The Post-Election World: Whither Goes Social Security?

Cue the timpani, then the snare, and rimshot! Ta-da! What will happen with Social Security after an Obama election? Nothing. Or possibly it will be improved or strengthened (or weakened, if Paul Krugman's suspicions are correct). I have ideas how to strengthen it, some from the experts I've seen over the years and a new idea of my own that I really believe in.

Members of the 47% telling Mitt Romney what he can do with his "victims" comment.

Now, truth be told, regardless of what a dismal man I think Mitt Romney is -- or how dishonest his veep pick is, Paul "wonky-but-math-is-hard" Ryan -- the fact is even if Romney wins, Social Security is essentially safe because, well, most politicians might talk tough but very few of them are suicide bombers. No, it's in the area of Medicare and Medicaid that Romney and the Republicans could make the most mischief because, well, suffering is good and we're all gonna die, so hurry up, except us.

There are good ideas out there for strengthening Social Security, and the first step to take is to say, "Yes, Social Security is good, and we must make it better, as well as more equitable." What steps can we take to strengthen it? Robert Reich:

Former Labor Sec. Robert Reich

Remember, the Social Security payroll tax applies only to earnings up to a certain ceiling. (That ceiling is now $106,800.) The ceiling rises every year according to a formula roughly matching inflation.

Back in 1983, the ceiling was set so the Social Security payroll tax would hit 90 percent of all wages covered by Social Security. That 90 percent figure was built into the Greenspan Commission’s fixes. The Commission assumed that, as the ceiling rose with inflation, the Social Security payroll tax would continue to hit 90 percent of total income.

Today, though, the Social Security payroll tax hits only about 84 percent of total income.

It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top. In 1983, the richest 1 percent of Americans got 11.6 percent of total income. Today the top 1 percent takes in more than 20 percent.

If we want to go back to 90 percent, the ceiling on income subject to the Social Security tax would need to be raised to $180,000.

Presto. Social Security’s long-term (beyond 26 years from now) problem would be solved.

That's not so hard, is it? In fact, what it does is solve the input problem without adding an output problem. That's what I don't like about means testing: We would exclude a class of people from a public benefit. That's not fair -- especially if they've contributed to the program -- and we would be establishing the principle that paying in gets you nothing. And it's a needless exclusion to begin with.

(It's the same with Medicare, only worse. If you exclude wealthy people from the input pool -- those who pay in -- you don't enjoy the input. If you then exclude them from the output pool -- those who benefit from the coverage -- then you lessen the number of healthy people in the pool because wealthy, generally more educated people tend to be healthier anyway.)

Just tweak the system by raising the input from those who can afford it.

Let's hear from Dean Baker:

Dean Baker, CEPR

Even if no changes were made to Social Security, the trust fund could always pay close to 80 percent of scheduled benefits, says Baker, and while it would be unacceptable to pay people a smaller benefit than had been promised, the scheduled benefits for new retirees are projected to rise by 1 percent a year in excess of prices.

“This means that in 2036, the average scheduled benefit for a new retiree will be more than 25 percent higher than it is today,” Baker says. Even if no changes are made to the system, new retirees in 2036 receiving just 80 percent of their scheduled benefit would still be receiving a benefit that is larger than what retirees get today.

“In other words, there is no plausible story in which our children or grandchildren will have to worry that there won't be anything there for them.”

Boomers: The years are golden, but for how long?

A point I've always wondered about is how many years, in fact, it will take to bring the pressure of the swelling ranks of Social Security recipients down to more palatable levels, as the boomers pass from this mortal coil. From an MSNBC report:

This projection has triggered much political infighting over whether the United States should be cutting Social Security benefits or raising taxes to pay for them.

But those calculations are based on the expectation that the constant improvements in mortality (fewer deaths at every age) would continue unabated. The trustees project mortality declining by roughly 0.77 percent a year for every year going forward as far as the eye can see.

"We're simply projecting that improvements will occur at roughly the same... (rate) as in the past," Stephen Goss, chief actuary for the Social Security Administration, told Reuters.

The agency's math relies on this assumption: the average 65-year-old in 2020 can be expected to live 19.4 more years if a man and 21.3 more years if a woman. By 2030, when the last baby boomer turns 66, the average 65-year-old woman could expect to live to 87.9 and the average 65-year-old man would live to 86.

