By Dean Baker, co-founder of the Center for Economic and Policy Research, where he is a senior economist. He is the author of several books, including Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. His blog, Beat the Press, provides commentary on economic reporting. Produced by Economy for All, a project of the Independent Media Institute
The Social Security 2100 Act proposed by Connecticut Representative John Larson is getting closer to being passed by the House of Representatives. It now has more than 200 co-sponsors. If it were to be approved and become law, it would both improve the program’s benefit structure and its financial picture.
The biggest item on the benefit side is that it guarantees a benefit of at least 125 percent of the poverty level for anyone who has worked for at least 30 years. The logic here is straightforward; we should be able to ensure that anyone who has put in a full lifetime of work will not be in poverty in their retirement years.
The second big change on the benefit side is that it changes the cost-of-living formula for adjusting benefits by tying it to an index of consumption items purchased by the elderly rather than the overall Consumer Price Index. The inflation adjustment for Social Security benefits has long been a major issue, with many politicians wanting to change the formula to reduce benefits.
Updating the cost-of-living formula does not necessarily raise or lower benefits. It is simply an effort to make the indexation reflect the changes in the actual cost of living seen by the elderly. We know consumption patterns of senior citizens differ substantially from the population as a whole.
For example, they consume more health care and fewer new cars. This difference in consumption patterns could mean that their cost of living increases more or less than the rest of the population, but if we had an index geared to the consumption patterns of the elderly, at least we know it would be accurate.
The third feature on benefits is a change in the formula that will increase average benefits for a bit less than $400 a year. This has provoked some opposition since this increase will go to not just lower-income seniors, but also middle-class and relatively affluent seniors.
Opponents of hiking benefits argue that typical seniors are actually doing quite well. New research from the Census Bureau, based on tax filings, found that seniors were actually doing somewhat better than data from surveys indicated.
While this was good news, there is an important qualification to this finding. By far the main reason that income for seniors was higher than previously reported is that the survey data missed a lot of income from traditional defined benefit pensions. In other words, the Census study didn’t find seniors had hundreds of thousands in savings that were not being picked up in the surveys; the story was defined benefit pensions.
This matters because we know that traditional defined benefit pensions are rapidly disappearing. This means that the picture of middle-class seniors retiring with little other than their Social Security to support them still looks right. The average benefit this year is just over $17,600, certainly not enough to maintain a middle-class lifestyle. For this reason, the modest benefit increase proposed by Larson is very reasonable.
Larson proposes to cover this increase, as well as the projected Social Security shortfall, by having a gradual increase in the payroll tax and applying the tax to very high-income workers. On the latter point, the income subject to the payroll tax is currently capped at just under $133,000. This means that someone earning millions of dollars each year would pay no more in Social Security taxes than someone earning $132,900. Larson’s bill would make wages over $400,000 subject to the tax.
His other change is an increase in the payroll tax of 0.1 percentage point annually, split between workers and employers. This increase would continue for 24 years, for a total increase of 1.2 percentage points on both the worker and the employer.
While this is a middle tax increase, it is much smaller than increases we saw in the decades of the 1950s, 1960s, 1970s, and 1980s. More importantly, if we can sustain decent wage growth, it is a tax that should be easy to bear.
After adjusting for prices, wages have risen 1.5 percent annually over the last five years. If we can continue this pace of wage growth, the Larson bill would take back much less than 10 percent of the pay increase in taxes. Of course, wage growth may not continue, but then our focus should be on getting decent wage growth, not blocking revenue needed for Social Security.
In short, this is a well-considered bill that would accomplish good for current and future retirees. Congress should move on it.
One thing not mentioned in Baker’s synopsis of the bill is whether it raises the current exemption level of $750 for retirees subject to debt collection. Currently, retirees under collection for student loans and other debts receive only $750/month that’s exempt from collection. At some point, I believe Warren and Brown had proposed raising that exempt amount to $1,000/month. If raising the exemption is not part of the reforms Baker describes, those subject to debt collection will not benefit from these changes.
