Rubio Proposes Retirement Program Reforms
As the Senate works this week to increase the debt, Sen. Marco Rubio (R-FL) outlined a series of reforms to Social Security, Medicare, and retirement accounts in a speech at the National Press Club on Tuesday. He introduced legislation yesterday that would make two major changes to encourage seniors to work longer.
On Social Security, Rubio proposed increasing the full retirement age above its scheduled level of 67 for people aged 55 and younger. He also proposed making the benefit formula more progressive so low earners would see higher benefits while high earners would see lower benefits. Those two policies would save significant amounts over the long term, although they may not actually extend the life of the Social Security trust fund by much, as the savings would take time to accumulate. In addition, Rubio's legislation (mentioned above) would encourage people to work longer (beyond the effect of raising the retirement age) by eliminating Social Security payroll taxes for those who reach the full retirement age and by eliminating the Retirement Earnings Test, which reduces benefits by 50 cents for each $1 a person between the ages of 62 and 65 earns over $15,000.
For Medicare, Rubio would take a page out of the Ryan budget by converting Medicare to a premium support system. That proposal would introduce competitive bidding between traditional Medicare and private plans offering equivalent benefits, with the federal government paying premiums for seniors equal to the average cost of the plans in each region. As we noted in our analysis of the Ryan budget, setting the premium contribution equal to the average cost rather than the cost of the second-cheapest plan would save less for Medicare, but it would also be more favorable to beneficiaries.
Outside of those programs, Rubio would also encourage private saving for retirement by allowing people who do not have an employer-sponsored retirement plan to enroll in the Thrift Savings Plan (TSP), the 401(k)-like system for federal employees. This would allow those who enroll to contribute pre-tax dollars to the TSP.
Rubio's proposal is an important contribution to the debate over reforming entitlements. Certainly it is not the only approach, but the more policymakers weigh in, the more constructive a debate we can have. It is also good to see Social Security and Medicare's finances being considered in the context of overall retirement security, which policymakers will ultimately need to do to ensure the well-being of retirees.