Social Security Works, a left-wing group, was quick on the draw. Within an hour of Senator Marco Rubio’s announcement that he was running for president, it issued a news release attacking him: “If Senator Marco Rubio had his way, Social Security’s very modest benefits, averaging just $1,330 a month for retired workers, would be cut.”
That’s not true. A spokesman for the group says it had in mind Rubio’s proposal to increase the retirement age and his openness to reducing cost-of-living adjustments, which many economists believe overcompensate for inflation. But neither of those steps would cause average monthly benefits to be lower than they are today.
Social Security is an emotional topic, made more so by misinformation. My previous post for Bloomberg about it drew an immense number of comments and email, much of it angry at me for questioning Senator Elizabeth Warren’s proposal to increase benefits without first finding a way to pay for the benefits we’ve already promised. The most common theme of the criticism — excluding the unprintable emails — is that we could easily pay for Social Security by raising taxes on the rich.
Taxes for Social Security are levied on wages up to $118,500. (Benefits are also capped.) Senator Bernie Sanders wants to change the Social Security tax to apply it to income above $250,000, and my correspondents were enthusiastic about this idea. They shouldn’t be.
Advocates present this tax increase as though it were a minor tweak to the system. It’s much bigger than that. We’ve spent 20 years arguing about whether the top tax rate should be 35 percent or 39.6 percent. Getting rid of the Social Security cap would raise that top rate above 50 percent — and that’s before counting state taxes.
Even that huge tax increase wouldn’t balance the program’s finances over the long run, according to the Congressional Budget Office. It would do even less to achieve balance if some of the money were spent on higher benefits, as Senate Democrats want; and less still if, as would be likely, the tax increases suppressed economic activity. And a possible source of revenue to rescue Medicare from insolvency would have been taken off the table.
Republicans, too, have some bad ideas about Social Security. New Jersey Governor Chris Christie has just suggested gradually ending benefits for retirees with incomes of $80,000 to $200,000. He’s right to favor lower benefits for affluent people, but this is the wrong way to go about it.
The kind of means-testing Christie is proposing would discourage people from saving for retirement, or working in retirement, when we should be encouraging both. But we can avoid this problem by basing means-testing on lifetime income, which Social Security already uses to calculate benefits. Future retirees who had high incomes over the course of their working lives should get lower benefits than similarly situated retirees today. At the very least, they should not get the much higher benefits that the system currently promises them. With that reform in place, the system could save money without imposing serious hardship or discouraging people from saving and working.
Ideally we would move toward a better system that guaranteed all senior citizens a decent floor of income — something Social Security does not do — while expanding people’s ability to use their own savings to finance retirement above that floor. (More on that here.) But we won’t get that system if we listen to reflexive attacks on benefit cuts, or if we indulge the fantasy that we can pay for everything Social Security has promised, and more, with sky-high taxes on the rich.
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