Securing Social Security
Social Security Works! Why Social Security Isn’t Going Broke and How Expanding It Will Help Us All by Nancy J. Altman and Eric R. Kingston, with a Foreword by David Cay Johnston (New Press, 2015).
President Franklin D. Roosevelt signed the Social Security Act nearly 80 years ago, on August 14, 1935. Since its inception, Social Security has had both strong defenders and harsh critics. Defenders see it as a successful program that enables American workers to retire rather than work until they drop; critics see it as a government Ponzi scheme promising unsustainable entitlements.
The American public has also been of two minds regarding Social Security; they worry about the program going bankrupt, but also favor expanding it.
Social Security Works! makes a strong case for expanding Social Security. Its authors worked on the Greenspan Commission in the early 1980s (Altman was Alan Greenspan’s assistant). In this book, however, they criticize the Commission report, which led to higher Social Security taxes and lower Social Security benefits for all Americans.
The book’s great strength is its solid case that Social Security is an insurance program rather than an entitlement. With insurance, payments protect people from large future expenses. Social Security protects Americans from financial disaster as a result of becoming disabled or exhausting their savings during a long retirement. The program has been a great success in reducing poverty for the disabled and elderly in the United States, which is why it is so popular.
Social Security also provides life insurance. Initially, the system only covered workers, so when a recipient died, his or her family received no benefits. This flaw was soon corrected by adding survivors’ benefits. As a result, Social Security aids surviving spouses plus 4.4 million children today.
But the program does have problems. Retirement benefits will be 24% lower for those born after 1959 because Congress adopted the Greenspan Commission recommendations—increasing the age to receive full benefits from 65 to 67, delaying cost-of-living adjustments, and taxing benefits for most households. Future increases in Medicare premiums will add to these losses.
Another problem is the projected revenue shortfall (a bit more than 2% of annual wages subject to Social Security taxes). Beginning in the 2030s, Social Security taxes will not be able to pay all promised benefits and monies accumulated to fund the retirement of the baby boomers will be exhausted. General revenue could fund benefits; but this would transform Social Security from an insurance plan into an entitlement program, since benefits would no longer be linked to individual contributions.Entitlement programs typically have low political and popular support, which is why FDR insisted that Social Security be self-financing.
A third problem is insufficient insurance protection. To strengthen the program, Altman and Kingston want to increase monthly benefits and establish a minimum benefit so that Social Security provides at least 125% of poverty-level income for every eligible household. They also suggest adding paid parental leave to the program. Finally, they propose restoring college education benefits for the children of disabled or deceased workers, something eliminated in 1981.
Following FDR’s political instincts, Altman and Kingston suggest financing these benefits by eliminating the Social Security wage cap, investing some of the current surplus in corporate stocks (for their higher average rate of return than U.S. treasury bonds), and imposing a 10% millionaire’s tax and a 0.5% stock transfer tax, with the proceeds devoted to Social Security. For 2015, Social Security taxes only the first $118,500 of wage income (this figure increases each year with inflation). Removing the wage cap would help finance a significant expansion of the program.
While these are all reasonable extensions of Social Security, the book does have some flaws. First, it lacks historical detail. For example, it fails to explain why FDR insisted that Social Security taxes finance benefits. Altman’s The Battle for Social Security (Wiley, 2005) provides this background. It would have strengthened this book to include some of that material here. Second, it makes no case for adding paid parental leave, which enables parents to afford to take time off from work around the birth of a new child. This is a program that every developed nation has—except the United States. Third, its claim that Social Security faces no financial problem is a bit misleading. The retirement and disability portions should be fine (given the current structure of benefits and taxes), if the U.S. economy performs relatively well over the next half century (with low unemployment and greater wage equality). But the Medicare part of the program faces large projected deficits.
For me, however, the biggest problem is the uneven quality of its defense of Social Security. After clearly explaining why Social Security is not unfair to the young or to minorities, it quickly dismisses the claim that Social Security is a Ponzi scheme. This popular assertion requires a detailed rebuttal. And, strangely, Altman and Kingston assert that the annual Trustees report should convince people that the program is solvent; yet this actually generates public fear. The July 2014 report identified 2033 as the year that Social Security, as currently structured, will most likely no longer be able to pay all its obligations.
One doesn’t have to be an Einstein to realize the threat to Social Security if Republicans win the 2016 presidential election. With Republicans likely to maintain significant majorities in Congress, cutting Social Security benefits will likely be part of the political agenda in 2017 if a Republican takes the White House.
On the 80th anniversary of Social Security, a book defending the system and seeking to alleviate fears about its demise is most welcome. And in many ways Social Security Works! does a good job defending the program. But because Social Security does so much good, and because it has such a huge target on its back, it deserves a stronger defense than it gets from Altman and Kingston.