Just reading the title is enough to make a libertarian cringe.
“How Social Security Reform Could Make a Popular Federal Program Better,” by Rachel Greszler and Ilana Blumsack, was published last month by the Heritage Foundation, a conservative think tank that, for almost fifty years, claims to have “advanced the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense.”
Greszler is a research fellow in economics, budget, and entitlements who “researches and analyzes taxes, Social Security, disability insurance, and pensions to promote economic growth.” Blumsack is “a member of the Young Leaders Program at The Heritage Foundation.”
The authors recognize some major problems with the Social Security system:
America’s most popular federal government program — Social Security — will be insolvent within 15 years, leaving older workers and retirees fearful of future benefit cuts.
It will also leave younger workers reticent to contribute even larger chunks of their paychecks toward a program that 80% of millennials and Gen Xers doubt will be there for them when they retire.
Over more than eight decades, Social Security has expanded far beyond its original size and scope. What was once a 2% tax on workers’ wages is now 12.4% and would have to be 15.5% to keep the program solvent.
Social Security was designed as an anti-poverty program with a savings component, but it has become an intergenerational redistribution program as policymakers have allowed Social Security benefits to rise far in excess of the taxes collected.
Every dollar of workers’ payroll taxes today goes immediately out the door to pay current retirees’ benefits, with Social Security stripping the average young worker of hundreds of thousands of dollars in potential investment income.
Individuals with lower life expectancies — disproportionately those with lower incomes and African Americans — also lose out from Social Security.
One out of every five African American men in the U.S. will die between the ages of 45 and 65, at which point they’ve paid tens of thousands, if not hundreds of thousands, of dollars in Social Security taxes that they cannot pass on to their heirs.
Thankfully, not the Social Security 2100 Act. That act increases Social Security benefits by raising the amount paid out by about 2 percent, improves the annual cost-of-living adjustment (COLA) formula, establishes a new minimum benefit at 25 percent above the poverty line tied to wage levels, and raises the income threshold to $50,000 ($100,000 for married couples) before Social Security benefits are taxed. But to pay for those changes, it would gradually phase in an increase in the Social Security tax rate to 14.8 percent by 2043 and apply the payroll tax to wages above $400,000.
Never fear, the Heritage Foundation has a plan. But unfortunately, it is not to abolish the Social Security system.
The Heritage Foundation has just issued a new report by Rachel Greszler on how “the next administration and the 117th Congress could modernize Social Security, increase benefits for lower-income workers, reduce Social Security taxes for everyone, and give individuals and families more control over their incomes and life circumstances.”
The report proposes seven reforms:
- Reduce Social Security’s tax rate from 12.4 to 10.1 percent.
- Give workers an ownership option in Social Security.
- Gradually shift Social Security to a flat benefit.
- Update Social Security’s eligibility age and index it to life expectancy.
- Use a more accurate inflation index such as the chained CPI.
- Let workers opt out of Social Security’s earnings test.
- Modernize the spousal benefit.
I note also that the Heritage plan does not have a hidden tax increase. Social Security taxes are currently levied on one’s income only up to $137,700 ($142,800 beginning in 2021). The Heritage plan does not advocate raising or eliminating this income threshold like the Social Security 2100 Act and other reform plans.
So, what’s not to like? Aren’t lower Social Security taxes a good thing? Shouldn’t Americans have the option of putting a portion of their payroll taxes into a personal investment account? Isn’t it true that life expectancy is much higher now than when Social Security was instituted in 1935? Won’t these reforms make a “popular federal program better”?
Perhaps. But that’s not the issue. Federal programs that are unconstitutional — such as Social Security — should not be made better: they should be abolished. It doesn’t matter whether they are popular or unpopular. If they end up being “better” as a consequence of their being started on the road to their abolition, then that is good, but irrelevant.
The problem with the new Heritage plan — and all of the previous Heritage plans — is that it is a reform plan instead of a reduction plan, a phase-out plan, or an elimination plan. If this plan were the first plank in a ten-year plan to completely abolish the Social Security program, then perhaps it might be worthwhile.
But that’s not the only problem with it. Here is what the report means by gradually shifting Social Security to a flat benefit:
Social Security was not intended to be an income-replacement program, but to prevent poverty in old age; and yet, it provides the largest benefits to the highest-income people with the least need. By very gradually shifting Social Security toward a universal, anti-poverty benefit, increasing benefits for low-income earners and reducing them for upper-income earners, Social Security’s solvency could be preserved and everyone could eventually pay less in Social Security taxes
Sounds like a universal basic income for retired people.
Greszler actually acknowledges that Social Security is now “an intergenerational redistribution program.” She wants to return the program to its original purpose, that of preventing poverty in old age. The problem with that is that Social Security from the very beginning has always been an intergenerational redistribution program where the young who work are forced to support the elderly who don’t. It has always been based on coercion. No one ever had the option of preventing himself from falling into poverty in old age and not participating in the Social Security system.
The Heritage Foundation claims to be “the most influential think tank in the world.” Let’s hope its plans to reform unconstitutional government programs don’t have much influence.