Maya MacGuineas: In Two Social Security Reports, Ways to Reduce Senior Poverty Without Broad Benefit Cuts

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, wrote a commentary that appeared in the Wall Street Journal Washington Wire. It is reposted here. She is on Twitter: @MayaMacGuineas.

Chart from the Bipartisan Policy Center's report on Social Security from its Commission on Retirement and Personal Savings.


Recent conversations about Social Security have evolved from how best to make the program solvent to whether benefits should be expanded for all future seniors. U.S. median senior income is among the highest in the world, while economic security for many families and public investment are falling behind. Given that, and with Social Security on the brink of insolvency, increasing benefits for middle- and high-income seniors would not be at the top of many people’s lists.

There are, however, ways to reduce senior poverty without broad-based benefit expansions. Two recent Social Security proposals-–one from experts at the  American Enterprise Institute; the other from the  Commission on Retirement Security and Personal Savings at the Bipartisan Policy Center-–suggest doing just that.
These plans are quite different. But both would make Social Security solvent and enhance retirement security for those who depend most on the program while increasing retirement income for the bottom 30% or so of earners and reducing senior poverty. The Bipartisan Policy Center plan would reduce senior poverty by about a third; the AEI plan would virtually eliminate senior poverty. Both would do so without relying on massive and politically unviable tax increases that would crowd out revenue for other national priorities.

Three common threads allow the plans to accomplish these goals:

1. They avoid massive cuts scheduled under current law. Social Security is projected to run out of money between 2029 and 2034. All recipients’ benefits will immediately be cut 20% to 25% then. The senior poverty rate among Social Security beneficiaries will roughly double, from about 4.5% to 9%. The Bipartisan Policy Center and AEI plans avoid this cut by identifying benefit and revenue changes sufficient to keep the program solvent for at least 75 years.

2. They slow benefit growth at the top to enhance benefits for those most in need. Lifetime benefits for the average individual in the top fifth of earners born in the 1940s is $455,000, and that total will rise to $1.1 million for those born in the 2000s, Congressional Budget Office data show. Couples could receive up to twice as much. Rather than further increase benefits for these groups, both proposals would slow benefit growth for higher earners and use the savings to enhance benefits for lower earners. The Bipartisan Policy Center plan would make the current benefit formula much more progressive while establishing a basic minimum benefit to further assist low earners. AEI would very gradually move to a flat benefit with the bottom third of beneficiaries ultimately receiving benefits greater than currently scheduled levels, paid for by slowing benefit growth for the top two-thirds.

3. They encourage work and greater savings. Social Security alone cannot be the solution to all retirement security concerns, particularly for middle- and upper-middle-class Americans. Both plans encourage people to work longer and save more to better prepare for their retirement needs. The Bipartisan Policy Center proposes a suite of retirement changes, including encouraging work by raising the normal retirement age and calculating benefits on an annual basis to encourage longer careers. AEI proposes auto-enroll and auto-escalation for all 401(k) plans while raising the early retirement age and reducing payroll taxes for older workers.

There is, of course, no one “right” way to fix Social Security. (Anyone can design his or her own plan with this  Social Security Reformer tool.) But if the goal is to strengthen retirement security for seniors in need while leaving room for other national priorities, there are wrong ways to deal with the looming Social Security shortfall.

Doing nothing will ultimately lead to deep, across-the-board cuts for all seniors. And broad-based benefit expansions would leave the program in worse financial straits, send tax dollars to rich seniors, or both.

Both new plans avoid these pitfalls and move the discussion forward on how best to strengthen Social Security and improve retirement security.

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the Committee.