Excerpt from “Reforming Social Security Benefits,” Testimony Before the House Ways and Means Subcommittee on Social Security.
In this testimony, I would like to focus on the need for Social Security benefit reform regardless of the current imbalances in the system or the taxes raised to support the system.
Why? Despite Social Security’s great success, its growth in lifetime benefits over time has been decreasingly targeted at its major goals. Even while programs for children and working families are being cut, combined lifetime benefits for couples turning 65 rise by an average of about $20,000 every year, so that couples in their mid-40s today are scheduled to get about $1.4 million in lifetime benefits, of which $700,000 is in Social Security.
Social Security has morphed into a middle-age retirement system. Typical couples are receiving close to three decades of benefits. Smaller and smaller shares of Social Security benefits are being devoted to people in their last years of life.
If people were to retire for the same number of years as they did when benefits were first paid in 1940, a person would on average retire at age 76 today rather than 64. Soon close to a third of adults will be on Social Security, retiring on average for a third of their adult lives.
While Social Security did a good job reducing poverty in its early years, it has made only modest progress recently, despite spending hundreds of billions of dollars more. The program discourages work among older Americans at the very time they have become a highly underused source of human capital in the economy.
The failure to provide equal justice permeates the system. It discriminates against single heads of household, spouses with relatively equal earnings, those who bear their children before age 40, long-term workers, and many others. At the same time, private retirement policy leaves most elderly households quite vulnerable.
Unfortunately, the Social Security debate has largely proceeded on the basis of being “for the box” or “against the box.” The contents themselves deserve scrutiny.
How might one break through the stalemate and find areas of mutual agreement? While I applaud the efforts of the Simpson/Bowles Commission and the Bipartisan Policy Commission I believe we can go much further to address the problems I just raised. How? We should start with a basic set of principles and see where they lead us.
Consider. Inevitably balance will be paid for mainly through benefit cuts or tax increases on higher income individuals who have most of the resources. That debate need not derail other needed reforms. I suggest proceeding in the following order:
First, consider reforms aimed at meeting Social Security’s primary purposes:
- providing greater protections for those truly old or with limited resources;
- supporting the work and saving base that undergird the system; and
- providing more equal justice for those suffering needless discrimination in the system, like single heads of household and longer-term workers.
Some of those fixes cost money, and some raise money; we don’t have to address trust fund and distributional consequences in each and every change.
Second, further adjust minimum benefits and the rate schedule and indexing of that schedule over time to achieve final cost and distributional goals. The extent of these adjustments will also depend upon the tax rate and base structure agreed upon.
My testimony provides a fairly detailed way to engage this type of reform process. It largely follows the logic I applied to taxation when serving as the economic coordinator of the Treasury effort that led to the bipartisan-supported Tax Reform Act of 1986, and in my testimony before the Simpson/Bowles Commission.