One of the hallmarks of Elizabeth Warren’s writing is compelling facts and figures, and she brings this talent to bear in a new op-ed titled “Why We Must Expand Social Security.” But, as others have pointed out, these numbers and statements that sound so convincing may or may not survive the light of day.
And so here follows my annotated guide to Warren’s argument for raising Social Security benefits, with her text interspersed with my own notes.
Every American Has the Right to Retire with Dignity—Why We Must Expand Social Security
“For a generation now, working families have been squeezed by stagnant wages and rising costs for housing, health care, and college. Even as families have cut back on expenses for things like food, clothing, furniture, and appliances, it hasn’t always been enough; many have been forced to take on more and more debt just to pay for necessities.”
As AEI’ Mark Perry devastatingly points out, today’s Americans work fewer hours to purchase more stuff than ever before. In 1958, for instance, an average American worked 136 hours to purchase black and white television. Today, we can get a flat-screen HDTV with 13 hours of work. To the degree Americans have borrowed more, it’s partly because government has encouraged them to do so (think housing) and partly to purchase more cell phones, big screen TVs, and so forth than their incomes can produce. For most Americans it’s not necessities that that are driving higher debt.
“One major consequence of these increasing pressures on working people is that the dream of a secure retirement is slowly slipping away.”
According to SSA, the typical Gen X-er will have a retirement income equal to about 110% of his average, inflation-adjusted pre-retirement earnings. The typical person born during the 1920s and 30s had a replacement rate of 109% while the baby boomers had rates of around 115%. In other words, the best research doesn’t show a huge decline in retirement security for younger Americans.
“Families haven’t been able to save as much as they used to…”
It’s true that Americans save less than they used to, but is it because they “haven’t been able to save”? Americans in 1960 saved at over twice the rate they do today, despite having incomes only one-third of today’s levels? Academic research finds that the major reason for lower personal saving is the growth of Social Security and Medicare. Warren’s solution, to grow Social Security further, has it exactly backward.
“…and only 18 percent of private-sector workers have defined benefit pensions today compared with 35 percent two decades ago.”
Yes, fewer Americans today participate in defined benefit pensions. But, as I pointed out in recent Congressional testimony, only around 1-in-10 workers who participate in a DB plan end up collecting benefits from one. If you change jobs before vesting, you receive nothing; and even if you vest, benefits for today’s mobile workers may be tiny.
“Forty-four million workers have no workplace retirement savings plan.”
Progressives often claim that “only half of private sector employees have access to workplace retirement savings.” In reality, a 2011 SSA study of tax records shows that 72% of all private sector workers are offered a retirement plan and 58% choose to participate. In larger firms, these figures are even higher.
“With less savings and weaker private retirement protection, retirees depend more than ever on the safety and reliability of Social Security.”
Not really. A 2012 SSA study showed that retirees born in the 1920s and 1930s receive around 22% of their income from Social Security benefits, but projects that when Gen X-ers retire they’ll receive around 20% of their incomes from Social Security, a small difference.
“Social Security also protects retirees’ spouses and children, disabled workers, and family members who survive the death of the family’s earner. Whenever I visit senior centers in places like Malden and Medford, I hear from retirees about how much they rely on Social Security benefits to make ends meet. Here in Middlesex County alone, 236,275 people receive Social Security benefits.
“Social Security works; no one runs out of benefits…”
Until 2016, that is, when SSA says the disability trust fund runs out and benefits are cut 20%, or 2033 when the retirement fund runs out and the system pays only 77 cents on the dollar.
“…and the guaranteed payments don’t rise and fall with the stock market. Two-thirds of seniors rely on it for the majority of their income in retirement, and for 14 million seniors, this is the safety net that keeps them out of poverty.”
This 14 million figure is highly misleading: it assumes that Social Security benefits were abolished but Social Security taxes retained, something which absolutely no one has proposed. Sure, Social Security reduces poverty, but by nothing near this amount. Moreover, we could guarantee every American retiree a poverty-level benefit, taking poverty from around 9% to around 0%, for about half of what Social Security currently spends.
“And yet, instead of taking on the retirement crisis, instead of strengthening Social Security, some in Washington are actually fighting to cut benefits.”
You’d think that the first step toward “strengthening Social Security” would be making it solvent, but very few progressives – Sen. Warren included – have been willing to put plans on the table.
