How to Save Social Security By Slashing Benefits
James Pethokoukis grabs my attention with the following:
Is there a way to save Social Security without raising taxes — and make it better? There is, and it has nothing to do with privatization or personal accounts.
What follows is an interview with Andrew Biggs, a colleague of his at the American Enterprise Institute and a former principal deputy commissioner of the Social Security Administration. So let's hear what Biggs has to say:
Today we spend over $700 billion each year on Social Security benefits, yet 9-10 percent of seniors in America are living in poverty. You could give every retiree in America a poverty level benefit for half the cost of the current Social Security program.
....My solution is if you want middle and upper class people to save for retirement, tell them to save for retirement. Say everybody has to sign up for a 401(k) with their employer. Their employer has to match their contributions. That’s going to go a long way towards solving this problem because if everybody’s saving, then Social Security’s job is easier.
....The benefit would be paid irrespective of your earnings and labor force participation. It’s a universal retirement benefit. New Zealand and a few other countries have the universal pension. The idea is, We’re going to pay you these benefits, so you’re not going to starve. This is going to take the place of sort of the redistributive end of Social Security, also take the place of a number of welfare programs like Supplemental Security Income.
Nobody will get a benefit below the poverty line. The poverty rate among seniors should go from 9 percent to 0 percent. But nobody will get a benefit above the poverty line. If you want more than that, you have to save for it. That’s where these individual-based accounts come in.
I thought this plan had nothing to do with personal accounts. But it does. Biggs explicitly says that we should make 401(k) contributions mandatory, which sure sounds like a personal account to me.
As for benefits, the current poverty level for an individual is $11,500. According to the Social Security Administration, about 70 percent of beneficiaries currently receive benefits above that level. So the Biggs plan would amount to a substantial cut in individual benefits for most retirees.1
So what this proposal boils down to is this: Cut future benefits dramatically for most people; increase benefits for a few people; and put in place a forced savings plan to make up the difference. There's nothing very new about this, and it fails on both of the initial promises: to make Social Security better and to do it without personal accounts. I think it also explains the "natural skepticism" that Biggs (accurately) says liberals have with conservative reform proposals, which he chalks up to the fact that "Republicans have often treated Social Security as a budget problem to be solved by cutting spending rather than treating it as a program that they want to fix." He's right. But this is just more of the same.
1The size of the cut depends a lot on the details of Biggs' plan. What's the retirement age? Do married couples get two individual benefits or a single poverty-level benefit for two? What about disability payments? Etc. However, Biggs says his program will cost half of what the current program costs, so regardless of details, he's plainly counting on a substantial average drop in benefit payments.