Expanding Social Security – The Idea Takes Root

January 15, 2014

The New York Times reported that the expansion of Social Security benefits is an idea that should take hold.  In the past, the idea of increases to the program were met with disdain, but recently in Washington there has been talk that Social Security should be expanded, not cut. These ideas have even reached the Senate, with Tom Harkin introducing legislation that would increase benefits. Late last year, Senator Elizabeth Warren gave a stirring floor speech making the case for expanded benefits.

Where is this coming from? One answer is that the fiscal scolds driving the cut-Social-Security orthodoxy have, deservedly, lost a lot of credibility over the past few years. Beyond that, America’s overall retirement system is in big trouble. There’s just one part of that system that’s working well: Social Security. And this suggests that we should make that program stronger, not weaker.

When you look at today’s older Americans, you are in large part looking at the legacy of an economy that is no more. Many workers used to have defined-benefit retirement plans, plans in which their employers guaranteed a steady income after retirement. And a fair number of seniors (like my father, until he passed away a few months ago) are still collecting benefits from such plans.

Today, however, workers who have any retirement plan at all generally have defined-contribution plans — basically, 401(k)’s — in which employers put money into a tax-sheltered account that’s supposed to end up big enough to retire on. The trouble is that at this point it’s clear that the shift to 401(k)’s was a gigantic failure. Employers took advantage of the switch to surreptitiously cut benefits; investment returns have been far lower than workers were told to expect; and, to be fair, many people haven’t managed their money wisely.

As a result, we’re looking at a looming retirement crisis, with tens of millions of Americans facing a sharp decline in living standards at the end of their working lives. For many, the only thing protecting them from abject penury will be Social Security. Aren’t you glad we didn’t privatize the program?

So there’s a strong case for expanding, not contracting, Social Security. Yes, this would cost money, and it would require additional taxes — a suggestion that will horrify the fiscal scolds, who have been insisting that if we raise taxes at all, the proceeds must go to deficit reduction, not to making our lives better. But the fiscal scolds have been wrong about everything, and it’s time to start thinking outside their box.

Realistically, Social Security expansion won’t happen anytime soon. But it’s an idea that deserves to be on the table — and it’s a very good sign that it finally is.

 

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