Fixing Social Security

One striking example of how powerful right wing propaganda has been over the last generation in this country is that I constantly run into highly educated people who are sure that Social Security won’t exist when they retire 15 or 20 or 25 years from now.

If I’m feeling as evangelical as my namesake I’ll take the trouble to explain that even if literally nothing whatsoever is done to change the program’s funding, SS will still pay out about 82% of its scheduled benefits ten years or so from now, when the notional Social Security “trust fund” is exhausted (That money is fungible is not something that political discourse can ever acknowledge for some reason). This would decline to around 73% of benefits 70 years from now, again if nothing at all is done.

I mean that’s not great of course, but it’s completely different than the story told by the scream machine, which is that Social Security is going “bankrupt,” or it’s a “Ponzi scheme,” or whatever other lies right wingers conjure up to justify getting rid of whatever little social insurance we have in a country that is eight times richer, in per capita GDP terms, than it was when Social Security was enacted during FDR’s communistic reign of terror that destroyed Freedom ™ originally.

Here’s an amusing interview with Alicia Munnell, one of the foremost experts on the economics of the program. Ms. Munnell points out something that I wish people who want to fix SS by removing the cap on taxing earnings, which will be $176,100 in 2025, would be more aware of, which is that this fix only works if you also completely decouple the newly taxed earnings from the benefits paid out subsequently by the system. The structure of SS has always been that how much you get out of it is tied to how much you paid in, although the benefit system is progressive, meaning that the more you paid in, the less you got out of it, relatively speaking. (In other words, high earners get less return on their payroll taxes as a percentage of those taxes than low earners do. So SS taxes are regressive, but benefits are progressive).

The reason Social Security has survived is that everybody buys into it, and everybody gets something from it. You could say, “We want Bill Gates to pay the payroll tax on all his earnings up to multimillion dollars,” but then we’re not going to give anything in return. I worry that breaking that link changes the fundamental nature of the system. Raising the cap to around $300,000 captures about 90 percent of total earnings, and then you need some other changes to maintain the current benefit levels.

The idea here is that you raise the cap by a lot, retain the current structure in terms of a declining but nevertheless real connection between SS taxes and SS benefits, and tweak the system in a few other ways to make up the difference. This seems like a good approach to me, as it’s politically important to maintain Protestant Virtue in the form of the “it’s a pension for everyone” argument, as opposed to treating the program as straight income redistribution, which is forbidden by the Bible in various passages, mostly towards the back.

Munnell also makes an important point about the inadequacy of defined contribution plans in a highly mobile workforce:

The key point is that we need to make sure every worker has a way to save for retirement in the workplace. Otherwise, people don’t save. When we look at people aged 55 to 64, who are right in the middle of the income distribution, the money in their 401(k)s and I.R.A.s is close to $240,000 on a household basis. That is not enough. For people who have constant coverage, their balances really accumulate over time. But many people work for a company that has a plan and then have another job where they don’t have coverage.

I found this autobiographical detail from Ms. Munnell’s distinguished career (she’s the same age as Joe Biden, and like him is about to retire) to be both charming and encouraging:

I was not that serious a person for many years. In fact, I got married my junior year at Wellesley, and I felt like my classes were interfering with my social life. And then, somehow, at some point, I settled down and changed.

When I got my first job, somebody said, “This is a dead-end job.” And I thought, that’s fantastic, that’s just what I’m looking for. Then I went to Washington in the ’60s and worked at the Brookings Institution, where people were interested in all the things that were happening in the world. And it turned my head — I thought, oh my God, this is wonderful. This is important. I care. And so I changed.

Fixing the Social Security system is really not very difficult at all from a pure policy perspective, and if we had a reasonably functional political system, and a semi-decent culture in regard to questions of wealth and poverty, it would be quite easy to do. But that’s two missing can openers right there, so it’s going to be a big struggle over the next decade.