The American Bar Association invited me this weekend to speak to attorneys and professors of social security law. They had two major questions which I believe are shared by almost all Americans.
Question 1: Does spending more on social security mean we will spend less on children?
Thinking that increasing or maintaining social security benefits means that children will receive less involves intergenerational warfare in the budgeting process. Public finances do not work that way. In a study of over 163 countries, I found that when the generosity of a country’s social security system increases by 10%, payments to the education system, which are highly correlated with other income and support. government in kind to children, increase by 7%. . This result makes sense because when a political system supports one vulnerable group, the elderly, you also benefit from political support for another group, the children. The income comes from elsewhere.
Social security is also important for children. It relieves child poverty more than any other US government program outside of the EITC. Social Security lifted over a million children out of poverty, while the EITC lifted 3 million children out of poverty. In comparison, Temporary Assistance to Needy Families is far behind. Social security helps 38% of older people escape life below the poverty line. Taking into account the impact of poverty reduction on children and adults with disabilities, Social Security lifts more Americans out of poverty than any other government program.
The second most frequently asked question about social security is:
Question 2: If people are living longer, can we really afford to fully fund and extend social security?
The investigation continues: Instead of increasing incomes, should we make people work longer? There are five points that challenge this proposition:
First, not everyone lives healthier and longer. Research over the past 15 years has shown that longevity gains have barely increased for the bottom half of the income distribution. The largest gains in life expectancy were recorded for the highest income groups. There are also large differences between socio-economic groups in who has a pension and who does not. Men are more likely than women to die without retiring. African Americans and poorly educated women have shorter pensions and spend more of their time in retirement needing some form of help.
Second, cutting social security benefits could reverse some longevity gains. For some people, working in old age kills. The life expectancy and health of older people increased more for older people when Social Security was implemented and extended in the 1970s. Some researchers have attributed the difference to older people working less in expensive jobs and having more income, which helps an older body live longer.
Of course, work can be good for the health of some older workers. This is more likely to be the case for people like me (university professors) who genuinely choose to work longer in jobs where we control the pace and content of the work. But research from the past decade suggests that for those who are subordinate to others and for whom the pace and content of work cannot be controlled, working in old age can hasten death.
Third, cutting social security benefits to encourage work will not work because most retirements are involuntary. This result stems from both our work at The New School and that of Richard Johnson of the Urban Institute, who estimates that up to 66% of retirees were forced to quit their jobs earlier than expected.
Fourth, cutting benefits would move us further away from practices in similar countries in terms of years of work, expected retirement, and levels of poverty among older people. Since Americans have a longevity of 65 years shorter than any other country in the G7 and work the longest, our retirement periods are much shorter. Our age to receive full retirement benefits is so high — 70 — that a 22-year-old American has to work 48 to get a maximum benefit. In France, it’s 41 years old; in Great Britain and Germany, a little over 43 years. After us, the United States, there is Italy, where a 22-year-old has to work 44 years.
Fifth, social security is a vital source of income. Almost two-thirds of beneficiaries aged 65 or over receive 50% or more of their total income from monthly Social Security checks. For a third of elderly beneficiaries, Social Security provides 90% or more of their income.
We can afford to strengthen social security
Strengthening social security requires a few big, simple fixes. Overall, we should increase income to increase social security benefits.
To close the gap needed to fully fund social security – 3.54% of the payroll, above the 12.4% now split equally between workers and employers – we could simply increase the FICA tax and stay well below typical international rates.
Experts advise a combination of income increases of raising payroll taxes a bit in the future and taxing higher incomes more by raising the ceiling on social security income, as suggested by Peter Orszag and the award. Nobel Peter Diamond 20 years ago. Others have proposed partial funding from general revenue by levying a portion of inheritance tax and capital gains. Rep. John Larsen has one of the most promising bills in Congress today, promising because it could pass and promising because it will likely work.
The bottom line is that only modest changes in the budget are needed to keep Social Security financially healthy over the next 75 years. There is a lot of room in the budget to extend social security – provided we are prepared to increase incomes – and there is a lot of need in the population.