How to Fix Social Security? Make it Bigger
Many liberals, myself included, are frustrated by the mainstream conversation on entitlement spending, which holds as gospel that we need cuts to our two major retirement programs, Social Security and Medicare. But only one of them–Medicare–faces the prospect of high long-term costs. Social Security, by contrast, is a fairly stable and well-funded program, and needs slight adjustments–at most–to ensure its long-term stability.
Insofar that major changes are need, it’s on the other end. America is facing a retirement crisis. Too few people have savings, and defined contribution plans aren’t robust enough for many of the workers who have them. Americans need stable retirement income, and Social Security, as the healthiest leg of our social safety net, is well-positioned to fill the hole. To that end, the New America Foundation has proposed an “Expanded Social Security,” funded by new taxes, that would serve as a federal pension program. Here is the basic outline:
Under our proposal for Expanded Social Security, today’s Old Age and Survivors Insurance (OASI), commonly known simply as “Social Security,” would be retained, possibly with modifications, as an earnings-based defined benefit program. This would be renamed Social Security A. The expected shortfall in funding for promised benefits that is predicted to occur in the 2030s would be made up for by revenue increases, not benefit cuts.
To supplement Social Security A, we would add a universal flat benefit for all retirees eligible for OASI called “Social Security B.” Social Security B could be funded by revenues other than the payroll tax.
The goal of this is to maintain a greater share of pre-retirement for most Americans than the system currently does.
Assuming Social Security benefits are kept at current levels and there are no additional cuts to the program, Social Security B would provide a flat benefit of $11,669 per year per retiree, which would guarantee an income replacement rate of “60 percent for a medium earner based on calculations derived from Social Security Administration data.” For high income earners, it’s a replacement rate of 46 percent, and for the highest income earners, it’s 35 percent.
Because this would take the place of defined contribution plans for many workers, New America calls for a large reduction in tax preferences for 401(k)s and other private retirement accounts that mostly benefit the rich. And while this would burden the rich with higher taxes, they themselves would receive a higher-level direct public benefits than they do currently. Moreover, it would yield a much more progressive retirement system, where the federal government is spending more money on securing workers and less on subsidizing the accounts of the wealthy.
The net new cost of this plan is about 5 percent of GDP, up from the 1 to 1.5 percent in additional GDP needed to cover the current Social Security shortfall. But when looked at as a replacement program for private retirement plans—which have all but collapsed—it’s not an unreasonable cost.
Of course, there’s no way Congress considers this proposal, either now or in the near-future. The important thing, however, is that a organization with the stature and reach of New America is putting it out there. Even now, the conversation on Social Security ignores the fact that most Americans have no secure plan for retirement. It’s time for that to change.
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