What About Increased Social Security Benefits?
We never talk about increasing Social Security benefits, but we should.
Among the world's top 20 nations in retirement security--the amount given to seniors in the form of public pensions--where does the United States rank, do you think?
Yep, pretty bad--we're 19th. Right behind Slovakia. The people who go around measuring such things measure something called the gross replacement rate---simply, how much of a person's income is covered by the pension system. The EU average is 61.6 percent. The OECD average is 57.3 percent. The United States number is 39.4 percent.
In this context, talking about cutting Social Security seems odd, no? But of course that is all we talk about. Almost never in the mainstream press would you see it mentioned that in fact the United States lags behind nearly every other developed country in terms of the size and generosity of its public pensions.
Ideally, Social Security should be increased, not decreased. An interesting new paper from the New America Foundation makes the case for a new two-part Social Security system, the first part paid for in the traditional way (the payroll tax), and the second part paid out of general revenue. The second part would be not income-based but a flat fee to all retirees, and it would thus be progressive (as it would increase lower-income people's take-home by a greater percentage). The paper's authors, who include Mike Lind, suggest a possible value-added tax as a way to raise the revenue.
I was a bit disappointed that the paper didn't get into raising the current payroll tax cap, which I'm big on as you know, but one paper can't do everything. The point is..well, the authors say it just fine:
The conventional wisdom about Social Security is profoundly misguided. According to today’s mistaken consensus, the U.S. as a society cannot afford to allocate the money to pay for the present level of Social Security benefits for retirees in future generations. The solution, it is widely argued, is to cut benefits – either directly by means-testing or indirectly by raising the retirement age or allowing inflation to erode their real value over time. In this narrative, tax-favored private savings vehicles like 401(k)s and IRAs should be expanded in order to compensate for the allegedly necessary cuts in Social Security.
This consensus is not only misconceived in its diagnosis but also mistaken in its prescriptions and potentially disastrous in its consequences. Retirement security is often thought of as three-legged “stool” consisting of Social Security, employer retirement plans, and private savings. Social Security has been far more stable and successful than the other two legs of the stool. The reliance on these other legs of the system has resulted in a retirement security crisis for most Americans, shifting costs and risks onto individuals, even as the benefits of these programs go overwhelmingly to upper-income earners. Yet the current debate is arbitrarily restricted to the chief public component of the American retirement system, Social Security.
It's going to be awfully hard for an argument like this to get any traction (although it would certainly be popular), but it's nice to see someone trying to stand up and yell stop.