Ever since Franklin Roosevelt created Social Security in 1935, it has rested on the principle that Americans should earn their retirement benefits. The president was a deep believer in the moral importance of work, who also knew his plan would be more politically durable if voters felt as if they had personally paid into it. So the program was designed to mimic a traditional pension, where payroll taxes represented a worker’s contributions and benefits increased for higher earners.
Nearly a century later, the social compact behind Social Security is fraying. Americans have not paid nearly enough into the program to cover the benefits they’ve been promised. As a result, its primary trust fund is now officially projected to run out of money in 2032. If policymakers fail to act in the next president’s term, beneficiaries will face an automatic 22% cut in order to keep payouts in line with contributions.
Policymakers could have saved the system as we know it with modest tweaks had they acted earlier. For example, today’s retirees could have paid slightly higher tax rates over their working lives to adequately fund their benefits. But instead, they elected lawmakers who either ignored the problem or actively made it worse.
Now, it’s effectively too late to prevent massive cuts without abandoning the notion that today’s Social Security beneficiaries actually paid for their benefits. Every dollar that must be raised from higher taxes on today’s workers to prevent a cut for current retirees is a wealth transfer from young to old — from a generation that inherited this shortfall to the one that let it grow.
But policymakers can uphold FDR’s vision of a program in which benefits are earned through work without binding themselves to the false pretense that seniors paid for their benefits. It just requires them to redefine the mechanism by which benefits are earned.
To show them how, my team at the Progressive Policy Institute (PPI) developed a package of reforms built around an innovative new concept: Instead of calculating benefits based on how much income a person earns throughout their career, Social Security would award benefits based on how many years someone works. In other words, a riveter who earns $60,000 annually and a lawyer who earns $300,000 would get the same monthly check in retirement as long as they put in the same number of years on the job.
This redesign would strengthen Social Security’s finances by reducing the outsized benefits that go to high-earners. It would also increase support for seniors with the greatest financial need: under our plan, anyone who works for at least 20 years would receive a benefit large enough to keep them out of poverty, which isn’t guaranteed under today’s system. And it would protect older Americans by preventing automatic benefit cuts slated to take effect in just six years — all without drastically higher taxes on today’s workers.
Importantly, this reform would reinforce Social Security’s premise as a benefit people earn rather than transforming it into a stereotypical redistributive welfare program, affirming the basic Rooseveltian vision.
Our proposal is not without its critics, however. Wendell Primus —– a longtime aide to former Speaker Nancy Pelosi —– and three of his colleagues at Brookings earlier this year published a critique titled “Insufficient financing should not provoke dramatic changes to Social Security.” Notably, the authors did not object to the specific merits of PPI’s proposal. Instead, they argued that policymakers should reject any plan that weakens the link between an individual’s Social Security benefits and their tax contributions into the program. In short, they want to maintain the popular fiction that Social Security works sort of like a normal retirement account.
I don’t want to get into an endless debate over the merits of every specific detail of each proposal, because those will almost certainly be iterated upon between now and when Congress ultimately comes around to seriously considering solutions. But exploring the fundamental weaknesses of their criticism and the alternatives they propose actually shows the impracticality of clinging to the thin pretense that seniors have paid for their benefits — namely, that tying benefits to income necessitates showering benefits on rich seniors who don’t need them or cutting benefits for poor seniors who actually depend on them. It’d be better for policymakers to unshackle themselves from the failing approach of yesteryear and embrace some unconventional ideas.
