For years , including this one, Peter Peterson and his so-called Americans for Prosperity (which really means the top 1% for prosperity), have been crying wolf to bring Social Security down, either by privatizing it or drowning it in a bathtub. AFP types populate the president’s “Deficit Reduction Commission” too. But, finally, yesterday, we got a hint of the less onerous tweaks that would actually solve the problem. And it’s generally along the lines of what we’ve been told by real, reputable economists and non-Friedmanites.
Today the full report was released by the Senate Special Committee on Aging, chaired by Herb Kohl (D-Wis). The report is available here. If you want to cut to the chase in the 99 page document, you can skip to Page 20-22. There you’ll find a table showing, for example that if you,
• Increase employer and worker contributions to Social Security by 1.1%, it would more than make up the shortfall, yielding 104% of the shortfall.
• Increase employer and worker contributions by 1%, but begin in 2022, you’d get 103% of what you need to fix Social Security.
• Increase employer and worker contributions 1/20% a year for 20 years, you’d take care of 69% of the problem.
• Eliminate the income cap, you’d get to 116% of what you’d need to fix the problem.
• Taxed those making more than 125k per individual and 250k for couples, you’d get to 69% of what you’d need to fix the problem.
• Gradually invest 15% of the trust fund assets in equities, you’d only get to 14% of what you’d need (and you’d assume much more risk).
• Gradually invest 40% in equities, you’d only get to 33% of what you’d need to fix the problem, but put nearly half of the trust fund at risk.
• Reduce Cost of Living Adjustments by 1% a year, you’d get to 78% of what you’d need to fix the problem. But this would amount to a substantial benefit cut over time. With the average benefit at just over $1,000 per month, more seniors would plunged into severe poverty.
• Accelerate increase to age 67 and gradually increase full retirement age to 70, you’d get to only 31% of what you’d need.
Note that the last example assumes that there are jobs to be had and employers willing to retain older workers. Corporate down-sizings, off-shorings and layoffs hit older workers disproportionately. There are other permutations of solutions in the table I summarized (pages 20-22). Take a look at the report. What’s most interesting is how little of the problem privatization resolves while adding huge risk. Given the calamitous 2007-8 collapse of the stock market, it seems appropriate to stay the course with the trust fund. Those who can afford to invest in the stock market can do so with their 401ks and personal savings. Social Security was designed to replace about 1/3 of income. Unfortunately, for millions of seniors, Social Security is all there is. Safety is the wiser course for the Social Security prong of an individual’s retirement safety net. One of the more robust fixes or a combination of them will secure the system for 75 years. Of course, custodians must re-examine the trajectory again over time. But the Deficit Commission, should keep its hands off.