What if the trustees are wrong? If mortality rates stopped improving, and remained constant over the next 75 years, that would cut the OASDI actuarial deficit by about 0.45 percent of payroll, about one sixth of the projected shortfall over the next 75 years, a Social Security spokesperson told Reuters. That won't completely save the trust fund from shortfalls, but it would help.

A Silver Tsunami, or a Golden Sayonara?

A little creepy, but that would help. My idea was, generally, that it would take about 20 years for a significant shrinkage of the boomer population -- which dovetails nicely with the 2036 Social Security "cliff," so I'll accept, for now, this Fort Morgan Times editorial saying roughly the same thing:

Some are calling it a Silver Tsunami.

With expanding life spans, these people will need care for quite some time, but these times will not last. The sad truth is that most Baby Boomers have not planned for retirement beyond paying their social security tax, so they will not have the big bucks to pay for more than basic health care, even with Medicare.

Twenty years from now, the Baby Boom generation will be dying off rapidly. Yes, it will happen somewhat gradually, but not too gradually. What will happen to the health care industry then? Will health care employees have plans for other careers?

For that matter, what will many employees in any number of fields do?

With the demise of a huge portion of the population, less housing will be needed, less food will be needed and there will be fewer jobs for meeting Baby Boomer needs and desires.

If we planned for this retirement for 20 years, it is best to plan for the loss of this large segment of society over the next 20 years. Some will last longer, but do not expect that many to live into their 90s.

Spreading the wealth around? Why not?

Again, happy talk, but we have to face it. (I'd discount, by the way, the concern about shrinking demand. There will still likely be labor shortages because of the absence of the baby boomer workers, so shrinking supply will match shrinking demand, or immigration will help strike the balance.) About 20 years from now, if we bide our time and do the tweaks suggested by Robert Reich, Dean Baker, and a lot of other sensible people, all we have to worry about is a labor shortage to fill all the boomers' shoes, as well as a burgeoning Social Security trust fund, as Gen-Xers start to pore their FICA into the pool that needs to serve fewer retirees. Yipee.

There's an enhancement to our Social Security system that's worth considering. Back in 2005 when George W. Bush mistakenly identified a squeaker of an election as a mandate to privatize Social Security, he experienced a smackdown of epic proportions. His notion was a disaster in search of a calamity. Two elections later the Republican Party was still reeling.

We don't need to privatize Social Security, but it might be smart to encourage Americans to not rely on it exclusively for their retirement. Americans famously undersave for their golden years, so why not encourage additional savings? Here's a simple idea for how to do it.

Add a new layer to the already existing Social Security. Here's how:

1. Continue the usual FICA payroll tax, which goes into the usual Social Security account.
2. Enact a Voluntary Supplemental Account program similar to an annuity.
3. Participants set a supplemental-account amount to be automatically withheld, say $50 to $100 a month.
4. The government, on the participant's behalf, buys I Bonds, TIPS, or some other inflation-protected Treasury bond -- I like the I Bond because of its ease of purchase and its tax exemptions -- and puts them into the participant's account.
5. The government sweetens the deal by adding, say, a percentage point, either to the interest amount or the supplemental withholding amount. One is obviously more expensive for the government and more lucrative for the participant. I'd have to do some math. Later.

There would have to be some rules. People who leave or change employment would obviously have to have a way to suspend and restart participation, and the government would need some kind of enforcement, such as once you participate you can't get at your money until retirement, or people would start and stop and demand their money according to the vagaries of the economy. The benefits of a well-designed program are many:

1. Retirees, if they participated wisely, would find themselves with a serious retirement fund, which they can have returned at various retirement ages on various payout schedules, from an immediate lump sum or payments over 5, 10, or 20 years, again similar to common annuity practices. Savings accrued could, over time, exceed Social Security payouts.
2. The government would have a consistent domestic source of deficit financing, lowering foreign involvement. The structure of the new program could be set up so that "looting" of the Social Security trust fund would be curtailed.
3. The U.S. would turn from a debtor nation to a saver nation, similar to Japan (I'm talking citizens, not governments). We would, increasingly, own our own debt (I am talking about nations here), limiting foreign dependency and influence.

There you have it. This proposal needs to be refined and real numbers added. But I can't see how this wouldn't make for a better, stronger country and citizenry.

My staff doing the math. Pay attention, Paul Ryan.