Why we shouldn’t expand So­cial Se­cu­rity

The Washington Post - - CAPITAL BUSINESS - ROBERT J. SAMUELSON

One of the great chal­lenges of our time is to pre­vent So­cial Se­cu­rity and other pro­grams for the el­derly from tak­ing over the na­tional gov­ern­ment. It may al­ready be too late. Re­cently, the Con­gres­sional Bud­get Of­fice re­ported that fed­eral spend­ing on the 65-plus pop­u­la­tion amounts to 40 per­cent of non-in­ter­est out­lays, up from 35 per­cent in 2005. By 2029, the CBO projects it to be 50 per­cent.

Here is how the CBO de­scribes the out­look:

“Over the next decade, as mem­bers of the baby-boom gen­er­a­tion age and life ex­pectancy in­creases, the num­ber of peo­ple age 65 or older is ex­pected to con­tinue to rise — by about one-third, from 16 per­cent of the pop­u­la­tion in 2018 to 20 per­cent in 2029. . . . Fed­eral spend­ing for older peo­ple is an­tic­i­pated to . . . [take] up a greater share of fed­eral re­sources.”

By the CBO’s math, two-thirds of the pro­jected growth in fed­eral spend­ing over the next decade, af­ter ad­just­ment for in­fla­tion, will stem from pro­grams for the el­derly — mostly So­cial Se­cu­rity and Medi­care but also long-term nurs­inghome care un­der Med­i­caid and civil-ser­vice re­tire­ment.

Against that back­drop, rais­ing So­cial Se­cu­rity ben­e­fits would seem a non­starter. Guess again.

Con­gres­sional Democrats have pro­posed leg­is­la­tion to in­crease spend­ing. There are four main pro­vi­sions: (1) an across-the-board ben­e­fit in­crease of about 2 per­cent; (2) a cost-of-liv­ing ad­just­ment that would raise fu­ture ben­e­fits faster; (3) a larger min­i­mum ben­e­fit for the poor; and (4) tax cuts (So­cial Se­cu­rity ben­e­fits are taxed if non-So­cial Se­cu­rity in­come ex­ceeds $25,000 for sin­gles and $32,000 for cou­ples; these thresh­olds would be raised to $50,000 and $100,000.).

Rep. John B. Lar­son (D-Conn.), a main spon­sor of the bill, be­lieves the United States faces a re­tire­ment cri­sis.

Ac­tu­ally, we don’t, as re­cent tes­ti­mony be­fore the House Ways and Means Com­mit­tee by An­drew G. Biggs of the Amer­i­can En­ter­prise In­sti­tute makes clear. (Biggs was deputy com­mis­sioner of the So­cial Se­cu­rity Ad­min­is­tra­tion in 2007 and 2008.)

The most con­vinc­ing ev­i­dence is what re­tirees say about them­selves, Biggs notes. Ac­cord­ing to Gallup, more than three-quar­ters of re­tirees (78 per­cent) say they “have enough money to live com­fort­ably.” The Fed­eral Re­serve’s Sur­vey of Con­sumer Fi­nances finds that 75 per­cent of Amer­i­cans 65 and over have “at least enough to main­tain [their] stan­dard of liv­ing.” That is up from 61 per­cent in 1992.

The polling or­ga­ni­za­tion NORC at the Uni­ver­sity of Chicago reg­u­larly asks re­spon­dents about their fi­nan­cial sit­u­a­tion. “In all re­cent years,” says NORC, “those 65-plus have shown the least fi­nan­cial dis­sat­is­fac­tion.”

In 2014, 45 per­cent of 65-plus re­spon­dents were “sat­is­fied” with their fi­nances and 37 per­cent were “more or less sat­is­fied.” Only 18 per­cent were “not at all sat­is­fied.” By con­trast, only 21 per­cent of the 35-to-49 group were sat­is­fied, 50 per­cent were “more or less sat­is­fied,” and 30 per­cent were “not at all sat­is­fied.”

True, most peo­ple’s in­comes drop when they re­tire. But their expenses also typ­i­cally drop. The stereo­type of most old peo­ple tum­bling into poverty is wrong, in part be­cause their in­comes are sig­nif­i­cantly un­der­re­ported. An im­por­tant re­cent pa­per by econ­o­mists Adam Bee of the Cen­sus Bureau and Joshua Mitchell of Welch Con­sult­ing es­ti­mated that, af­ter cor­rect­ing for the miss­ing money, the me­dian in­come of el­derly house­holds in 2012 jumped al­most a third, from $33,800 to $44,400. The poverty rate among the el­derly, al­ready much lower than in the gen­eral pop­u­la­tion, also fell by a quar­ter. The main sources of un­der­re­port­ing in­volve in­come from IRAs, 401(k) plans and tra­di­tional pen­sions.

There are roughly 50 mil­lion Amer­i­cans 65 and over. In a pop­u­la­tion so large, there are bound to be some Amer­i­cans who are in dire straits be­cause they don’t have re­tire­ment sav­ings or have re­tire­ment plans that are trag­i­cally un­der­funded. There may be tar­geted reme­dies that can help them. But the no­tion that there is per­va­sive poverty among older Amer­i­cans is a po­lit­i­cal fan­tasy that is used to jus­tify spend­ing that, as a so­ci­ety, we can­not af­ford.

One way that the Democrats would pay for their new ben­e­fit is by im­pos­ing pay­roll taxes on wages above $400,000. An­other way is to in­crease grad­u­ally the pay­roll tax on all work­ers. By 2050, the added taxes would equal an es­ti­mated 4.9 per­cent of cur­rent law pay­roll. Bud­get deficits might, it seems, be con­tained. Isn’t that re­spon­si­ble? Well, no. Un­der ex­ist­ing poli­cies, the CBO projects deficits of nearly $12 tril­lion over a decade. Higher taxes are needed to trim these deficits. That will be harder if they’re com­mit­ted to pay­ing more for So­cial Se­cu­rity.

It is con­ven­tional wis­dom in Wash­ing­ton that the Repub­li­can ad­dic­tion to tax cuts is mainly re­spon­si­ble for the huge bud­get deficits. This is, at best, a halftruth. Democrats are equally re­spon­si­ble, be­cause they refuse to come to grips with the mas­sive spend­ing on re­tire­ment and health care. Ex­pand­ing So­cial Se­cu­rity is mostly a po­lit­i­cal bribe that comes at the ex­pense of other pro­grams and work­ers, who must pay the re­sult­ing taxes.

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