A bit late but great analysis ICYMI: By NYTimes EDITORIAL BOARD The trustees of Social Security recently reported that the retirement system can pay full benefits until 2035, when it will be able to pay about three-fourths of promised benefits. That is not a crisis. It is a manageable problem. The system needs to be restored to long-term health, but policy makers must realize that broad-based benefit cuts are not really a viable option. For most people, the ability to finance a secure retirement has been ruined by stagnating wages, repeated stock market busts, diminished home equity and weakened or nonexistent pensions. Social Security, whose average monthly retirement benefit is $1,268, is pretty much all that is left. Most people age 65 and older get two-thirds to all of their income from Social Security. And yet, in the deficit-obsessed, anti-tax world of Washington, closing the shortfall in Social Security has come to mean broadly cutting benefits. That would be a mistake. Targeted cuts — like lower payouts for upper-income recipients who live longer and draw larger benefits — could improve the system’s finances and fairness. But those who promote across-the-board cuts are not interested in strengthening the system. They want to reduce the budget deficit. And even though Social Security is not a cause of today’s deficits, they would rather cut benefits than improve the system’s finances by imposing tax increases on higher-income taxpayers or phasing in a modest payroll tax increase over decades. The focus on benefit cuts also conveniently ignores the fact that benefits are already shrinking. Under current law, benefits are being reduced by the higher retirement age, which has been gradually rising from 65 to 67 for those born in 1960 or later. That translates into lower monthly benefits for those who retire at 65 or fewer years of benefits for those who work until 67. For example, a worker entitled to a $1,000 monthly benefit upon retirement at age 67 will get only $867 if he or she retires at 65. Benefit checks are also being reduced by higher Medicare Part B premiums, which are deducted from Social Security benefits. The premiums are set to rise from 5 percent of benefits, on average, for those retiring in 2002 to 9.5 percent for those retiring in 2030. And if you factor in rising co-payments on health care services, most retirees already face living on less. Taxes further erode benefit payments because the levels at which benefits become taxable — generally, $25,000 for individuals and $32,000 for couples — have never been adjusted for wage growth or inflation. By 2030, more than half of recipients will owe tax on a portion of their benefits, compared with 10 percent when the taxes were first imposed, in 1984. The upshot is that under current law, Social Security benefits will replace 31 percent of the typical retiree’s preretirement earnings in 2030, compared with 42 percent as recently as 2004, according to the Center for Retirement Research at Boston College. And that includes only the big reductions. Benefits are also smaller because of changes instituted in 1983 that permanently delayed all retirees’ first cost-of-living adjustment for six months. A misguided plan by the Obama administration to cut the COLA as part of a deficit reduction package would add to that cutback. Social Security benefit cuts are already well under way, and they cannot go much further. Reform should balance cuts with tax increases, including raising the level of wages subject to payroll tax. It should also include a plan to create good jobs and foster immigration, bolstering the income and number of workers paying into the system. There are sensible ways to fix Social Security without undermining it as a support against hardship in old age.
Posted on: Tue, 11 Jun 2013 21:18:14 +0000
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