just whether the change would be popular, but whether peeling the lid off of Social Security and allowing the current Congress to root around inside would end in disaster. As I noted above, this is a difficult call. It does, however, seem unlikely that Republicans would actually end up passing highly unpopular benefit cuts, with at worst a deadlock resulting in no changes being made.
All of this is still risky, but it does seem that the upside is large, the downside is small, and the odds are in favor of progressive reform, even in a Congress dominated by Republicans. After all, the most obvious way for Republicans to derail a progressive proposal would simply be to kill it in committee, which would leave us with the status quo ante. We need progress, but at least that would not move us in the wrong direction.
Private Alternatives to Social Security Expansion
Retirement security could possibly be enhanced in other ways, beyond simply increasing Social Security benefits. For example, there are methods—most of which can be set up to be economically progressive—to allow workers to increase their savings levels for their own retirements. This would be a way to bring back at least one of the lost legs of the retirement stool.
How could this be accomplished? Ten years ago, the Bush Administration failed in its attempt to divert Social Security payroll taxes into private accounts, and its failure was well deserved. The problem was that they wanted to take two percent of the 6.2 percent of payroll taxes and divert those funds into private accounts. This set up an immediate problem with the ongoing financing of the system, as it would have reduced the system’s surpluses and then increased the drawdown from the trust fund. It was, in short, a formula to undermine the system.
Liberals, however, have made proposals over the years to encourage people to increase their savings, above and beyond their Social Security payroll tax contributions. In the Clinton years, for example, the administration floated proposals to offer matching savings plans for workers, with the government offering up to (in one plan that I recall studying) seven dollars of government benefits for every one dollar that a worker contributed to her retirement plan.
As appealing as such proposals might be, they have two distinct problems. First, it is not at all clear that people will respond even to very generous matching systems, especially because of the wage stagnation that has made it ever more difficult for families to live from paycheck to paycheck. If people do not contribute to their savings plans, there will be no accumulated savings on which to rely during their retirement years.
Second, and crucially, such a system does nothing at all for people who need money today. This is the same problem that the country faced when we created Social Security eighty years ago. Back in 1935, in the depths of the Great Depression, and with an elderly population that was experiencing crushing poverty, Social Security needed to provide benefits right away.
It is true that the first generation of retirees had not “paid in” to the system, but that was most definitely not the point under those circumstances. The system thus needed to be set up as a pay-as-you-go system, because even though one could churlishly argue that then-current retirees had not “earned it,” at least every other generation (starting with the workers in 1935) could pay their dues and receive their rewards, and the system could continue in perpetuity.
The same logic applies today. Maybe it is true that current and soon-to-be retirees did not pay in as much as they might have, but this is not their fault. And current workers who will finance the current expansion will retire under a system that has been expanded and that will be financed on a pay-as-you-go basis henceforth.
In short, even though it is possible to describe a hypothetical past in which we had set up a retirement system unlike Social Security, and even though we can further describe imaginary pasts in which we had already adjusted taxes to build up the trust fund further, the reality is that we are never in the fortunate position of facing a possible future problem that has no current concomitant need. (And if there really were such a problem that would only exist in the future, the political system would surely ignore it.) The need exists now, and the only way to deal with the problem right away is to increase Social Security benefits progressively, and to pay for it on a permanent pay-as-you-go basis.
The question of expanding Social Security benefits is a surprisingly difficult one. Even though the trends in inequality of the last 35 years make a strong case for action to support the many workers who have been struggling for their entire lives, political risks could result in the system being harmed, rather than helped, when all is said and done. Even so, the need is pronounced, and it is immediate. Although I certainly respect those who worry that the risks are too great, this seems like a very good time to try to make our greatest social program even better.