Earlier this month, Alan Simpson and Erskine Bowles, the co-chairs of President Obama’s deficit commission, released their recommendations for reining in the U.S. budget deficit. Part of their recommendations included raising the retirement age for Social Security, a proposal that sparked a wide political backlash.
Now, Third Way, which calls itself the “leading moderate think-tank of the progressive movement,” has revealed its own plan for the Social Security system. The group’s proposal radically alters Social Security much more than the Bowles-Simpson recommendations. Not only does it call for hiking the retirement age, but it also reiterates the Bush administration’s failed call for introducing privatization into the system.
Explaining the plan in an exclusive interview with Bloomberg News, Third Way spokesman Sean Gibbons explained that whatever comes out of the deficit commission’s final report “is going to be a hot potato.” He continued, “So we wanted to send something over that was especially hot“:
Washington-based Third Way said its plan would raise the retirement age, trim or eliminate Social Security benefits for high-income retirees, limit cost-of-living increases and provide money to help young workers create private retirement accounts.
The proposal, to be released after the presidential panel is due to issue its report on Dec. 1, is timed to help create a buffer for congressional Democrats to support politically unpopular deficit-trimming measures, said Third Way spokesman Sean Gibbons. “Whatever comes out of the commission is going to be a hot potato,” Gibbons said. “So we wanted to send something over that was especially hot.” [...]
The retirement age, now scheduled to rise to 67 in 2027, would gradually increase to 68 by 2041, to 69 by 2059, and to 70 by 2077. This would reduce total benefits by roughly $1 trillion by 2040, according to the plan. The plan would provide annual subsidies of up to $500 to help workers under age 30 create 401(k)-style retirement savings accounts.
To start with, Social Security is currently projected to be fully solvent until the year 2037. After that, it is expected to be able to pay out 75 percent of benefits until 2084 (once you account for inflation those basically consist of full benefits). It is far from in crisis. That does not mean that there aren’t positive and progressive changes that could possibly be made to the system.
Raising the retirement age, however, would be a particularly punitive way to solve future deficits in the program’s funding. While it is true that average life expectancy has increased over time, these gains are largely a result of life expectancy rising among upper income earners. Among moderate and low income workers, life expectancy has barely changed. And “nearly half of workers over the age of 58 work at jobs that are either physically demanding or involve difficult work conditions.” Raising the retirement age would create enormous burdens on those who work at these jobs.
And introducing privatization into the system is an idea so extreme that it was even rejected by former President Bush’s own party when it controlled every branch of government. Introducing private accounts into Social Security would create burdensome new administrative costs and force benefit reductions, it would impose significant risk on seniors and would actually cost more than the current system.
In an interview with Bloomberg, Third Way co-founder Jim Kessler complains that “strongest and loudest voices on the left have nailed up the barricades on Social Security and said ‘hell, no’ and don’t want any type of cuts in benefits at all.” Yet it isn’t just the “strongest and loudest voices on the left” that would oppose the punitive cuts and privatization in Third Way’s plan. A CBS News poll taken just days before the election found that that 71 percent of Americans oppose cuts in benefits for future retirees and that 54 percent oppose any hike in the retirement age for Social Security. Meanwhile, a May 2005 poll taken at the height of Republican-led dominance in the federal government found that 56 percent of Americans said it was a “bad idea” to introduce private accounts into Social Security.
One place to start to find better, more progressive solutions involves raising the payroll tax cap. Currently, only the first $106,800 of a person’s income is considered taxable for the purpose of funding Social Security. Raising this cap significantly or eliminating it would essentially leave the program fully funded for decades to come, and not create undue hardship on those working physically demanding jobs. An Election Day poll by Survey USA found that 85 percent of voters are opposed to cutting Social Security, and that even Republicans by a 2-to-1 margin back raising the tax cap over raising the retirement age.