On Social Security, Elizabeth Warren Gets It Mostly Right

Huffington Post reports a recent floor speech where Sen. Elizabeth Warren (D-Mass.)  condemned the notion that we ought to be cutting back on Social Security benefits rather than expanding them:

Sen. Elizabeth Warren (D-Mass.) recently joined the push to increase Social Security benefits, saying the program can be kept solvent for many years with “some modest adjustments.”

“The suggestion that we have become a country where those living in poverty fight each other for a handful of crumbs tossed off the tables of the very wealthy is fundamentally wrong,” Warren said in a Senate floor speech on Monday. “This is about our values, and our values tell us that we don’t build a future by first deciding who among our most vulnerable will be left to starve.”

She added, “We don’t build a future for our children by cutting basic retirement benefits for their grandparents.”

I agree with Warren: It’s morally wrong to cut Social Security benefits when seniors are already struggling and the generations coming behind us will have fewer pensions and lousier savings in their 401(k)s, if they have any savings at all.  We are a wealthy nation, but our wealth is being shifted away from the majority and into the pockets of a smaller and smaller slice of upper income earners and rich families.  As EPI’s State of Working America reveals, from 1983 (when the last major Social Security reform was enacted) through 2010, the wealth of the bottom 60 percent of Americans actually declined.  Even as the nation’s wealth increased by 63 percent, the bottom 60 percent of families were made poorer because a range of policies froze their wages, shipped their jobs overseas, lowered the minimum wage (after adjustment for inflation), and indebted them by raising the price of education.

Further, as much as I agree with Sen. Warren on the merits and understand why she felt the need to push back on the “grandparents vs. grandchildren” framing, I don’t think she went far enough in her argument here—because it is actually the grandchildren who are really the most at risk. Maya MacGuineas and Alan Simpson pretend that if we don’t cut “entitlements” (earned benefits) like Social Security now, we will somehow bankrupt our grandchildren. So their solution is….to cut the grandchildren’s income. Raising the retirement age for the generations coming behind us means cheating them, cutting their benefits when we should be raising taxes now to fund their future benefits.  They are the ones who will lose the ability to retire while they can still enjoy it. They are the janitors, cashiers, factory workers, construction workers, and nurses’ aides who will be forced to work even longer in physical jobs or see their benefits cut to levels even closer to poverty. Already, the average benefit is just a little more than the poverty threshold, $14,760 vs. $11,490.

Besides being morally wrong, cutting Social Security is economically incoherent. As EPI has shown repeatedly, retirement insecurity is growing and essentially every “leg of the retirement stool” besides Social Security is failing American workers and retirees. In short, the next generations will need a strong Social Security system more than ever. If they are to have what they need, Social Security must be expanded, not cut back. Its funding must be shored up by scrapping the cap, the arbitrary limit that lets the top earners escape taxation on salaries over $113,700 a year, while the bottom 90 percent pay on every nickel they earn. Additional benefits will require higher payroll taxes, but those taxes will be a fair price for better financial security for the elderly. For some details on this, see Monique Morrissey’s presentation at the National Academy for Social Insurance from earlier this year.

  • oldngrumpy1

    There is a basic misconception, or lie, running rampant among economists. That is the presumption that the Social Security surplus must be preserved in perpetuity. The program was designed in such a way that placed the burden of retirement on the children of the retirees. All it did was socialize what was already a reality at that time, the elderly living with and being subsidized by their offspring. It wasn’t until the actuarial facts of the great numbers of boomers retiring after not having enough children to support this concept dawned on the administrators that the “surplus” was made possible via higher deductions from payroll.

    The surplus is the result in an investment made by boomers in their own retirement security, and should be treated as “THEIR” money, not a slush fund for political gamesmanship, social engineering, or imperialism. If the surplus isn’t depleted as the last of the boomers die off then everything left would amount to a “RETROACTIVE” genera tax increase on their wages since ’83. If the ongoing deductions are not sufficient to support the program for the next generation of retirees then that burden should fall to their working children, or be worked out between those who are left, both retired and working.

    Any talk of perpetuating the surplus into the next generation is just a ruse to avoid paying back to boomers what they are owed. The program was designed as a “pay as you go” system that recognises the responsibility of each generation to provide for those who went before them and built the nation that the workers inherit and depend upon daily. I would advise current workers to reject the idea of a “surplus” altogether, and to create a separate investment vehicle with more rights of ownership to the individual. The political reality is that we simply can’t depend upon the honesty and general integrity of politicians when trillions of dollars are up for grabs, as was so clearly demonstrated when Bush tried to “gift” the existing surplus to those who had never contributed to it through his top heavy tax cuts that we are still reeling from.

  • RogerFox

    I see 2 basic errors, Ross did you run this past Dean?

    Additional benefits do not require higher % payroll taxes. Just as the 1.5% COLA for 2014 raises the income cap from 113k to 117k. The income cap is currently at about 87%, not 90%, raising it to 90% would increase the median benefit by something like $1500- $2000 a year. While adding 30 billion (.2% of GDP) a year to the SSTF, according to the CBO scoring in 2011.

    In fact if we only raise the FICA tax %, benefits dont go up.