Fixing Social Security
According to a recent report, after 2033 payroll taxes will pay only three quarters of scheduled social security benefits. Reserves set aside over the past 80 years will be gone.
Social security provides at least 75% of the total household income for two thirds of retirees. Imagine what it would be like for most retirees to be living in poverty.
Policy and congressional elites in Washington are talking about two ‘fixes:’ Increasing the age of full retirement to 70 and means testing so the wealthy get lower or even no benefits. Both are problematic.
Raising the age of full retirement is no problem for people who are rich or, like me, healthy, have good employer-paid health insurance, want to keep working, and have skills that fit part-time employment schemes.
But what about those who aren’t healthy enough to work, whose work is more dangerous or physically demanding, or can’t find work when they’re older?
If the full retirement age were raised to 70, those retiring earlier would be financially significantly penalized. They’d have to wait up to 8 years before receiving Medicare. And most would be unable to afford private health insurance.
Means testing for social security benefits would be an even worse fix for the problem. It would require another government bureaucracy, with the usual opportunities for conflicts between individuals and their government. The wealthy wouldn’t notice any loss of social security income.
Means testing would change social security, a program where all workers contribute to providing a dignified, secure retirement for everyone, into a form of welfare. It would join pre-school programs, low-income housing vouchers, and unemployment benefits on the list to be trimmed as needed.
In other words, social security would be another barrier between rich and poor. We know the disdain with which the elites in the world’s most economically unequal advanced society views welfare programs.
So, how to fix social security? I got an e-mail from my friend, Gene, who said he’s starting “The Problem Solving Party.” It’s open to all who want to fix long-term problems.
The only requirement is a willingness to sit down together, be flexible, and compromise. I presume that wouldn’t appeal to policy and political elites whose primary interest is advancing their own agendas.
The looming social security crisis would be a good one for Gene’s party. They would note that the nonpartisan Congressional Budget Office said eliminating the social security tax exemption on wages over $113,700 per year would fix the problem.
All we’d need is to have employers and employees pay the same payroll taxes on every dollar of earned income.
That elegantly simple solution has strong support. Three-quarters of Republicans and 88% of Democrats agree that it is critical to preserve Social Security, even if it means increasing taxes. Tax rates wouldn’t change; tax revenue would increase.
There would still be things to discuss and compromise on. Would the ratio of employers’ and employees’ contributions stay at 50:50? Or as earnings increase, would some of the employers’ costs be offset by higher payroll tax rates on employees? How would changes be phased in?
When they are young, nobody can know how or when their income and employment circumstances might change. The simplest and fairest way to maintain the system’s integrity is to have everyone contribute an equal portion of all their earnings towards retirement security.
The elites ruminate over the complexity of major long term problems like social security. Then they paralyze themselves and do nothing.
By being willing to sit down, be flexible and compromise, Gene’s party could help.
Jim Waun
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