On the Senate floor on Monday, Elizabeth Warren delivered a speech arguing that Social Security should be expanded — not cut. In this, she joins a growing movement of Senate Democrats, including Tom Harkin, Mark Begich and Bernie Sanders. "Social Security is incredibly effective, it is incredibly popular, and the calls for strengthening it are growing louder every day," Warren said.
The main idea Warren references is adopting a more generous measure of inflation known as CPI-E. That's a tweak, and not a particularly good one. It would waste a lot of money helping seniors who're already doing fine. And CPI-E is actually less generous than the current inflation measure so long as health costs remain under control. But Warren's broader arguments on the retirement crisis are sound -- and they make a case for thinking much bigger on expanding Social Security. I wrote about this back in April.
Washington frets endlessly over the problems that Social Security, which is projected to exhaust its trust funds in the coming decades, might cause the budget. It frets about it so much, in fact, that it completely misses the problems Social Security is uniquely poised to solve for the country.
For years, pension experts have spoken of the “three-legged stool” of retirement savings: Social Security, employer pensions and private savings. In recent years, however, that stool has begun to wobble, and today, Social Security is basically the only leg holding it up.
In 1980, about 40 percent of private-sector workers had a guaranteed pension. By 2006, that had fallen to 15 percent. Today, the 401(k) reigns supreme, with a trajectory that is almost the precise reverse of guaranteed pensions: In 1979, 17 percent of workers had a 401(k). Today, 42 percent do.
Those 401(k)s, however, are woefully underfunded. In 2010, 75 percent of workers nearing retirement had less than $30,000 in their 401(k). Sixty percent of low-income households are at risk of being unable to maintain their already modest living standards in retirement.
Individual savings don’t look much better. About a third of households don’t have a savings account at all. More than 40 percent don’t have enough to cover basic expenses if they lost their main source of income. In a vicious cycle, the need for savings is so great that many workers are tapping into their 401(k)s early: In 2010, contributions to defined-contribution pensions totaled $176 billion, while early withdrawals — which carry heavy penalties — totaled $60 billion.
Today, Social Security provides 37 percent of the income for all Americans over 65, and about 80 percent of the income for seniors in the bottom half of the income distribution. Given the state of private and employer pensions, those numbers will have to rise in the coming years, or else the standard of living for seniors will fall.
This is the other, perhaps more pressing, Social Security crisis: It’s not generous enough to counteract the sorry state of retirement savings nationwide. In a report for the New American Foundation, Michael Lind, Steven Hill, Robert Hiltonsmith and Joshua Freedman survey this data and conclude that the ongoing debate over how to cut Social Security is all wrong: We need to make Social Security much more generous.
They would keep today’s income-based Social Security program, but add a “Part B,” which would be a flat payout to all retirees. When parts A and B are combined, all retirees would be guaranteed 60 percent of their average working wage in retirement, with low earners seeing closer to 100 percent replacement. Part B would be pricey, adding almost a trillion dollars to Social Security’s costs in 2037, and the authors don’t have a clear proposal, much less a politically realistic plan, for how to pay for it. But not paying for it doesn’t mean those costs disappear: It either means living standards for seniors will tumble, or families will strain as they try to support older relatives.
Other ideas might be cheaper, and partial pay-fors abound: The tax breaks for retirement savings cost hundreds of billions of dollars and are sharply regressive. Famously, Mitt Romney had between $21 million and $102 million in a tax-advantaged Roth IRA. That's not a good use of taxpayer funds. And on the spending side, as much as its anathema to many liberals, Social Security could be significantly less generous to wealthier retirees.
It has become common in Washington for wonks and politicians alike to lament the public’s resistance to cutting Social Security. But that resistance is there for a reason: These programs work extraordinarily well. Social Security has been wildly successful at raising living standards for the elderly, even as other forms of retirement savings have grown shakier. We've gotten so used to thinking of our entitlement programs as problems to be solved, we're missing all the problems they can solve.