Opinion pieces and speeches by EPI staff and associates.
THIS ARTICLE FIRST APPEARED IN THE OLD CITY DERRICK ON OCTOBER 17, 2000.
How does he want to pay for it?
by Christian Weller
Election years are full of pie-in-the-sky promises. Before heading to the polls it seems reasonable to take a hard look at some of these promises. This is especially true when it comes to Social Security, arguably the number one issue this year, since the ideas of Republican hopeful Governor Bush — as vague as they are — may turn out to be downright bad.
Governor Bush has proposed to allow workers to divert some portion of their payroll tax, reportedly 2 percentage points, into private accounts. Lower income to the system means that either taxes have to be raised — an unlikely option for a Republican president — or benefits have to be cut. Governor Bush has promised that his plan would leave benefits for those in or near retirement untouched. No such promise exists for younger workers. He has also said that he would not rule out raising the retirement age as a way to cut benefits. People now in their early fifties and younger may have to work well into their late sixties or early seventies before they can receive full benefits.
A recent study by the Century Foundation estimated that benefits would have to be cut by an average of 41% for workers 55 years old in 2002 and younger to pay for Bush’s privatization proposal. If Bush wants to finance his privatization gimmick solely by reducing the years with full retirement benefits, the retirement age would go up to 71 years for those 55 years old in 2002 and to almost 73 years for those 35 year in 2002. Even if only half of the benefit cut would come from a higher retirement age, it would still go up to almost 70 for those 35 years old in 2002. People who are 33 years old today would have to work 5 to 8 years longer than people retiring today before they can receive full benefits.
True we are living longer. But our health and life expectancy are not improving this fast. On average, life expectancy at age 65 is projected to go up by 0.05 years annually. It would take 100 to 160 years before our life expectancy would have improved enough to bring the time spent in retirement back to where it is now. Moreover, a higher retirement age does not only mean fewer retirement years with full benefits, but it also means more years paying taxes. And finally, of those who are working longer to receive full benefits 2-3% can expect to die each year. In other words, the system saves money because some people will never receive any benefits.
To be fair, most people retire early. Currently, retirement can come as early as 62. If a worker chooses this option, her benefits are currently reduced by 20%. In 2027, when the retirement age is scheduled to go up to 67, the reduction in benefits is 30%. If the retirement age were to go up to 70, the reduction for those choosing early retirement at age 62 would be roughly 45%.
Workers would find themselves between a rock and a hard place. They could choose to have significantly less income or they could work for a few extra years. That is, if they are lucky enough to have this choice since old age is highly correlated with poor health. Not only that, African-Americans, women, blue-collar workers, the poor and less educated workers experience faster health deterioration than others. As their health deteriorates, workers have no choice than to retire early and take a large reduction in their retirement check. To add insult to injury, some of the factors that determine poor health are also correlated with income. Thus, some workers that are most likely to be forced into early retirement because of their health are also the ones that would need the additional income from Social Security the most.
Raising the retirement age is a regressive benefit cut that hurts those workers the most that depend on Social Security the most. To avoid putting workers, especially low-income workers, in the position of choosing between retirement in poverty or in debilitating health, the first step is not to tamper with the system. If there is no partial privatization, benefit cuts are not necessary. Governor Bush would not have to make promises he can’t keep, and Social Security would remain the most successful program as he has called it himself.
[ POSTED TO VIEWPOINTS ON DECEMBER 13, 2000 ]
Christian Weller is a labor economist at the Economic Policy Institute in Washington, D.C.