Some of you have read my post a little over a week ago challenging the Strengthen Social Security Coalition (a project of Social Security Works in conjunction with many groups) to answer some questions in specific (I originally posed the questions to them over to months ago).  I am happy to report that the Coalition did finally respond, although the specific questions I posed were answered by the two Co-Chairs of the coalition as individuals and not on behalf of the whole coalition.  That's alright, I'll take that to advance the conversation.  I want to thank both the co-chairs, Nancy Altman and Eric Kingson for their time and their careful response.  I should also note that they responded as individuals, and made clear that the coalition they lead has not taken positions on my specific questions.

Now, time for my comments on those response.  I have posted the full response here, and you can read and download the document.  Let me address the points one by one.  I will quote the relevant portions from the response of Altman and Kingson.  Let me say at the outset that on the specifics, they and I mostly agree.  But our biggest disagreement is on the very existence of the Fiscal Commission, which they view as a threat, and I view as a fiscally responsible step to solve our country's budget mess.  I believe there is some irrational fear of the commission and resentment of the idea from some on the left.  However, to understand the commission, one should read this fantastic, authoritative piece.  There is no reason why liberals ought to be afraid of the commission.

The coalition takes a position that the solution to the budget crisis should not at all address social security, as social security by itself is still in surplus and is legally prohibited from contributing to the deficit.  The coalition believes that social security should be addressed in the regular legislative process of Congress.  That is certainly a legitimate position, and would be a viable one, had Congress not become so polarized and our politics so devoid of courage.  Republicans will obstruct raising payroll taxes on the rich no matter what.  2037, when the social security trust fund is expected to be depleted is not that long away, and at that point, social security will only be able to pay 75-80% of the guaranteed benefits, which is an out and out cut.  The earlier the problem is addressed, the less drastic the changes will need to be.

Areas of Agreement

First, we agree that social security retirement age should not be raised, although for different reasons.  The coalition believes that it should not be raised because every year retirement is delayed, lifetime social security benefits decrease by 6-7%.  But the other side of this very coin is the ugly truth that every year that one lives longer is then a 6-7% increase in lifetime benefits.  Yes, not all Americans are living longer, but Americans in general are.  But I do believe that increasing the retirement is not the solution.  For me, the reason is simple: while our longevity has increased, our ability to work beyond a certain age has not, especially for those doing the toughest, most labor-intensive work.  Secondly, keeping people longer in the job market means those jobs will open up more slowly for young people coming into the workforce.  Just because our longevity has increased, the age at which one joins the work force has not.

Second, and I think the most productive, agreement came in the area of diversifying social security trust fund's holdings.  Here's my question and the response from the Co-chairs of the coalition.
1. When you say "social security should not be privatized," most people understand that to mean individual accounts and private management. But if the government (i.e. the Social Security Administration) were to gradually invest 15-20% of the SSI trust fund in the stock market, would your coalition be against it? Many countries' public pension systems invest part of the money in the stock market.

There is opposition to this idea by persons believing that government should not invest trust fund assets in private equities. However, we like you, think that serious consideration should be given to diversifying trust fund investments and agree that this is very different than establishing “personal” or “private accounts.” Gradual and modest diversification would in all likelihood result in greater returns to the trust funds. Also, because government would bear the risk, individuals would not be impacted by market fluctuations.
I am very grateful for this response, and let me say why. I believe that this is one of the ideas on which the commission may reach consensus. I also believe that if and when that happens, many on the ideological left will decry and call that idea "privatization," which of course it is not (if you want more details, see here).  A recent study indicated that this could make up about a third of social security's long term projected shortfall, without raising taxes or cutting benefits.

Where I came to learn from and agree with their ideas:

From another one of the answers to my questions, I was intrigued by the idea of creative new revenue sources for social security to solve its long term challenges.
5. Are there any measures at all you support or are willing to consider to bridge the long term social security trust fund shortfall other than (or in addition to) raising the wage cap or tax rate?

