The Case For More Social Security

The American Bar Association this weekend invited me to talk to lawyers and law professors about Social Security. They had two major 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 maintaining Social Security benefits means that children will get less assumes intergenerational warfare in the budgeting process. Public finance doesn’t work that way. In a study of over 163 nations, I found that when a nation’s Social Security system’s generosity increases by 10%, payments to the education system—which is very much correlated with other income and in-kind government support to children—increases by 7%. That outcome makes sense because when a political system supports one vulnerable group, the elderly, you also have political support for another, children. Revenue comes from elsewhere.

Social Security is also important to children. It relieves more child poverty than any other American government program besides the EITC. Social Security lifted over 1 million children out of poverty, while EITC lifted 3 million children at a poverty. In comparison, Temporary Aid to Need Families is far behind. Social Security helps 38% of the elderly escape living below the poverty line. Taking into account 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 are living longer, can we really afford to fully fund and expand Social Security?

The inquiry continues: Instead of raising revenue should we make people work longer?There are five points disputing this proposition:

First, not everyone is living healthier and longer. Research over last 15 years has shown that longevity gains barely rose for the bottom half of the income distribution. The greatest gains in life expectancy have occurred for the highest-income groups. There are also wide gaps between socioeconomic groups in who has retirement time and who doesn’t. Men are more likely than women to die without retiring. African Americans and women with low educational attainment have shorter retirements and spend larger portions of their time in retirement needing some form of assistance.

Second, cutting Social Security benefits could reverse some longevity gains. For some people, work at older ages kills. Elderly life expectancy and health increased more for the elderly when Social Security was implemented and expanded in the 70s. Some researchers have attributed the difference to elderly working less in onerous jobs and having more income, which helps an older body live longer.

Granted, work may be good for some workers’ health in old age. 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 over the past ten years suggests that for those who are subordinate to others and where one can’t control the pace and content of the work, work at older ages 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 that of the Urban Institute’s Richard Johnson, who estimates that as many as 66% of people who are retired were forced out of their job earlier than they expected.

Fourth, cutting benefits would move us further away from practices in similar nations in terms of work years, expected retirement, and elder poverty levels. Since Americans have a shorter age-65 longevity than any other nation in the G7 and work the longest, our retirement periods are much lower. Our age of collecting full retirement benefits is so high—age 70—that an American 22 year-old has to work 48 years to achieve maximum benefit. In France it is 41 years; in Britain and Germany, a little over 43 years. Second us the U.S. is Italy, where a 22 year-old must work 44 years.

Fifth, Social Security is vital source of income. Nearly two-thirds of beneficiaries aged 65 or older receive 50% or more of their total income from monthly Social Security checks. For one-third of elderly beneficiaries, Social Security provides 90% or more of their income.

We Can Afford To Strengthen Social Security

Strengthening Social Security requires some big simple fixes. Overall, we should raise revenues to raise benefits in Social Security.

To close the gap needed to fully fund Social Security—3.54% of payroll, above the 12.4% now split evenly between workers and employers—we could simply raise the FICA tax and still stay well below typical international rates.

Experts advise a combination of revenue raises consisting of increasing payroll taxes a bit in the future and taxing higher earners more by raising the Social Security earnings cap, as Peter Orszag and Nobel prize winner Peter Diamond suggested 20 years ago. Others have proposed partial funding from general revenues by taking a portion of inheritance taxes and capital gains. Representative John Larsen has one of the most promising bills in Congress today—promising because it might 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 fiscally sound over the next 75 years. There is a great deal of room in the budget to expand Social Security—provided we are willing to raise the revenues—and there is a great deal of need in the population.