Real action on Social Security
By David Brown
President Obama revisited Social Security in a speech earlier this month. Benefits ought to be expanded, he said. By how much, for whom, when, and along with which other reforms, if any, he did not say.
There’s no question that the idea of raising benefits has wide support. Aside from the fact that numerous Democratic and bipartisan plans have proposed benefit increases for the most vulnerable seniors, some proposals from those on the left have gone further. This camp includes Senator Bernie Sanders, whose Social Security bill gives five times more in expanded benefits to the wealthiest fifth of seniors than to the poorest fifth.
President Obama’s throwaway line, and the spin and posturing that followed, will have no effect on how the Social Security solvency crisis ultimately gets resolved. But another development this month could have a tremendous effect.
The development was the release of a full-fledged Social Security solvency plan, signed on to by 18 of the most respected retirement policy experts in the United States. The plan is part of the Bipartisan Policy Center’s (BPC) report, “Securing Our Financial Future,” a sweeping set of retirement policy proposals, of which Social Security is just one component. And it’s the Social Security news everyone should be talking about.
The BPC commission report is praiseworthy for several reasons. First is for who created it. The commission was made up of 19 experts, an equal number who are left- and right-leaning, some former lawmakers, some from academia, some from organized labor, and some from the financial sector. A remarkable 18 of 19 signed the recommendations.
Second is for what it would achieve. As the trustees reported this week, Social Security trust funds stand unable to pay out promised benefits starting in 2034; that means all beneficiaries will see an automatic 21% cut in benefits that year, unless Congress acts. Under the BPC plan, the trust fund remains solvent for 75 years — the timeframe actuaries traditionally target — and is sustained beyond that period as well.
The BPC plan also helps lower-income Americans (and widows and widowers) to a degree far greater than alternative Social Security packages, including the Sanders plan. By strengthening the Social Security minimum benefit, and by making the benefits formula more progressive, the commission would increase the average benefit for the bottom quintile by 60%, relative to what Social Security is actually able to pay right now.
The BPC commission was able to achieve these two critical objectives, sustainable solvency and major help for the lowest earners, because it made the tough, necessary trade-offs that the extremes of each party are so prone to avoid. The limit on the payroll tax cap rises from $118,500 to $195,000 by 2020. The payroll tax rate rises by 0.5 percentage points, for both employees and employers, over 10 years. Upper-income retirees would see a reduction in benefits relative to what is paid out now (but an increase relative to what’s actually payable after 2034). Cost-of-living adjustments are made slightly less generous. And the normal retirement age — but not the early retirement age — is allowed to gradually rise along with life expectancy.
But the commission didn’t just tackle Social Security. A whole suite of other policies would require and incentivize companies to do more to help their workers save more. So the net effect of the proposals is greater retirement preparedness across the income spectrum.
Anyone serious about fixing Social Security and improving retirement security should be talking about the BPC commission. Its work reflects two-plus years of careful research and tough negotiations between Democrats and Republicans. Ultimately, a bipartisan agreement under divided government is the way Social Security and broader retirement security are going to be fixed. So the BPC plan deserves to — and likely will — become the starting point for the next bipartisan Congressional effort to tackle this issue.
Many will have ideas on how they’d improve upon the plan. At Third Way, for example, we have ideas on how to strengthen Social Security for future generations; how workers can increase participation in and contributions to individual retirement accounts; and how to incentivize savings with middle-class tax cuts. Others will have their own additions or subtractions. But all should recognize that progress requires give-and-take from both sides, and that partisan orthodoxies will only serve as a fleeting distraction.