A Common Sense Approach to Social Security Reform? - Stanford Report; AMAC Foundation
In a well-written, somewhat light-hearted, but nonetheless timely and realistic discussion, Stanford Magazine writer Summer Moore Batte summarizes the thinking of two scholars on how to address Social Security’s rapidly approaching financial cliff. In her news.stanford.edu post, Ms. Batte captures the essence of a proposal by Stanford Institute for Economic Policy Research (SIEPR) fellow Andrew Biggs and John Shoven, a professor emeritus of economics and a senior fellow emeritus at SIEPR. The Biggs-Shoven approach is presented as a pathway to revamping key Social Security components in a way that would extend the program while maintaining — expanding, actually — its progressive design.
Ms. Batte’s article begins with a quick review of where we are today with Social Security. From there, she outlines two key issues driving the insolvency problem: increased life expectancy and decreased birth rates (which, of course, lead to lower taxpayer-to-beneficiary ratios). From there, she moves to a review of options, beginning with ignoring the problem — the option selected consistently since the 1990s — and moving on to the most popular: raising the taxable maximum and/or increasing the full retirement age.
What Biggs and Shoven Suggest
The proposal expressed by these two scholars represents a “half and half” solution to the insolvency problem, recognizing that further benefit cuts and tax increases would still likely be necessary for a full, long-term solution. Their suggestion is to raise the retirement age from 67 to 69 and to modify the initial benefit calculation formula so that lower earners receive a higher income replacement rate and higher earners receive a lower one.
The Biggs/Shoven approach would also call for a gradual phase-in, as was done the last time Social Security approached the cliff. Further, they would add a “minimum benefit” to keep the lowest earners above the poverty line.
As explained in the article, the approach advocated by Biggs and Shoven would represent a politically realistic solution to address a major portion of the insolvency problem.
Where from here?
That’s anybody’s guess. With Congress having an overflowing plate, the mid-term election cycle moving to the front burner, and political compromise on domestic policies continuing to be elusive, it doesn’t appear that Social Security’s plight will grab attention anytime soon. With full trust fund depletion now a mere six years away — six years might be optimistic — there’s little we can do at this point other than hope and continue the search for palatable solutions to the problem.
And speaking of palatable solutions, the Association of Mature American Citizens (AMAC, Inc.) has developed its Social Security Guarantee to address the insolvency problem, with many components of its 15-point plan aligned with the Biggs-Shoven suggestions. AMAC’s position is that resolution can be achieved without payroll tax increases through relatively minor program modifications, including changes to the cost-of-living adjustment (COLA) process and modifications to the formulas for calculating initial benefits for higher-income beneficiaries. Changes to the age for maximizing benefits are included in AMAC’s position, along with (1) an increase in the thresholds where benefits are subject to income tax; (2) indexing of these thresholds annually to account for inflation; (3) changing the taxable maximum formula to address the unintended loss of revenue; (4) improving survivor benefits, (5) eliminating the reduction in benefits for those choosing to work before full retirement age; and (6) improving savings tools for future retirees, including a savings account that builds estate value. AMAC is resolute in its mission to preserve Social Security for current and future generations and has drawn the attention of lawmakers in D.C., meeting with many congressional offices and staff over the past decade. See AMAC’s proposal for Social Security reform here.