If giving the seniors a better or more reasonable living standard in retirement then two other considerations should be brought. They are a local and regional cost of living differences and tiered cost of living evaluations by age groupings.
On local or regional cost if you don’t consider this it tends to drive seniors to less expensive areas once they retire.
On the use of age groupings as seniors get older they become less mobile so they may go to restaurants and movies less frequently or not at all.Some seniors can drive safely up to the age of 80 and sometimes beyond. Do you include the rise of automobile prices? You don’t want that cost of living to preclude living an active and access free and nonrestrictive environment because of an impoverished retirement benefit level.The active senior . in retirement, especially with better health knowledge, even up to 80 and beyond, should have his evaluation of consumption use based on the use of a fifty year old and modified by the needs of a senior. Average needs of the 62-70; 71 -80; and above 80 may be very different and those differences should be reflected and not placed into one big pot and averaged.
Finally if medicare for all is enacted medical and pharmaceutical costs will disappear or be dramatically reduced. Better care and less worry should extend expected life spans and improve the quality of life . How will your cost of living formulas reflect these patterns, should they emerge.
i take issue with SS benefits being contingent on “work”.
meaning a “job”.
this leaves out housewives and househusbands, of course(housespouses?)…but it also leaves out disabled people who live in insane and hateful places like texas, where it’s incredibly difficult to be officially recognised as “disabled”>…by the whim of officialdom, i’ve not been “disabled” for more than a year…should i celebrate?
again, my retirement plan is permaculture on a working farm…and i feel lucky to have that.
I fell through the large cracks in the disability system…almost 7 years of pain and disbelief and accusations of fraud and evil. what i’ve learned since, is that if somebody hasn’t gone through it, they are unlikely to be aware…or believe…how crappy it is.
i don’t expect to be eligible for social security in 12 years.
I agree with the premise of decoupling old age and disability benefits from earned income. Lots of people perform arduous and necessary work that they don’t get a W2 for.
Warren’s plan is a step in the right direction on that front. It provides for deemed quarters of coverage for people who stay at home to care for a child.
Also someone needs to close an tag up there at the top of this post..
i worked(at actual jobs) for almost 30 years(jobs without bennies, i should point out)…then the pain became too much.
so for 6.5 years, i tried to access healthcare to replace the dead hip(done) and the mangled ankle(just deal with it, i guess), etc.
during that time, my Social Security Credits withered away, because i wasn’t working(because i was disabled).
this was news to me…at the end of those years, i was no longer eligible for Disability.
as if i had never worked at all.
luckily, SSI caught me in it’s tattered net(to my surprise, since i don’t remember applying for ssi), i got medicaid(after a bunch of nonsense about my platinum encrusted trailerhouse in the pasture), and got my hip.
it’s been 12 years since i’ve had a job besides odd, under the table stuff, and subsistence farming and black market produce
due to the nature of my disability, i can’t promise a boss i’ll be fit for work tomorrow(especially in winter…winter hurts)…and despite wracking my brain for a dozen years, i can identify no job out here that i can apply for in good conscience.(cue:”just move”,lol)
so i can’t obtain any more credits for SS.
this feels like a rather large and intentional crack in the system.
@Amfortas the hippie
November 9, 2019 at 8:59 am
Your application for SSI was the automatic result of being ineligible for SS Disability Benefits. It was created for people like you who get disabled but don’t have adequate Social Security credits. It’s administered by SSA even though the benefits do not come out of the Social Security “trust funds”, but from the General Fund instead.
Also, in response to your initial comment above, while your disability credits may have disappeared, the same rules do not apply for retirement benefits. If you have at least 40 quarters of contributions to Social Security, you should receive retirement benefits based on that work history.
for this, especially: “..while your disability credits may have disappeared, the same rules do not apply for retirement benefits”
it’s hard to get a simple answer about this, for some reason.
i’m certain such info is available on the website, but damned if i’ve been able to locate a yes/no answer(this applies to a bunch of things like this…especially poor people stuff: from foodstamps to medicaid clawbacks)
i applied and went through the whole disability process 3 and a half times before they told me i was ineligible(only got to a TV judge once, though*)…and the entire experience radicalised me. i’ve been an evangelist for democratic socialism and universal healthcare, in rural texas, ever since.
the opacity, the means testing and the default assumption of fraud were the most maddening….and the fog-bound indications of purposeful crapification, over decades, too.
