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From the library: Social Security Works! by Nancy J. Altman and Eric R. Kingson

From the library: Social Security Works! by Nancy J. Altman and Eric R. Kingson

Last updated on: August 16, 2016 at 9:53 am by Jane the Actuary

From the library: Social Security Works! by Nancy J. Altman and Eric R. Kingson 2016-08-16T09:53:38-06:00 Jane the Actuary

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The subtitle to the book pretty much says it all, “Why Social Security Isn’t Going Broke and How Expanding It Will Help Us All” — that is, communicates the authors’ opinions, not my own. The book is an extended argument that Social Security is doing just fine, thank you very much, and the only changes to be made are to expand the benefit levels and types and expand revenue sources. (Some of what follows is based on my notes prior to returning the book, so some details are missing.)

I’ll skip a lot of their material. Let’s start with major point of the book, their proposal, which they call the Social Security Works All Generations Plan – because they are writing as a part of an advocacy group called Social Security Works, and the plan is called the All Generations Plan, because they add in benefits for all age groups.

The plan’s benefit increases:

Increase benefits for all current and future beneficiaries by 10%, up to maximum of $150/month (which, of course, just makes the formula even more confusing)
Adopt the CPI-E rather than CPI-U (that is, an inflation measure that starts with an “elderly” basket of goods rather than generic urban wage-earner spending)
Provide a minimum benefit of 125% of poverty for all workers with 30 years of work history, at full retirement age.
Provide 12 weeks of paid family leave for birth or adoption of a child, or illness of worker or family member (I don’t have noted the precise benefit formula).
Credit up to 5 years of notional work history for caring for a child under age 6 (at, I think, an average wage for the year).
Maintain dependent benefits up to age 22 rather than 18 for children whose parents are deceased or disabled (promoted as a pro-college-attendance device).
Provide $1,000 upon birth or adoption of a child
Eliminate the Family Maximum benefit when a Social Security recipient has a disabled adult child, but that child doesn’t live at home
Provide disabled widow/er benefits even for those below age 50 or who hadn’t been married 7 years, and do not reduce the benefits as currently occurs.

How is all this to be paid for? With a series of new taxes, of course.

Eliminate taxable wage base by applying Social Security taxes to all income. (I think in their plan the highest, and smallest accrual rate continues to be applied; in other similar plans, the accrual rate is reduced even further, down to 5%.)
Add an extra 10% tax on income above $1 million, dedicated to Social Security
All wage income to be subject to Social Security, even in salary reduction plans (I’m not sure whether they’re referring to certain executive salary-deferral plans, in which income is not taxed because it’s just the promise of future income, which, if the company goes bankrupt, vanishes; or if they’re referring to taxing the value of pre-tax employer benefits like health insurance.)
Increase contribution rate from 6.2% to 7.2% on each of employers and employees.

There are two non-tax proposals:

Invest 40% of Trust Fund in equities (which means that the government would rob Peter to pay Paul, by issuing the equivalent amount of government bonds in order to get the cash to put into equity investments).
Combine Retirement and Disability Trust Funds, that is, an accounting device to avoid the problem of coming depletion of the latter fund.

Even with these new taxes, how do they justify increasing Social Security benefits? To begin with, they cite the comparatively reasonable growth of Social Security as a percent of GDP, which is projected to increase from 4.94% in 2015 to 6.08% in 2085 (graph, p. 125). That is a significant increase, but a lot more moderate than either the increase as percent of Social Security-taxable wages, or the increase in healthcare spending (Medicare and the portion of Medicaid spent on the elderly).

As to the latter issue, they simply announce that we simply need to “make” medical costs as cheap in various European countries and our problem will be solved. (Gee, why hasn’t anyone else thought of that?) Given that Medicare and Medicaid are already single-payer, oft-cited as the miracle cure to healthcare-cost woes, anyone who in the space of a paragraph or two declares this problem to be “solved” loses credibility.

And what about the very real Old Age Dependency Ratio? They discard demographic issues with the magic word “productivity” — as well as the statement that the old-age dependency ratio may be bad, but the overall dependency ratio, taking into account the under 20s and the over 65s, is still fine, based on the following table, in which the number of dependents in 2065 is still lower than in 1965:

1965 94

1980 75

1995 71

2010 67

2035 85

2065 86

(p. 171)

Never mind that retirees are a more costly sort of dependent than children — sure, children require schooling, but that’s a fair bit cheaper than living costs plus medical costs for retirees, isn’t it?

How even-handed are they? The highly partisan rhetoric is so well illustrated by Chapter 9’s title, “The Billionaires’ War Against Social Security,” that it’s not really worth pulling particular further examples.

Here’s my biggest, bottom-line complaint, which I’ll address further in a later post:

The authors want to have it both ways. They praise Social Security as an “insurance” program in which everybody earns their benefits and pays their way, similar to private insurance. But at the same time, they repeatedly use rhetoric that the wealthy need to pay their “fair” (and disproportionately larger) share in order to provide bigger benefits for everyone else.

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