What Conventional Approaches to Fixing Social Security Are Missing
Social Security’s financial solvency continues to dominate headlines about the program, with the latest annual trustees’ report, issued in April, predicting that full benefits will only be payable until 2035.
To help policymakers and the public understand how proposals to make Social Security solvent would affect workers and retirees, the Congressional Budget Office (CBO) recently released a new interactive tool in which users can select options to fix Social Security, including benefit reductions, tax increases, or a combination of the two.
Although framing the policy options to address Social Security solvency in terms of benefit cuts and tax increases reflects conventional wisdom, this approach ignores recent proposals that have included increases in both benefits and taxes. These proposals reflect a shift in the conversation around Social Security that emphasizes the importance of ensuring the adequacy of benefits in addition to solvency.
Although it will be debated whether closing the solvency gap solely through revenue increases is reasonable, one set of proposals to increase benefits has broad bipartisan support (PDF): protecting the program’s most vulnerable beneficiaries through a more effective minimum benefit.
Reducing poverty in later life
Among the many Social Security reform commissions and major bipartisan proposals to restore trust fund solvency, all aim to not just close the financial shortfall but to also improve and modernize benefits to better reflect recent demographic and economic trends.
Among the competing priorities and potential changes considered by these commissions, making Social Security more effective at reducing poverty in later life through an increased and restructured minimum benefit stands out as a top priority—one over which there is long-standing bipartisan agreement (PDF).
What we know about minimum benefit proposals
Within Social Security policy, there has been significant innovation and policy learning on how to best design minimum benefit proposals. Figuring out the most effective way to target benefit increases to the most vulnerable in the context of Social Security’s benefit structure is not easy. A policy that sounds generous in a Social Security plan might actually produce little change in the number of people at or near poverty because of how provisions may interact and how the complexity of lower earners’ working lives (PDF) may compound this interaction.
Fortunately, researchers have developed sophisticated microsimulation models that have the capacity to test the impact of proposed changes on various groups of people at different income levels. Through years of experimentation and refinement, proposals on how to most effectively lift the largest number of people out of poverty or near-poverty for the lowest cost have gotten more refined.
My colleagues at the Urban Institute have played an important role in developing and refining minimum benefit proposals over time. Most recently, they put forward a new approach for a targeted minimum benefit plan. Researchers at the Social Security Administration (SSA) have also evaluated several minimum benefit proposals.
In addition, Urban’s long-range Social Security model DYNASIM (Dynamic Simulation of Income Model) was used in the design of a basic minimum benefit for the Commission on Retirement Security and Personal Savings (PDF), published in 2016.
As the pressure to act on Social Security grows, we need tools like those developed by the CBO, the SSA, and Urban to help us understand and communicate the impact of Social Security solvency proposals. But failing to include options to protect vulnerable beneficiaries provides an incomplete analysis.
As the CBO and others consider ways to improve these tools, they should include provisions to protect vulnerable beneficiaries—in addition to raising revenue and cutting benefits—as a major element of any Social Security reform plan.
Doing so would recognize that the goal of reform should be more than just ensuring the program’s financial stability—it is also about strengthening and improving this critical program.
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