Yes, again as individuals we believe there are many modest ways worth considering – including restoring the estate tax to the 2009 levels so that it will affect only individuals with estates worth more than $3.5 million ($7 million for couples) and dedicating the income from the tax to Social Security; a financial transaction tax with proceeds dedicated to Social Security ; and treating salary reduction plans like 401(k)s.
I like the idea of dedicating incomes from the estate tax (aka the inheritance tax) and a financial transaction tax to social security, and admittedly, I had not though of this before.

But here is what I find interesting: we have the coalition advocating that the commission dealing with the rest of the budget not touch social security, and yet simultaneously proposing other parts of the federal budget and tax code (that is, parts other than the dedicated social security payroll tax) be utilized to keep social security solvent.  This is somewhat contradictory.

Where we disagree

The Coalition calls any progressive price indexing - the idea of tying the increases in social security payments for wealthier recipients to a price index while keeping the increases for low income seniors tied to the current wage index - a "large benefit cut."  They respond by using the current Republican proposals:
PPI drastically cuts the benefits of everyone earning over $25,000, maintaining current-law benefits only for the very lowest wage earners.  PPI proposals cut the benefits of youngest workers the most because the impact is cumulative.  Under the plan proposed during the Bust privatization effort, a worker who earned the average wage throughout his or her career and retired in 2040 would receive a benefit 24 percent lower than under the current benefit formula. If the worker retired in 2070, his or her benefit would be 43 percent lower than the benefit the worker would receive under current law.
I can agree with this, if the indexing begins at everyone earning $25,000, and if we were following the Republican formula on this.  That threshold is clearly too low.  But what if the threshold was $50,000 or $70,000 of total income?  The idea here is to reduce the lifetime benefits of wealthier recipients, who need the help the least.  Price indexing does not determine the initial benefits of someone at retirement, it only determines the rate of growth in their benefits depending on their total income.

There is another reason the coalition objects to price indexing:
PPI radically alters Social Security into a program where benefits are increasingly unconnected to wages and contributions. Rather everyone eventually gets the same low benefit, unrelated to wages, similar to what welfare programs provide.
There is a valid point that price indexing for some and wage indexing for others would, over a lifetime of a beneficiary narrow the gaps in benefits between rich and poor recipients.  But the "long run" here assumes an unlimited lifetime, which we do not have.  Those who contributed more would still get more out of the system, just not as much more.  There is also something to be said for not letting social security become just another welfare program and instead maintaining its insurance program properties.  But for it to be a true insurance program tied to contributions, it can only take in money from wages of those who would receive benefits, not from the estate tax or a financial transaction tax, as we saw the coalition propose just a while ago.

I would also argue that benefits being less connected to wages and contributions does not make social security any less of an insurance program.  Have look at single payer health insurance systems.  Those are not welfare, even though the amount of benefit one receives is not tied to what one pays in taxes.  Social security is insurance, but it's social insurance, not car insurance, where the amount of your coverage is tied to your premium.

Another area of our disagreement is that Altman and Kingson think that a quarter-percent hike in payroll taxes (from both employer and employee) is worth considering in 30-40 years.  Although that's not likely to be proposed now, I believe that payroll taxes, which are regressive, are already a very significant burden on the working poor.  I think the payroll tax rate should be reduced, if anything (while raising or eliminating the cap) to help the working poor.

Ultimately, I believe the solution may well involve a mix of investing some of the social security trust fund money in the market (by the government), raising the cap on social security taxable income (these are the two revenue side solutions, and something the Coalitions' chairs and I agree upon), and some form of price indexing (the spending side).  The coalition and I would much prefer the innovative solutions of raising even more social security revenue in the form of a financial transaction tax and dedicating some of the estate tax towards social security rather than price index.  That, however, may not be very likely.

Once again, I want to thank the coalition and its co-chairs for taking the time to respond.  I feel that we have opened an important dialogue, reached significant agreement, and moved the discussion forward.  The truth is that a final solution to social security will probably not satisfy all the demands of everybody.  But I am glad to see the Coalition expand on their principles, and lay out some details.  I believe we have advanced the kind of progressive conversation that we need to move forward not because of fear, but in the spirit of strengthening the most successful social safety net and social insurance program in American history.

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