Economic Policy Institute economist Monique Morrissey attested to the sustainability of Social Security at yesterday’s House Democratic Caucus’ Seniors Task Force Roundtable. Her full prepared remarks are below.
Thank you, Congresswomen Schakowsky and Matsui, and the Seniors Task Force, for inviting me here today.
Thanks also to the other participants on this panel, who share with me the belief that we should be strengthening, not cutting, efficient and effective retirement programs like Social Security.
The focus of my remarks will be on whether Social Security in its current form is unsustainable, as has become the conventional wisdom in Washington.
As Nobel prizewinning economist Paul Krugman has observed, “Inside the Beltway, doom-saying about Social Security—declaring that the program as we know it can’t survive the onslaught of retiring baby boomers—is regarded as a sort of badge of seriousness, a way of showing how statesmanlike and tough-minded you are.”
But is it true that Social Security is facing a crisis, and that benefit cuts in some form are unavoidable?
The short answer is: No.
Social Security is currently running a surplus, and the two and a half trillion dollar trust fund is projected to keep growing for at least another decade.
This enormous trust fund isn’t there by accident—it’s the result of changes enacted by Congress in 1983 in anticipation of the Baby Boomer retirement. The savings in the trust fund are sufficient to meet this demographic challenge, so Congress should be proud of its foresight.
The other supposed villain in this story is rising life expectancy, which has led many to call for raising Social Security’s normal retirement age to 70, or even indexing it to longevity.
Contrary to popular belief, life expectancy in retirement has been growing relatively slowly in recent years, and, like the Baby Boomer retirement, the increase was fully anticipated by the Social Security actuaries.
Because of population growth, rising life expectancy does not create a Malthusian dilemma. In fact, the ratio of beneficiaries to covered workers is projected to level off after the Baby Boomer retirement.
Similarly, Social Security outlays are projected to level off—not spiral upward like health care costs.
This isn’t to say that Social Security costs won’t increase, but this increase is manageable—on the order of 1.5% of GDP. And because Social Security is currently running a surplus, the 75-year shortfall is much smaller—around 0.7% of GDP according to the Social Security actuaries, and even less according to the Congressional Budget Office.
The Center on Budget and Policy Priorities points out that this is about the same as the cost of extending the Bush tax cuts for people making over $250,000 a year.
This projected shortfall can easily be closed through modest payroll tax increases supported by voters across the political spectrum. As Senator Kohl recently noted, “modest tweaks” are enough to ensure solvency and even strengthen benefits for the most vulnerable.
This isn’t a case of voters wanting to have their cake and eat it too. When it comes to Social Security, Americans overwhelmingly prefer tax increases to benefit cuts–even stealth cuts like raising the normal retirement age.
Poll after poll has shown that voters are willing to pay higher taxes to preserve and strengthen Social Security. But most of the gap can be closed without raising taxes on ordinary workers—just those with earnings above the taxable earnings cap of $106,800.
For example, gradually restoring the cap to again cover 90% of earnings for workers, and eliminating it altogether on employer side, would be enough to shrink the long-term deficit by 69%, while still preserving the link between these workers’ contributions and the benefits they receive.
Raising or eliminating the cap on taxable earnings is appropriate because almost all the earnings growth (and the growth in life expectancy) in recent years has been at the top.
Meanwhile, ordinary workers, especially younger workers who will bear the brunt of any benefit cuts, cannot afford further reductions in benefits. Younger workers already face a higher normal retirement age of 67, and therefore a lower replacement rate than previous generations. As a result of this, and a shift from traditional pensions to 401(k) plans, younger workers are much more likely to face a sharp drop in living standards at retirement.
These workers would be much better off if we closed Social Security’s modest shortfall by shoring up revenues rather than cutting benefits. In other words, to paraphrase former Senator Alan Simpson, “we owe it to our grandchildren.”