Event: Divergent Views on Overhauling Social Security

Largely due to changing demographics, the Social Security Trust Fund will be exhausted within the next 20 years. To avoid this, most reform plans follow the model used by the last major change to Social Security in 1983: modest adjustments to taxes and benefits to extend the life of the Social Security Trust Funds without dramatic changes. However, other reformers say that the current system does not adequately meet the nation's retirement needs and should be rethought. Yesterday, two Social Security experts, one from the left and one from the right, presented their ideas for a major overhaul of Social Security on a panel at the American Enterprise Institute. The event was entitled "More or Better? Rethinking Social Security for the 21st Century."

On the "More" Social Security side, was Michael Lind, one of the co-founders of the New America Foundation. Lind advocates for a large expansion of Social Security. He contends that Social Security is the most successful form of retirement savings, and that the other two forms (private savings and employer pensions) have not met the needs of low-income individuals. He recommends leaving Social Security in place, but also creating an entirely new entitlement program "Social Security B."

The new system would provide a flat benefit for all seniors regardless of income level. Between both Social Security programs, every retiree would be guaranteed benefits at least at the poverty line, and even the highest earners would see a benefit increase. By eliminating most tax incentives for private savings, Lind's plan would shift most private savings into the public system. Such a benefit expansion would need significant new revenues.

On the "Better" Social Security side was Andrew Biggs, a former deputy commissioner at the Social Security Administration and currently a resident scholar at the American Enterprise Institute. Biggs agrees Social Security has a funding problem, but argues that the United States does not have a retirement crisis. Because of the way data is measured, government surveys tend to understate the retirement savings available to most workers. In addition, the financial and mutual fund industry has an incentive to encourage people to oversave. Biggs argues that to improve the health of the retirement system, we would want people to work longer, save more, and retire later. However, he contends that the current system does the opposite—encouraging people to work less, save less, and retire earlier.

Biggs would overhaul the existing Social Security system, and scrap the current system where people receive more benefits by contributing more. Similar to Lind's system, retirees would receive a flat benefit at the poverty line. Such a system would cost less than the existing Social Security system (and collect less in tax revenue), so people could put more money into private savings accounts.

Both thinkers would add a new government benefit at the poverty line, decreasing elderly poverty from 15% to approximately zero, but use different approaches. Lind would decrease the role of private savings, while Biggs would expand it. We've written before about Social Security's pending fiscal problems and explained that it may be unwise to expand benefits without first bringing the system back into balance. We also put together the Social Security Reformer, a tool which lets people put together their own plan to fix Social Security's solvency through some of the most commonly discussed options.

See a summary of the event, or watch the archived video here.