So, what do you think about raising the Social Security income cap (AKA scrapping the cap)?

Senator Mark Begich (D-Alaska)

Sitka News reports Senator Mark Begich (D-Alaska) is prepared to introduce legislation to protect and preserve Social Security benefits for future generations, while shoring up the system’s long-term solvency.

Senator Begich introduced his plan in response to President Obama’s proposal to switch to the Chained CPI, which would cut annual cost-of-living increases for seniors and veterans on Social Security. The Senator’s plan to shore up Social Security is based on two key elements:

• Scrap the cap on taxable income: ”Current law sets a cap on contributions for higher income earners; this year they quit paying when their wages hit $113,700. By phasing out this cap, which has essentially become a tax loophole, more people would pay into Social Security all year long.  As a result, the solvency of the trust fund would be extended for about 75 years.”

• Change to the CPI-Elderly, instead of the Chained CPI: “Replace the current system for calculating cost-of-living adjustments to more accurately reflect the cost-of-living for seniors.  This would replace the consumer price index (CPI) for workers with a CPI-E, which reflects costs for seniors and would increase their benefits.”

Scrapping the cap on taxable income would all-but guarantee Social Security’s long-term financial solvency by ensuring all Americans contribute equally to Social Security. Currently, people earning over $113,700 don’t pay into Social Security on that income – and capital gains income is not subject to Social Security taxes. For example, in 2012 Wal-Mart CEO Mike Duke paid a Social Security tax rate of 0.5% on $1.3 million in wages, while Wal-Mart retail employees paid the full rate of 6.2% on their average wages of $22,100. Scrapping the cap would ensure workers and CEOs alike pay the same rate into Social Security.

Switching to the CPI-Elderly (CPI-E) is a technical fix that will ensure cost-of-living adjustments more accurately reflect costs seniors face. While the current CPI measure assumes seniors are buying iPads and new cars, the CPI-E would give greater weight to health care costs and prescription drug prices on which seniors spend more than the average consumer.

Read Sen. Begich’s bill will likely be introduced this week.

You read that right. More Americans think aliens crashed in Roswell than think we should cut Social Security to reduce the deficit.

When asked about specific proposals, 2 in 3 said they opposed switching to the Chained CPI for seniors benefits, and 3 in 4 opposed switching to the Chained CPI for veterans benefits.

Seniors and retirees didn’t cause the deficit, and Social Security benefits shouldn’t be garnished to pay for Wall Street’s recession. But instead of asking the Wall Street guys making $1 million per hour to cover the cost of their malfeasance, President Obama and conservative members of Congress are instead looking to cut Social Security benefits via the Chained CPI.

Elected representatives take note: the poll asked respondents how they would react if their elected representatives voted in favor of the Chained CPI. 66% said they would be less favorable feelings toward their representative for voting that way. It seems not even a UFO crash will help incumbents if they vote for the Chained CPI.

There’s no question Social Security works well. For example, during the last recession, many people lost 40%+ of the value of their 401(k) accounts, but Social Security never missed a payment. Those benefits, plowed right back into the local economy, helped keep businesses afloat and people in their homes.

By contrast, continued reliance on private programs – like 401(k)s, and IRAs – risks compounding the well-documented failures of those systems. The solution, according to the authors of “Expanded Social Security” is Social Security Part B.

Just as Medicare has different components (Parts A, B, C, and D), Social Security could adopt the same model. Regular Social Security, which would become Part A, would be retained in its current form as an earnings-based insurance system that provides benefits to retirees and surviving children and spouses. It would continue to be funded by the payroll tax.

To supplement Social Security Part A, Social Security Part B would be a new, flat, universal benefit funded by general revenues. The combination would provide a much larger and more reliable share of an employee’s pre-retirement income, and act as an automatic stabilizer during times of economic turmoil.

The authors’ proposal also includes shoring up our current Social Security system by either 1) lifting the cap on wages subject to Social Security taxes so high earners no longer pay a lower tax rate than middle and low-income earners (Scrap the Cap), or 2) taxing unearned income such as capital gains, investment income, and dividends at the same rate as wages.

The authors conclude:

The combination of today’s Social Security A with our proposed Social Security B to create Expanded Social Security would provide a stable, secure retirement for every American and contribute greatly toward a solid foundation from which to build a strong and vibrant 21st century economy. America’s hard-working citizens deserve no less.

Indeed.

In the report, over half of respondents reported anxiety when thinking about their future finances, with women (64%) reporting a significantly higher level of anxiety than men (48%). Many of the respondents who reported they were anxious about retirement had less than $200K in retirement savings.

