I’m on record saying Social Security is the last place in the federal government we should look for cuts. It’s a lean, efficient program that, if anything, is too spartan. In 2009, the average monthly benefit was slightly more than $1,000 — hardly lavish. That makes it one of the stingiest national-pension programs in the developed world, actually. And once we finish phasing in the cuts passed in the ’80s, it’ll only replace about 31 percent of the average beneficiary’s income. In a time of underfunded 401(k)s and high unemployment, that’s just not enough for many retirees. Saying Social Security is too generous is like saying a Mini Cooper is too roomy.
But the program’s problems don’t end there. It’s underfunded, ill-designed for certain features and facts of the modern world, and — probably most important — overused. Beyond Social Security, America’s retirement system is, in general, patchy and insufficient, which leaves retirees too reliant on Social Security. They then learn the hard way that the program is not what they’d hoped. We should do better. And we can.
Gene Sperling is now the director of President Obama’s National Economics Council. But in 2005, he was just another Clintonista-in-exile with a desk at the Center for American Progress, watching in horror as the Bush administration tried to privatize the crown jewel of the New Deal. In response, he released his own proposal for “a true bipartisan agreement on Social Security reform that increases national savings, individual ownership and ultimately retirement security.” Perhaps predictably, Bush ignored it. Obama should not.
Sperling correctly sees that there are two separate problems in our retirement system: Social Security has too little money, and so, too, do most retirees. Fixing the former, as it happens, is the easier task. Sperling suggests a 3 percent surcharge on all income over $200,000, which would wipe out half of Social Security’s shortfall. He suggests the rest could be made up through bipartisan agreement on benefits cuts or tax changes. A simpler solution perhaps would be to uncap the payroll tax that funds Social Security. Right now, income over $106,000 is protected, meaning someone making $80,000 pays payroll taxes on every dollar of income while someone making $1 million pays on barely one of every 10 dollars. Does that make sense to you? Yeah, me neither.
Uncapping it would pretty much wipe out the shortfall on its own. Add in some changes to the benefit itself — perhaps benefits for the wealthy could grow more slowly, as they rely on it less — and you’re done. Social Security is fully funded.
But Sperling then ventures beyond Social Security and into the broader world of retirement security. He suggests a universal 401(k) that would be layered on top of Social Security. Every American would get one, and for low-income Americans, the government would provide a 2-to-1 match for the first $2,000 every year, while moderate-income Americans would get a 1-to-1 match to the same amount. This would give families a strong incentive to start saving for retirement early and aggressively, all but ensuring that they approach old age with a substantial cushion. As he notes, you could more than pay for this by reinstating the estate tax on those worth multiple millions of dollars.
If there’s a flaw in Sperling’s proposal, it’s that aside from closing the funding gap, he pretty much leaves Social Security alone. As Christian Weller, also of the Center for American Progress, points out in a new report, the program itself has developed flaws over time: It’s not set up to handle extreme old age, by which point many Americans have depleted their savings and need a bigger benefit to stay afloat; its rules for dealing with the divorced are archaic; the minimum benefit often leaves seniors beneath the poverty line; and the rich are a lot richer than when we last looked at how the program divides its payouts. Many of Weller’s reforms would complement Sperling’s by fixing these problems.
Too often, however, the folks most resistant to reforming Social Security are also those most committed to its mission. Many of the program’s defenders are so concerned that conservatives will slash benefits — now or down the road — that they are afraid to open the pension plan to any reforms at all. I think they’re wrong. This country is better than that. A political party that tries to tell ordinary Americans their retirements are too secure and too long will quickly learn its lesson when the election rolls around. Poll after poll shows the vast unpopularity of cutting Social Security benefits, and Republicans can read those surveys as easily as Democrats can. A politician may as well burn a flag on the Capitol’s lawn.
At the heart of Social Security is a simple vision: The richest country the world has ever known can guarantee its citizens a decent retirement. That’s vastly truer now than it was in 1935. Adjusting for inflation, our gross domestic product that year was $865 billion. In 2009, it was more than $12 trillion. And Social Security itself has proven an extraordinarily popular and efficient program. But today, the vision doesn’t just need to be defended. It needs to be completed.