The text below is an excerpt from the complete document. Read the full written testimony with references in PDF format.
I argue that Social Security benefits for long-term, low-wage workers are modest and need to be increased. There are many ways to bolster benefits for low-income retirees, each with strengths and weaknesses, so technical details of each proposal will determine its effectiveness. Any Social Security reform package will include multiple provisions that interact with one another. Certain provisions to help low-earners may be more or less desirable depending on a package's other components. Finally, some low-income older and disabled Americans are beyond Social Security's reach. To help them, Congress should consider expanding the Supplemental Security Income program.
Mr. Chairman and members of the committee: Thank you for the opportunity to testify. I will
focus on four key points:
- First, Social Security benefits for long-term, low-wage workers are modest and need to
- Second, there are many ways to bolster benefits for low-income retirees. Each has
strengths and weaknesses. The technical details of each proposal will thus determine its
- Third, any Social Security reform package will include multiple provisions that interact
with each other. So certain provisions to help low-earners may be more or less desirable
depending on other components of the package.
- Finally, some low-income older and disabled Americans are beyond the reach of Social
Security. To help them, Congress should consider expanding SSI, the Supplemental
Security Income program.
My first point is about the need to reduce poverty risk by shoring up Social Security
for long-term, low wage workers.
About 10 percent of Americans age 65 and older live in poverty, and many more have
incomes that leave them just barely above the poverty line.
Low-wage workers' Social Security benefits are modest, both compared to benefits in
other developed countries and compared to basic needs. For example, someone who spent 35
years working full-time at the minimum wage who retired at 62 would receive a Social Security
benefit equal to only 83 percent of the poverty level.
Many low lifetime earners don't even get that much. Many drop out of the labor force for
a time or work only part time, often to care for children, disabled family members, and frail
parents. Also, recessions hit them especially hard, and they are more likely than others to become
This leads to my second point: We can bolster benefits for these vulnerable earners
in different ways, with varied strengths and weaknesses.
Let me start with minimum benefits because of their prominence in reform packages.
They are highly cost-effective, and directly address the problem of wage stagnation that has hurt
less-educated workers in recent decades.
Our models show that within 5 to 10 years of enactment, certain minimums could lift tens
of thousands of Social Security beneficiaries out of poverty. By mid-century, they could help
almost a million people every year.
Minimum benefits with stricter work years definitions would have smaller effects, but
would cost less and maintain Social Security benefits' strong ties to time in the labor force.
That is the challenge in designing a minimum benefit: the better it is at alleviating
poverty, the worse it sometimes is at rewarding work. Really large minimum benefits could
weaken the relationship between taxes paid and benefits received. Given the fiscal challenges
ahead, Social Security must continue to reward long-time workers.
Another interesting Social Security adequacy proposal would increase benefits at older
ages, say when folks are in their 80s and older, through a longevity insurance bonus or index.
This addresses the risk that people might outlive their assets. Such benefits would be targeted
toward a time of life when work ability is most limited and would ensure that older seniors'
incomes kept up with standards of living for workers. But some of these benefits would go to
well-off seniors who don't need extra help. Without caps, then, longevity benefits may be less
effective at reducing poverty than other equally costly approaches.
Proposed spouse and survivor benefit changes often try to increase the program's
fairness—for example, making benefits more equal for single- and dual earner-married couples.
A challenge for these proposals is that trying to make benefits fairer for some couples often
makes benefits less fair for unmarried workers who paid the same payroll taxes. Some of these
proposals are also fairly costly—caps can help.
Caregiver credit options try to deal with most of the limitations of spouse and survivor
benefits. They could effectively serve many single parents, who now often fall through the
cracks. Like minimum benefits, they also tend to be quite cost-effective and are very progressive.
But, they're not always fair for caregivers who earn more than the credit level. And
they're hard to administer.
So, details matter. Without careful design, large vulnerable groups could be left out,
diversity within groups may be overlooked, and benefit improvements could become less
effective over time.
My third point is that in any Social Security reform package, provisions are going to
Sometimes people say that solving Social Security's financing needs is just an arithmetic
problem—we just need to raise some taxes and cut some benefits.
But different tax increases and benefit cuts affect workers and beneficiaries very
differently. For example, reductions to cost-of-living adjustments would affect the oldest-old
more than other beneficiaries.
I've simulated many Social Security packages in which the impact of an adequacy
adjustment that appeared to be highly effective in isolation has been largely wiped out by other
elements in the package.
That's why it's critical to look at packages in totality—the whole is often quite different
from the sum of its parts.
My final point is that Social Security can't do it all.
SSI was designed to aid those with limited work histories. It has languished over the past
35 years, and needs to be updated if it's to play more of a role in reducing need among rapidly
aging baby boomers. For example, increasing SSI's asset test would be an especially costeffective
way to alleviate poverty among older women. Given the increasing share of defined
contribution employer-provided pensions, Congress could reconsider the way SSI treats these
types of pensions.
Thank you. I welcome questions and discussion.
(End of excerpt. The full testimony with references is available in PDF format.)