Four out of five respondents also wish they had saved more money for their retirement years, but many of them reported a lack of extra money to put toward savings. More than half said their reason for not saving more for retirement was “I don’t earn enough to save more,” “I can’t afford to save more,” or “I’m paying down debts.” More than one-third reported high medical costs as a reason they haven’t saved enough.

Perhaps one explanation for the high degree of retirement anxiety is a lack of access to workplace retirement savings plans. The report shows that just four in ten are contributing to a workplace savings plan such as a 401k or 403b. Fewer than half have a personal IRA or investments in the stock market.

The likelihood of saving for retirement – and perhaps access to a workplace retirement plan – is related to educational attainment. Half of those with a four degree reported contributing to a workplace savings plan, compared to just 29% of high school graduates or less. It would also appear saving for retirement is directly related to one’s financial ability: 55% of those earning more than $75K put money away via a workplace plan, compared to 4% of those earning <$25K.

It’s clear that middle class retirement security is in jeopardy as guaranteed pensions disappear and wild swings in the stock market wreak havoc on the savings of those nearing retirement age. Restoring a sense of financial security to retirees and near-retirees starts with shoring up Social Security by eliminating the exemption on income above $113,700 (scrap the cap), and ensuring proposals to cut benefits and further raise the retirement age are tossed in the dumpster of terrible policy proposals.

Social Security didn’t miss a payment during the depths of the recession or make bad investments that left retired seniors with pennies on the dollar. Social Security works, and it’s well past time we expand and improve it.

80% of small business owners find cutting Social Security unacceptable

President’s Obama’s budget – expected to be released later this week – will likely include a cut to Social Security known as the Chained CPI.

The Chained CPI would change the way inflation in calculated for Social Security benefits, reducing cost of living adjustments by about 3% per decade. For the average Washingtonian who receives just $13,468 per year in Social Security benefits, that’s more than a $4,000 cut over their first decade of retirement. At age 90, the cumulative loss would be more than $25,000.

This cut would be harmful to seniors, veterans, disabled Americans, and surviving spouses and children who receive Social Security benefits, but it will also take a toll on small businesses and our local economy.

A recent report from the Main Street Alliance, a national network of small business owners, shows a 3% cut to Social Security benefits would take $440 million out of Washington state’s economy.

Social Security benefits are also counter-cyclical, and helped prop up our economy during the depths of the Great Recession. While 401(k)s and home equity were plummeting, Social Security never missed a payment, and those benefits were pumped directly back into small businesses and the local economy. It’s likely that many more small businesses would have shut their doors if Social Security were subject to the same volatility as Wall Street.

Small business owners understand just how important Social Security is to business success, as well as their own retirement. In fact, a February 2013 poll by Small Business Majority found that 80 percent of small business owners oppose cuts to Social Security to reduce the deficit.

Ongoing uncertainty and weakness in the private retirement system makes a strong case for increasing Social Security benefits, not cutting them.

Poll: Americans will pay more for Social Security

Social Security, the most transparently self-financed program of the federal government, is not increasing our budget deficit. The most recent trustees’ report shows sufficient funds to pay full benefits until 2033.

No one is making out like a bandit: Social Security beneficiaries who retired in 2010 are expected to get back approximately what they paid in.

If we wanted to adopt a cautious policy measure that would eliminate the shortfalls predicted 20 years down the road, we could eliminate the cap on earned income subject to Social Security taxes, currently set at $113,700. Such a measure would lead to increased payments by about the top 5.2 percent of wage earners.

Legislation designed to “scrap the cap” has been introduced in Congress. Senator Mark Begich, Democrat of Alaska, and Representative Ted Deutch, Democrat of Florida, have drafted a law that would require all workers to pay the same overall Social Security tax rate, and Senator Bernie Sanders of Vermont, an independent, and Representative Peter DeFazio, Democrat of Oregon, recently proposed application of the tax to earnings over $250,000 (as well as under $113,700) creating a “doughnut hole” exemption for earners in between in order to win more votes.

President Obama has voiced support for cap elimination or modification proposals in the past.

But as Thomas B. Edsall pointed out in a recent commentary, “scrap the cap” has apparently been taken off the table, despite evidence of considerable public support for it.

Readers doubtful of that public support should read the new National Academy of Social Insurance report, “Strengthening Social Security: What Do Americans Want?,” based on an online survey asking respondents whether they favored or opposed 14 specific changes to Social Security. The analysis also draws on findings from focus groups to add qualitative texture to the quantitative results.

