Don't cut Social Security, expand it
by digby
Josh Barro, a conservative, explains the utter wrongness of the Chained CPI better than anyone else I've read. I urge you to read the whole thing. Here's an excerpt:
Back in December, I wrote that applying chained CPI to Social Security is the wrong solution to our budget problems: It’s just a way of dressing up a cut to retirement benefits at a time when retirement insecurity is rising. Despite its problems, Social Security is the best-functioning component of the U.S.'s retirement-saving system. Instead of cutting, the federal government should be expanding its role in retirement saving.
I'm always struck when people talk about Social Security as "just" an insurance program, when it's in fact the most important retirement-saving vehicle. The chart below, adapted from a 2012 paper by Boston College Professor Alicia Munnell, shows the financial situation of a "typical" pre-retirement household. These are the mean holdings of a household in the middle net worth decile among households headed by people age 55 to 64.
Social Security is dominant: Forty-nine percent of this household’s wealth is in the form of the expectation of drawing government benefits in the future. The next largest slice, 23 percent, is accrued benefits in traditional pension plans. But that figure is skewed by a handful of workers who are lucky enough to participate in such plans; as of 2010, only 14 percent of U.S. workers were earning benefits in such a plan.
Private saving for retirement is woeful. This typical near-retirement household has just $42,000 in retirement accounts and $18,300 in other financial assets. For most Americans, Social Security isn't augmenting private saving; private saving is (just barely) augmenting Social Security.
And as both home equity and stocks were battered over the last few years, retirement insecurity worsened. Munnell and her colleagues estimate that as of 2010, 53 percent of American households were on track to be more than 10 percent below the amount of assets they would need at age 65 to maintain their standard of living in retirement, up from 44 percent in 2007.
No entity is better positioned to fix this problem than the federal government. Employers won’t do it: They have been dropping their defined-benefit pension plans for good reasons. And with Americans working for an increasing number of employers over the course of a career, such plans become ever more inappropriate.
Individuals won’t do it: Tax advantages of retirement-saving accounts don't seem to induce people to save enough on their own. And when people do use individual retirement accounts and 401(k) accounts, they're often hit by high fees and bad investment choices.
State and local governments won’t do it, either: They're already under severe fiscal pressure, particularly due to rising health costs. Unlike the federal government, their obligation to approximately balance their budgets annually makes them unsuited to providing retirement security. Part of the way a government can shoulder the economic risks of retirement is by making deficit-financed payments when the economy is weak. For this reason, states and localities are right to work on reining in the cost of their employee pension plans, rather than expanding them.
Unlike every other player, the federal government is positioned to help. If we made it a priority, we could expand the retirement benefits that the federal government provides to Americans, in any of three ways.
He offers up three solutions, about which your mileage may vary. I think raising the cap is the most logical, but he has some other ideas as well. But what's most important is that he lines out just how immoral it is to cut Social Security at a time when it's going to make up a larger portion of retirees income and is already inadequate.
And he's right in saying it's a matter of priorities. This remains an extremely wealthy country and there is simply no excuse for making our elderly more impoverished. Taxes are still at historic lows and the nation has a borrowing capability like no other. To focus on this, particularly at this time, is simply immoral. Millions of people will live lives that are less dignified, less healthy and less comfortable in their old age than they need to. There is no good reason to do this.
