How Can We Improve Social Security And Economic Security In The United States? NASI Offers Food For Thought

Earlier this month, the National Academy of Social Insurance released its new report, “Economic Security for the 21st Century.” It came out of the Academy’s 2019 – 2021 Economic Security Study Panel, the goal of which was to “assess economic insecurity and present policy options to better provide stable and adequate income,” with twin objectives of reducing precarity, that is, insufficient income, as well as uncertainty, not having a predictable income. And while the Panel was formed before Covid hit, the subsequent impacts of the pandemic were certainly an additional influence on the Panel’s efforts.

The report divides up the Panel’s recommendations into four categories, or “pillars”: labor policy, benefit policy (traditional social insurance/income redistribution programs), protection policy (policies meant to ensure households experience fewer income losses in the first place) and equity policy. In addition, the report makes recommendations on how to fund their suggested changes. All together, there are 147 recommendations (including recommendations that are duplicates, or near-duplicates).

That’s a very long wishlist — and the items in the list are a mix of entirely sensible recommendations, completely infeasible proposals, and potential changes that illustrate the pitfalls of unintended consequences.

Yes, unintended consequences. Conservatives tend to say (or at least stereotypically do) that if social insurance benefits are made too generous, people will game the system; progressives are more likely to insist that people will always “do the right thing” so these concerns are a nonissue. But here’s a concrete example: in the Netherlands, prior to substantial reforms in the late 90s and 2000s, the country’s disability benefits for short- and long-term sickness/disabilities were so generous that 12% of the entire workforce was receiving benefits, a rate so high that even the progressive Center on Budget and Policy Priorities conceded that “The Dutch disability programs needed significant reforms.”

So let’s look at a sampling of NASI’s proposals, with an eye towards retirement-related ideas.

The proposal makes a number of recommendations with respect to the minimum wage, suggesting that the minimum wage might be raised to what it calls the “poverty wage” — a level sufficient to bring a full-time worker with three dependents to the poverty threshold — or to the current rallying-cry wage of $15 per hour, and subsequently indexed to inflation or median wage increases. Is it appropriate to expect a minimum-wage earner to be the sole support of a family of four? Would a minimum wage tied to CPI create a wage-price spiral? The NASI authors admit that the potential effects on employment of a too-high minimum must be taken into consideration, and suggest that state-by-state or urban/rural wage differences may be appropriate as well.

Their recommendations regarding government benefit programs are extensive.

Some focus specifically on the poor, such as those related to SNAP/Food Stamp increases or increaes in the EITC (Earned Income Tax Credit). Others promote benefit increases and relaxation of eligibility requirements for SSI, the program for the elderly and disabled with very low incomes and little or no Social Security benefits. Yet others are pie-in-the-sky, most notably a Universal Income Base — though, unlike former presidential candidate Andrew Yang’s $1,000 per month, they suggest a much smaller figure, such as $200 per month.

There are proposals for Social Security benefit increases and solvency boosts. Many of these we’ve heard before, including the boosts to the minimum benefit and the first-bracket benefit formula, and the (re-)implementation of survivor’s benefits for full-time students up to age 22, that are a part of the Sanders Social Security bill. A proposal to boost survivor’s benefits for dual-income couples is also not new. And the only thing new about their solvency proposals is actual “old” — that is, unlike today’s Democratic politicians, they are willing to consider broadbased tax increases to fund the program.

Their more interesting proposals relate to disability. Currently there is a five-month waiting period for Social Security disability benefits and a 24-month wait for Medicare benefits, even after all criteria for eligibility are met; they argue this should be eliminated. This was the subject of the Stop the Wait Act introduced during multiple sessions of Congress, most recently earlier this year. While it is true that the disabled who are poor may be eligible for Supplemental Security Income, I would like to see this proposal taken seriously, including an evaluation of its costs and benefits. The proposal also recommends improving work incentives for those receiving disability benefits by improving the cut-offs and phase-outs. Finally, the proposal calls for changes to the DAC program.

Never heard of DAC benefits? Yes, I had to look it up, too. The proposal’s immediate concern is that recipients of these benefits, targeted at individuals who have been disabled since childhood, lose them if they marry, unless their spouse is also a disabled DAC recipient. There are also circumstances in which the work incentive program can lead to cutting recipients off permanently rather than enabling them to return to benefits if their condition worsens.

But it’s not as simple as this. DAC stands for “disabled adult child.” These benefits, which hardly anyone has heard of, pay benefits for disabled adults, based on their parents’ earnings records. (See this Social Security Administration booklet or this SSA webpage, or this description from a financial planning service or a legal service.) When the parent of a disabled adult retires or becomes themselves disabled, that child is eligible for a DAC benefit that’s 50% of the parent’s Social Security benefit. When that parent dies, the benefit increases to 75%. While the benefit and SSI are similar in limiting the amount of money the recipient can earn, DAC benefits can be much higher than SSI benefits, and DAC recipients are eligible for Medicare rather than the Medicaid they’d receive under SSI. While the “marriage penalty” certainly seems like an archaic rule, I suspect most people would be surprised to learn that government benefits for adults, of any age, can depend on how much money their parents earned!

Of course, there’s much more food for thought in the long list of proposals, but this should be enough to provide a bit of a sense of how complicated these issues can be.

As always, you’re invited to comment at JaneTheActuary.com!