That online survey, an opt-in model, is not based on a probability sample, but its findings echo other representative surveys, including this Quinnipiac University poll from 2011, which found that 56 percent of Americans favored raising the cap on taxable Social Security income.

Readers mystified by the yawning gulf between public opinion and current political discussion might benefit from the background provided in Eric Laursen’s magisterial history, “The People’s Pension: The Struggle to Defend Social Security Since Reagan.” The book offers more than 800 pages of fascinating if gory details about the lobbying efforts and misinformation campaigns aimed at bringing the program down.

It also reports on a series of surveys going back to 1977 in which most respondents said they would be willing to pay higher payroll taxes if that would shore Social Security up for the future.

Mr. Laursen effectively decodes much of the economic jargon that has obscured public understanding of these issues, and continues to blogregularly on this topic.

Readers feeling demoralized by the history of class warfare over social insurance might be cheered by two of the short videos recently entered in anonline contest sponsored by the Peter G. Peterson Foundation on the theme of “I’m Ready” to fix the national debt.

In one entry, “Being Honest, Tough Choices,” a serious young man uses his webcam to explain in simple, direct terms why he supports Social Security and deplores the rhetoric of “makers versus takers, young versus old.”

Another entry, originally titled “Scrap the Cap” but currently labeled “Movin’ In, Kids,” has outpaced all others to date in terms of both viewings and ratings. It features some lovable oldsters in a hilarious rap performance warning their son that if their Social Security benefits are cut he better pull out the sofa bed and put out some fresh towels because they will be living together from now on.

Their song and dance goes on to explain why scrapping the cap would be better for everyone concerned.

Nowadays, whenever Social Security comes up in policy debates around Washington, the discussion often focuses on how best to cut benefits in order to shore up the program’s finances.

But a big new report (pdf) from the New America Foundation suggests that the conventional wisdom is exactly backward. Congress should be looking at ways to expand Social Security, not shrink it — particularly at a time when traditional corporate pensions are disappearing, and 401(k)s have proved fairly risky.

The major proposal in the report is to add a brand new benefit to Social Security, called Part B, which would provide a flat $11,699 per year to all retired workers. This would come on top of regular Social Security, which would also be protected from any further cuts.

The net effect is that the new Social Security program would replace a far bigger chunk of a worker’s lifetime earnings than the current program does. Kevin Drum offers up this chart:

Read more from the Washington Post >

(J.D. POOLEY/GETTY IMAGES)

These days many Americans, whether political or not, are tuned into discussions about social insurance programs. Retirees and younger generations alike are questioning whether Social Security benefits will be ample enough to carry them through their retirement years.

Despite solvency for the next two decades, a number of options are being explored to ensure Social Security benefits are available for generations to come. Potential solutions range from those that cut benefits for the long-term to those that increase federal revenues to maintain or boost retiree benefits. A consideration regularly discussed is the full retirement age and how it relates to the average life expectancy of Americans.

As life expectancies have trended upward, lawmakers have ticked up the age at which full benefits can be claimed. In 1900, life expectancy at birth was less than 50 years of age. By 1981, life expectancy had increased to nearly 74, prompting Congress  to institute a gradual increase in the full retirement age for Social Security benefits in 1983 – from age 65 to 67 for those born in 1960 or later. And while average life expectancies have been on the rise, it’s important to take a closer look at the averages broken out by various demographic factors.

Many communities are lagging behind the average life expectancy
Data from the National Center on Health Statistics show a 4.5-year gap in life expectancy between whites and blacks in 2008, with whites living longer. Black men in particular have lagged, with a life-expectancy of 70.6 years at birth, compared with 77.2 for black females and 76.1 for white males. New research from Columbia University shows gaps in life expectancy based on education level, too – gaps that have widened over the past two decades. While life expectancy has increased for the most educated, the least educated haven’t kept pace. The gap for women, in particular, has widened, with less educated white women actually experiencing declines in life expectancy.

What this means for Social Security benefits
Demographic factors aside, Americans overall are living longer than in decades past. However, for many, this means living longer on fewer resources. Further raising the full retirement age would increasingly stretch the tight budgets of low-income retirees.

The Congressional Budget Office found that any increase in the full retirement age will result in decreased benefits for all retirees, regardless of age benefits are claimed. An analysis by the National Academy of Social Insurance (NASI) determined that the increase in the full retirement age from 65 to 67 resulted in a 13.3% cut in benefits for anyone born in 1960 or later.

