Could you walk me through why higher retirement ages lead to benefit cuts?
Let's say we move the retirement age to 70. If you retire at 70, then technically you get full benefits. But I'm in my sixties, and the current full retirement age is 66. If I retire late at age 70, my first check will be higher than normal. It will be about 132% full benefits. That means that compared to me, you'll get a 32% cut if the retirement age goes to 70 for you.
What about more nuanced cuts, like trimming benefits at the top?
That will make cuts for middle income and upper-middle income retirees. The program is extremely progressive already. Social Security benefits equal about 42 percent of average earners around median earnings, around 44K. If you've worked long and hard at high wages, Social Security will replace about 27 percent of pre-retirement earnings. And you're paying taxes on your benefits. We already have lots of progressive mechanisms.
Do you reject all the benefit reduction ideas, like progressive price indexing, or adding another bend point to the formula (explained here)?
You just can't make much money without going into the middle class. If we aim for Bill Gates and Ross Perot, it wouldn't really make a dent.
You acknowledged that the program gets into trouble in the 2030s. What should we do?
Reinstate the estate tax and dedicate the money to Social Security.
You've said Social Security will never contribute to the federal deficit, that it's a separate program from the general fund. But now you're calling for general taxes to be used to pay for Social Security. Is that having it both ways?
Maybe to a certain extent. But it's understood that a portion of social insurance is funded out of general revenues. In terms of the estate tax, I'm worried we'll lose it unless it's attached to something popular. And nothing is more popular than Social Security.
What other Social Security reforms are acceptable?
I'm speaking for myself here, not the organization. But there are a number of things on the wage cap side [Social Security does not tax any wages above $107K).
One thing is restoring the cap to where it was in 1983. Back then, 90 percent of earnings were covered by Social Security taxes. Today it's only about 84 percent. I'd progressively raise it over 25 year. That would solve a third of the problem. If you raised the cap to 90 percent of earnings on the employee side and eliminated the cap on the employer side, that would solve 70 percent of the funding problem. I'd also consider sticking a quarter percent on employer/employee tax rates, because real wages would have grown.
Finally, I'd diversify the trust fund by investing one percent a year, up to 20 percent in 20 years, in a separate fund managed by trustees who are independent. It would track a major index, and overtime the trust fund would probably see higher rates of return. And the government would bear the risk.