“The most recent discussion about cutting benefits has focused on something called the chained CPI. Supporters of the chained CPI say that it’s a more accurate way of measuring cost of living increases for seniors. That statement is simply not true. Chained CPI falls short of the actual increases in costs that seniors face, pure and simple. Chained CPI is just a fancy way of saying ‘cut benefits.’”
Here I partially agree with Sen. Warren. Overall, the chained CPI is almost indisputably a better measure of inflation than the CPI-U. The Bureau of Labor Statistics even says so. But it may or may not be a better measure for seniors. More importantly, as Warren says, the push for the chained CPI isn’t about making benefit payments accurate or even about making Social Security solvent. It’s about producing near-term budgetary savings, which is the wrong reason to reform Social Security.
“The Bureau of Labor Statistics has developed a measure of the real impact of inflation on seniors, called the CPI-E. If we adopted CPI-E today, it would generally increase benefits for our retirees, not cut them.”
I’m pretty sure – actually, positive – that the BLS wouldn’t call say that CPI-E measures “the real impact of inflation on seniors.” The measure itself has a number of technical limitations. Moreover, health care inflation is one of the trickier areas to measure. Since health care is a larger element of seniors’ spending, potential errors in the CPI-E are exaggerated.
“This is just one example of how the national debate about Social Security is starting in the wrong place. The fact is that today, Social Security has a $2.7 trillion surplus.”
The trust fund today has a $2.7 trillion balance. According to Social Security’s trustees, though, it has a $9.6 trillion actuarial deficit. That is, to be fully fund the trust fund today should hold $12.3 trillion.
“If we do nothing, Social Security will be safe for the next 20 years and even after that will continue to pay most benefits through the end of the century.”
This is an odd argument if, as Warrant argues, Social Security benefits already aren’t generous enough, and benefits will be cut significantly when the trust funds run dry.
“With some modest adjustments, we can keep the system solvent for many more years, and could even increase benefits.”
How modest? To make Social Security sustainably solvent would demand an immediate and permanent 29% increase in Social Security revenues. If we levy that increase only on high earners, by applying the payroll tax to all earnings, it would raise the top tax rate on earned income to 55%, before we’ve tackled the larger challenges of Medicare and Medicaid.
“The tools to build a future are available to us now. We don’t start the debate by deciding who gets kicked to the curb. We are Americans.”
Cue National Anthem…
“We start the debate by figuring out how to create better efficiencies, how to make small changes that will make the system fairer, how to grow the pool of those who contribute, how to rebuild a system that every single one of us can rely on to make sure that there is a baseline in retirement that no one falls below.”
I’ve actually proposed such a system that would guarantee that no retiree or disabled worker must live in poverty, and do it at less cost than current law. The catch: middle and high earners are going to have to save more for retirement.
“Social Security isn’t the answer to all of our retirement problems. We need to find ways to tackle the financial squeeze that is crushing our families. We need to help families start saving again. We need to make sure that more workers have access to better pensions.”
Understood. But what progressives need to understand is that when you add to one element of retirement income – Social Security – people will have both less ability and less need to save in others, such as employer pensions and personal savings. As a result, Americans may become even more dependent on a Social Security program whose financial health progressives are doing very little to improve.
“But in the meantime, so long as these problems continue to exist and so long as we are in the midst of a real and growing retirement crisis — a crisis that is shaking the foundations of what was once a vibrant and secure middle class — the absolute last thing we should be doing is talking about cutting back on Social Security. The absolute last thing we should do in 2013 – at the very moment that Social Security has become the principal lifeline for millions of our seniors — is allow the program to begin to be dismantled inch by inch.
“The decisions we make about Social Security benefits are not just about math. At their core, these decisions are about our values. I believe we must honor our promises, make good on a system that millions of people paid into faithfully throughout their working years, and support the right of every person to retire with dignity and that means protecting and expanding Social Security.”
Rubber-meets-road: Social Security fails too many Americans, particularly low-income Americans. But that’s not because the Social Security system is too small: it’s already the largest program of the federal government and is underfunded by trillions of dollars. Moreover, there’s more than enough money to keep seniors out of poverty. What we have is a system that’s poorly targeted, that reduces incentives to work, save and delay retirement, and that almost surely reduces the size of our economy and the incomes received by Americans of all ages. There are many ways to fix these problems. I’ve proposed one set of ideas.
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