For many years there has been one overwhelming rule for people who
wanted to be considered serious inside the Beltway. It was this: You
must declare your willingness to cut Social Security in the name of
“entitlement reform.” It wasn’t really about the numbers, which never
supported the notion that Social Security faced an acute crisis. It was
instead a sort of declaration of identity, a way to show that you were
an establishment guy, willing to impose pain (on other people, as usual)
in the name of fiscal responsibility.
But a funny thing has happened in the past year or so. Suddenly, we’re
hearing open discussion of the idea that Social Security should be
expanded, not cut. Talk of Social Security expansion has even reached
the Senate, with Tom Harkin
introducing legislation that would increase benefits. A few days ago Senator Elizabeth Warren gave a stirring floor
speech making the case for expanded benefits.
Where is this coming from? One answer is that the fiscal scolds driving
the cut-Social-Security orthodoxy have, deservedly, lost a lot of
credibility over the past few years. (Giving the ludicrous Paul Ryan an
award
for fiscal responsibility? And where’s my debt crisis?) Beyond that,
America’s overall retirement system is in big trouble. There’s just one
part of that system that’s working well: Social Security. And this
suggests that we should make that program stronger, not weaker.
Before I get there, however, let me briefly take on two bad arguments
for cutting Social Security that you still hear a lot.
One is that we should raise the
retirement age
— currently 66, and scheduled to rise to 67 — because people are living
longer. This sounds plausible until you look at exactly who is living
longer. The rise in life expectancy, it turns out, is overwhelmingly a
story about affluent, well-educated Americans. Those with
lower incomes
and less education have, at best, seen hardly any rise in life
expectancy at age 65; in fact, those with less education have seen their
life expectancy decline.
So this common argument amounts, in effect, to the notion that we can’t
let janitors retire because lawyers are living longer. And lower-income
Americans, in case you haven’t noticed, are the people who need Social
Security most.
The other argument is that seniors are doing just fine. Hey, their poverty rate is only 9 percent.
There are two big problems here. First, there are well-known flaws with
the official poverty measure, and these flaws almost surely lead to
serious understatement of elderly poverty. In an attempt to provide a
more realistic picture, the Census Bureau now regularly releases a
supplemental measure that most experts consider superior — and
this measure puts senior poverty at 14.8 percent, close to the rate for younger adults.
Furthermore, the elderly poverty rate is highly likely to rise sharply
in the future, as the failure of America’s private pension system takes
its toll.
When you look at today’s older Americans, you are in large part looking
at the legacy of an economy that is no more. Many workers used to have
defined-benefit retirement plans, plans in which their employers
guaranteed a steady income after retirement. And a fair number of
seniors (like my father, until he passed away a few months ago) are
still collecting benefits from such plans.
Today, however, workers who have any retirement plan at all generally
have defined-contribution plans — basically, 401(k)’s — in which
employers put money into a tax-sheltered account that’s supposed to end
up big enough to retire on. The trouble is that at this point it’s clear
that the
shift to 401(k)’s
was a gigantic failure. Employers took advantage of the switch to
surreptitiously cut benefits; investment returns have been far lower
than workers were told to expect; and, to be fair, many people haven’t
managed their money wisely.
As a result, we’re looking at a looming retirement crisis, with tens of
millions of Americans facing a sharp decline in living standards at the
end of their working lives. For many, the only thing protecting them
from abject penury will be Social Security. Aren’t you glad we didn’t
privatize the program?
So there’s a strong case for expanding, not contracting, Social
Security. Yes, this would cost money, and it would require additional
taxes — a suggestion that will horrify the fiscal scolds, who have been
insisting that if we raise taxes at all, the proceeds must go to deficit
reduction, not to making our lives better. But the fiscal scolds have
been wrong about everything, and it’s time to start thinking outside
their box.
Realistically, Social Security expansion won’t happen anytime soon. But
it’s an idea that deserves to be on the table — and it’s a very good
sign that it finally is.
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