(* as an example of the crapification/cruelty: that judge on the big screen TV was on the second floor of the federal courthouse, 100 miles away, behind a security cordon, and with a nonworking elevator, and 6 chairs in the waiting area(for 50 would be disabled folks)—-for disability “hearings”, where one could expect a bunch of people who might have difficulty with stairs and standing. I was told that there might be a job i could physically do somewhere in america(the virgin islands, perhaps?), and was told to look into “cutter/paster”, which i had to look up(hardly exists any more). the entire exercise was demeaning and callous and wholly uncaring. we can do much better)
The Motley Fool website has a lot of useful info on social security. A search for “social security” pulls up literally thousands of articles.
I’m no expert on finance or social security, but the limited number of articles I’ve read on the site seem informative and straightforward. Maybe you’ll find something useful there.
Yes, the retirement benefits are not subject to the same machinations which befall those unfortunate enough to be disabled. However, this does not belie the fact that the younger a person is when disabled, the less money they will always have with no recourse to stave off poverty and the horrors of homelessness. The system still judges harshly those who, through no fault of their own, are unable to participate in the world of capitalism.
I’m more concerned about the millions of young people who can’t find full time employment, and aren’t accruing social security credits as fast as we used to when the economy was healthier . . . many people have forgotten that’s how the system works, and that there are cracks in the foundation.
And those young people will still be taxed pretty heavily on whatever work they do scrape by on, to pay for our seniors, exacerbating the generational divide.
The Warren proposal sounds geared toward Warren voters . . . quelle surprise!
This is where Universal Basic Income is the solution, for seniors who didn’t formally work much. Something like this:
In addition to regular Social Security (a la Dean’s preferred plan), pay to seniors UBI of $12000 per year (indexed to inflation). This will be taxable as follows:
If one has other income, including Soc. Sec., of less than 25,000, tax back none of the UBI. For every X thousand dollars of other income above 25000, tax back 2X% of the UBI.
For example, if someone had 40,000 other income, 40000 – 25000 = 15(000), and one would tax back 2(15) = 30% of the ubi, i.e., tax back 3600, leaving 8400 net UBI for the person, on top of their 40,000.
The wealthier the person, the more UBI will be taxed back, but anyone getting under 25K other income will keep the full UBI of 12K. Above numbers are just off the top of my head, can of course be fine-tuned. General scheme seems fair to me, though…
Universal Basic Income is not necessary. Canada pays Old Age Security (OAS) to everyone aged 65 and over regardless of work history. It is augmented by the Guaranteed Income Supplement (GIS) for seniors whose income is very low. If you are a senior with no other income than these two programs you’ll receive about $18,500 yearly. It sounds like A.T Hippie would be eligible for this.
If your income is above $18,500 you no longer receive GIS. Residency requirements apply as do clawbacks based on income. For instance the full OAS is paid to those who have lived 40 years in Canada altho those having lived a minimum of 10 years get 10/40 of the full amount. OAS is clawed back for those whose income is currently above $76,000 at a rate of 20 cents for each dollar above the threshold.
Congress will soon approve a military program budgeted for billions, but we all know will cost trillions.
They plan “to cover this” by passing a law, no discussion of the deficit nor tax increases “needed” for “funding” will be necessary.
“MMT for thee, not for me”
Amen! Warren Mosler says eliminate the payroll tax altogether.
The “Bold Plan” is based on the myth that the federal government is limited in its ability to fund Social Security.
The truth: FICA could (and should) be eliminated, while Social Security benefits could and should be increased significantly. Suggestion: Learn Monetary Sovereignty
We only have one pile of money so acting like one pile is in trouble is just Fake News from the economic/political/media community.
Wow, tough crowd… you can’t unsee MMT