Tuesday, June 21, 2011

Don’t Just Defend Social Security—Improve It!

At last—a progressive with an attitude! Thomas Geoghegan provides us with a tantalizing notion in his article in the New York Times: Get Radical: Raise Social Security. He says he “cringes” whenever he sees Democrats trying to build a defensive barrier around Social Security with the goal of “saving it.” He argues that retirement income from Social security is all that most people will have when they stop working, and poses that as being the nation’s biggest financial problem.

“A recent Harris poll found that 34 percent of Americans have nothing saved for retirement — not even a hundred bucks. In this lost decade, that percentage is sure to go up. At retirement the lucky few with a 401(k) typically have $98,000. As an annuity that’s about $600 a month — not exactly an upper-middle-class lifestyle. It’s too late for Congress to come up with some new savings plan — a new I.R.A. that grows hair, or something. There’s no time. We have to improve the one public pension program in place. Should we means-test it? No. I don’t care if they go out and buy bottles of Jim Beam: let our elderly have an occasional night out at a restaurant.”

And what does he believe is attainable?

“Right now Social Security pays out 39 percent of the average worker’s preretirement earnings.....we could raise that to 50 percent. We’d still be near the bottom of the league of the world’s richest countries — but at least it would be a basement with some food and air. We have elderly people living on less than $10,000 a year. Is that what Democrats want to ‘save’?”

He provides us with a path to this goal.

“What does it take to get Social Security up to half the average worker’s earnings? According to the National Academy of Social Insurance, to close the deficit and raise benefits to nearly half of average worker earnings, we would need to find an additional 5 percent of taxable payroll, or find the money elsewhere. If we lift the cap on the payroll tax without paying more benefits to those above it, that gets us 2.32 percent (or a bit less if we slightly increase benefits to the rich). Dedicating revenues from the estate tax at its 2009 levels to Social Security gets another half percent. A few other tweaks, like covering new public employees, add another 0.42 percent. The remainder can be found by raising the payroll tax by roughly 1 percentage point for both employees and employers.”

And there is also a good argument to use when people are aghast at the thought of raising taxes.

“Retirees today are shortchanged on Social Security because they have been shortchanged on wages for their entire working lives. The labor economist Richard B. Freeman points out that the hourly earnings of workers dropped by 8 percent from 1973 to 2005 while productivity shot up 55 percent or more. The United States is one of the few developed countries where workers are routinely cheated of a share in higher productivity.”

Even if one sees little possibility right now for what Geoghegan has proposed, that does not mean it is a bad proposal. The changes he suggests to improve payout are not unreasonable. Eliminating employer-supported pensions in favor of 401k accounts is not working. Social Security needs to be converted to a true national retirement plan. Employers saved a boatload of money when they made the transition away from pensions. They should be willing to cough up a bit of that for an enhanced Social Security benefit.

You cannot win an argument that you have not even begun to make. So let’s get started!

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