Third Way Introduces New Social Security Reform Plan
Yesterday, the organization Third Way released a plan outlining several Social Security reform proposals meant to ensure the program's solvency over the next 75 years. The plan, called Saving Social Security, makes several fundamental changes to the program and cuts $2 in benefits for every $1 it increases taxes. The authors of the plan describe it as "savings-led" and say that by approaching Social Security reform in a progressive way, it's possible to come up with "a solvency plan that would make Franklin Roosevelt proud". The major points of the plan are summarized in the tables below:
|Proposal||Savings Through 2040||Portion of 75 year Budget Gap Closed|
|make benefits formula more progressive||neutral||no effect|
|index retirement age to longevity, reaching 70 by 2077||$1 trillion||>one-third|
|cut payroll taxes in half for older workers||unspecified||modest cost|
|switch to chained CPI for COLAs||$2 trillion||~one-third|
|increase payroll tax for high-income workers (with or without a FICA "donut hole" payment)||$1.2 trillion||~one-third|
|fully tax benefits for high-income seniors||$500 billion||modest improvement|
|means test benefits|
|immigration reforms (including surcharges on immigrant visas)||$115 billion||modest improvement|
The plan also calls for creating optional private retirement accounts for those in the workforce and under 30; it dedicates $8 billion per year to these accounts, with funds being raised by an increase in the Estate Tax.
In an op-ed in Politico, the authors of the plan - Jim Kessler and David Kendall - explain the reasoning behind some of their proposals and offer very interesting insight, particularly in regards to the widely-held view that any Social Security reform that touches benefits is completely unacceptable. They also make several interesting observations about the idea of Social Security reform that is solely revenue-based. If you look at Social Security in isolation, maintaining its solvency through only increased revenue is theoretically possible. However, that view is unrealistic; Social Security needs to be viewed in the context of all federal government priorities. Viewed in this light, is maintaining the current level of promised Social Security benefits the very best use of increased taxes? You can only raise so much additional revenue, and funneling all of it into Social Security hinders the government’s ability to adequately fund other important priorities. This is why the authors maintain that Social Security reform must alter the trajectory of the program’s growth rather than simply financing it, and why the plan makes $2 in benefit cuts for every $1 it raises in revenue. As Mr. Kessler and Mr. Kendall state in their op-ed:
"It would be reckless to allow Social Security to take up the entire pool of what is potentially available to deal with the retirement of the baby boom generation...Social Security is one of the greatest liberal achievements. But many groups on the left have drawn a line in the sand that could doom it or set the nation on a course to fiscal ruins. Putting the weight of his Nobel Prize in economics behind this anti-reform coalition, New York Times columnist and Princeton professor Paul Krugman calls the Social Security crisis "invented" by "Social Security attackers" using "bad-faith accounting". Americans can be thankful that progressives such as Sen. Dick Durbin (D-Ill.) and Robert Greenstein of the Center for Budget and Policy Priorities have weighed in behind other serious approaches that include benefit cuts."
As a moderate Democratic organization, Third Way has done Social Security a great favor in advancing this reform plan. They have embraced historically unpopular provisions that many politicians and organizations refuse to consider, and in doing so they have advanced the debate on an issue that is pure political dynamite. We commend Third Way for creating this plan, and hope others will join the Social Security reform discussion.
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