Despite this, there have been countless proposals to further increase the age for retiree benefits. At NASI’s 25th Annual Policy Research Conference, a session entitled “Living Longer, Working Longer — and Social Security” explored the advantages and drawbacks of delaying collection of Social Security benefits. Although this session did not explicitly address raising the full retirement age beyond 67, there was extensive discussion about the fiscal implications of delayed retirement for workers who may or may not be in a position to do so.

Delayed retirement not an option for many
Research from the Social Security Administration shows individuals who are able to delay collection of Social Security retirement benefits beyond the full retirement age receive increased benefits for as long as they live. However, despite the financial incentives to delay retirement, this option is not desirable, or in some cases feasible, for many retirees.

Currently, eight in ten retirees receives reduced benefits because they claim Social Security benefits before the full retirement age. For some, it’s not about a choice to retire early. A number of workers simply cannot continue to work into their sixties, due to physical constraints and poor health conditions. Raising the retirement age would further reduce benefits for these claimants, potentially pushing thousands into poverty as they age.

So while increasing the full retirement age to 68 or even 70 may decrease Social Security’s long-term financing gap, it would also be a raw deal for those who will be collecting in the decades to come – especially for my own generation of millennials. I want more from social insurance, and it’s time we put options on the table that both increase solvency and boost benefits, so all Americans can retire in dignity. And NASI’s new survey results show I’m not alone – Americans agree benefits could be improved and are willing to pay more for those benefits.

Originally posted by the National Academy of Social Insurance

Former South Carolina Senator and president of the Heritage Foundation Jim DeMint

The Heritage Foundation, the uber-conservative D.C. thinktank headed by former Senator and Tea Party darling Jim DeMint, is an unashamed opponent of Social Security. Past proposals from Heritage have included raising the retirement age, means-testing benefits, and privatizing the entire Social Security system. Their latest policy recommendation – the Chained CPI – swims in the same pool of ultra-conservative ideology.

While the Heritage Foundation and others bill Chained CPI as a “technical fix”, it’s really just a backdoor cut to Social Security benefits. For seniors, veterans, and millions of other Americans who rely on Social Security benefits, the Chained CPI would result in a 6% benefit cut after 20 years. That’s a lifetime loss of almost $14,000 in earned benefits.

But Heritage authors argue there are three good reasons the Chained CPI is actually good public policy. So let’s examine those reasons, which they outline in a recent post, and see whether they hold water:

1. Heritage: the Chained CPI “would ensure accuracy.”  Reality: the Chained CPI is even less accurate. The current CPI measure is largely inaccurate for the majority of Social Security recipients because it is based on a Consumer Price Index (CPI) for Urban Wage Earners, which does not reflect costs seniors typically face, such as nursing care, prescription drugs, and health-related expenses. Medical inflation has far outpaced inflation in other parts of the economy like with food, clothes, and cars. If Heritage really wanted a more accurate inflationary index for Social Security, they would be advocating for a switch to the CPI- Elderly, an experimental inflation index that is a much more accurate measure of costs faced by seniors.  Of course, using the CPI-Elderly would likely increase benefits while the Chained CPI would cut them. And improving benefits is an untenable position for an organization ideologically opposed to Social Security.
2. Heritage: the Chained CPI “would avoid benefits cuts later… by saving money.” Reality: the Chained CPI starts cutting benefits immediately, and those cuts get worse over time. Heritage is careful never to call the Chained CPI a “cut” or a “decrease” in benefits. Instead they write convoluted statements like “payments would increase by 0.3 percent less”. While it’s a great example of policy wonk doublespeak, at the end of the day it still means that under Chained CPI, an average retiree today will lose nearly $14,000 in benefits over 20 years.
3. Heritage: the Chained CPI “would save Social Security billions.” Reality: Any “savings” would come directly out of checks for the beneficiaries who paid for them in the first place. Here you can clearly see the disconnect here between the very comfortably affluent types working at Heritage and a senior who is living on $1,200 a month in Social Security benefits. Social Security’s administrative costs are around 1%, so any so-called “savings” to the program would have to come directly out of the checks of beneficiaries.While it’s true that Social Security does has a projected long-term actuarial shortfall, there are a variety of options for bringing it into balance, including scrapping the cap on taxable earnings ($113,700 in 2013) – an option supported by 71% of Americans. But eliminating the tax cap on earnings would mean ultra-rich Americans would begin to pay the same Social Security tax rate as regular working class Americans. And that’s a big no-no for a conservative thinktank funded by those same ultra-rich Americans.

Social Security is the bedrock of our American retirement system. So don’t be fooled by empty promises from organizations like the Heritage Foundation, where ideology trumps arithmetic, and whose long-term agenda is to weaken and diminish – and ultimately privatize and dismantle – Social Security.