The American Bar Association invited me this weekend to talk to lawyers and law professors about Social Security. They had two key questions that I believe are shared by almost all Americans.
Question 1: Does Spending More on Social Security Mean We Will Spend Less on Children?
To think that increasing or preserving Social Security benefits means that children have less is presuming intergenerational warfare in the budgeting process. That’s not how public finances work. In a study by In more than 163 countries, I found that when the generosity of a country’s social security system increases by 10%, payments to the education system – which is highly correlated with other income and government in-kind support to children – increase by 7%. That outcome makes sense, because if a political system supports one vulnerable group, the elderly, you also have political support for another, children. The income comes from elsewhere.
Social security is also important for children. It alleviates more child poverty than any other US government program besides the EITC. Social security lifted 1 million children out of poverty while EITC lifted 3 million children in poverty. In comparison: temporary help for families in need is way behind. Social security helps 38% of the elderly to escape a life below the poverty line. Considering the poverty alleviating impact on children and disabled adults, social security lifts more Americans out of poverty than any other government program.
The second most frequently asked question about Social Security is this:
Question 2: If people live longer, can we really afford to fully fund and expand Social Security?
The research continues: instead of generating more income, should we make people work longer? There are five points that dispute this statement:
First, not everyone lives healthier and longer. Research Over the past 15 years, longevity gains in the lower half of the income distribution have shown little improvement. The greatest gains in life expectancy have occurred in the highest income groups. There are also large differences between socioeconomic groups in whom retirement time and who doesn’t. Men more often than women die without retiring. African Americans and low-educated women have shorter pensions and spend greater portions of their time in retirement and need some form of assistance.
Second, cutting Social Security benefits could reverse some longevity gains. For some people, working in old age is fatal. Life expectancy and health of the elderly increased more for the elderly when social security was introduced and expanded in the 1970s. Some researchers have attributed the difference to the fact that older people have less demanding jobs and have more income, so that an older body lives longer.
Admittedly, work in old age can be good for the health of some workers. This is more likely the case for people like me (college professors) who sincerely choose to work longer in jobs where we control the pace and content of the work. But research over the past decade suggests that for those who are subservient to others and unable to control the pace and content of work, work in old age can hasten death.
Third, cutting Social Security benefits to encourage work won’t work because most retirements are involuntary. This finding stems from both our work at the New School and Richard Johnson at the Urban Institute, who estimate that as many as 66% of retirees were forced out of jobs earlier than they anticipated.
Fourth, reducing benefits would further distract us from practices in comparable countries in terms of years of work, expected retirement and poverty among the elderly. Since Americans have a shorter age-65 lifespan than any other country in the G7 and working the longest, our retirement periods are much lower. U.S age to receive full retirement benefits is so highage 70 – that a US 22 year old must work for 48 years to gain maximum benefit. In France it is 41 years; in Great Britain and Germany, a little over 43 years. Second, the US is Italy, where a 22-year-old has to work for 44 years.
Fifth, social security is an essential source of income. Nearly two-thirds of beneficiaries age 65 or older receive 50% or more of their total income from monthly Social Security checks. For a third of older beneficiaries, Social Security provides 90% or more of their income.
We can afford to strengthen social security
Strengthening Social Security requires some big simple solutions. In general, we need to increase income to increase Social Security benefits.
To close the gap needed to fully fund Social Security—3.54% of payroll, above the 12.4% now split equally between employees and employers – we could just raise the FICA tax and still stay well below typical international rates.
Experts recommend a combination of income increases, consisting of slightly increasing payroll taxes in the future and taxing higher earners more by raising the Social Security income ceiling, such as Peter Orszag and Nobel laureate Peter Diamond suggested 20 years ago. Others have proposed partial financing of general income by taking a portion of the estate taxes and capital gains. Representative John Larsen has one of the most promising bills in Congress today: promising because it can be passed and promising because it is likely to work.
The bottom line is that only modest budget changes are needed to keep Social Security fiscally sound for the next 75 years. There is a lot of room in the budget to expand social security – provided we are willing to increase revenues – and there is a great need among the population.