SOCIAL SECURITY WORKS ALL GENERATIONS PLAN - Nancy J. Altman and Eric R. Kingson Founding Co-Directors, Social Security Works
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SOCIAL SECURITY WORKS
ALL GENERATIONS PLAN
Nancy J. Altman and Eric R. Kingson
Founding Co-Directors, Social Security Works
SOCIAL SECURITY WORKS ALL GENERATIONS PLAN 1
CONTENTS
Executive Summary ii
ABOUT THE AUTHORS
Background 1
Nancy Altman, author of The Battle for Social Security
(Wiley, 2005), and Eric Kingson, Professor of Social
Work at Syracuse University, are founding co-directors of Improving Economic Security For
Social Security Works and co-chair the Strengthen Social America’s Working Families 2
Security Coalition (www.StrengthenSocialSecurity.org).
Both served as staff to the 1982 National Commission In Brief: Social Security Works All Generations Plan 6
on Social Security Reform (the so-called “Greenspan
Commission”), which developed recommendations that Appendix I 7
were enacted as the Social Security Amendments of 1983.
Appendix II 13
SocialSecurityWorks.org
Endnotes 14
The mission of Social Security Works is to protect and
improve the economic status of all Americans, espe-
cially disadvantaged and at-risk populations, and, in so
doing, to promote social justice for current and future
generations of children as well as young, middle-aged
and older adults.
The authors thank Linda Benesch, Alex Lawson, Michael
Phelan, Dan Redding, Ben Veghte, Lacy Crawford, Molly
Checksfield, and Stephanie Connolly.
EXECUTIVE SUMMARY BACKGROUND
W S
orking Americans face a retirement income ocial Security works. It is the most efficient, fair, A remarkable institution, Social Security has never failed to meet its
crisis. With the ongoing disappearance of “[The] conversation about retirement and Social secure and universal source of retirement income, obligations. But, like the Constitution, the nation’s highway system,
Security benefits is not just a conversation about and other major institutions, it requires adjustments and enhance-
traditional pensions, millions of workers life insurance, and disability insurance available ments from time to time. Since 1935, in good times and bad, the
math. At its core, this is a conversation about our
have lost an important component of retirement security. in the United States. As powerful and effective as private nation has built upon Social Security’s success, extending protections
values. It is a conversation about who we are as
The 401(k)s and IRAs that have emerged in their wake a country and who we are as a people…” enterprise is, there are certain tasks that are performed and, when needed, strengthening financing.
put nearly the entire risk of retirement insecurity on better collectively and cooperatively through government.
—Senator Elizabeth Warren, Senate Speech. Substantial improvements occurred in 1939, when protections were
those individual workers fortunate enough to have those November 18, 2013 One of those tasks is the economic security provided
added for the families of deceased and retired workers; in the early
savings. The vast majority of workers face an insecure by Social Security when wages are lost as the result of 1950s, when benefits were increased and coverage extended to agri-
future, due to changes in the economy ranging from disability, death, or old age. cultural and domestic workers; in 1956, when disability insurance
increased levels of long-term unemployment, to stagnant children up to age 22 in case of death/disability of covered protection was added; in 1965, when Medicare health insurance
wages, and growing income inequality. parents; Generations of Americans built our Social Security system to was added for persons 65 and over; and in 1972, when Congress
██
Provide a new child benefit of $1,000 upon the birth or adoption provide basic and widespread protection. This uniquely American enacted legislation extending Medicare protections to Social Security
Families, especially those caring for young children and persons with of a child; institution is based on an understanding that, as citizens and beneficiaries with long-term disabilities,1 as well as adjusting cash
disabling conditions, are struggling. Social Security is the solution, ██
Enhance protections for Disabled Adult Children and disabled human beings, we all share certain risks and vulnerabilities; and we benefits automatically, with the goal of assuring that they would not
but it is projecting a shortfall in about two decades. widow(er)s. all have a stake in advancing practical and efficient mechanisms of lose their value over time as the result of inflation and productivity.
self- and mutual support.
The Social Security Works All Generations Plan addresses these three To secure Social Security’s financing for generations Since then, however, benefits have been cut.2 The last major Social
inter-related challenges. to come, the All Generations Plan would: Security legislation, enacted in 1983, phased in substantial reduc-
tions, including a roughly 13 percent cut in retirement benefits
To address the retirement income crisis, the All ██
Gradually eliminate the maximum taxable wage base, giving credit for persons born after 1960.3 According to the National Academy
Generations Plan would: for these contributions; of Social Insurance, Social Security’s retirement benefits will, in
██
Introduce a dedicated 10 percent marginal income tax on income 2050, be about 24 percent lower than they would have been absent
██
Increase benefits for all current and future beneficiaries by 10 over $1 million; changes enacted in 1983 and 1993.4
percent, up to a maximum of $150/month; ██
Treat all salary reduction plans the same as 401(k) plans with
██
Ensure that benefits do not erode over time by enacting the more respect to the definition of wages under Social Security; These cuts have occurred despite the fact that we are a wealthier
accurate CPI-E; ██
Increase the Social Security contribution rate to 7.2 percent over nation today than we were when the last substantial improvements
██
Provide a minimum benefit of 125 percent of poverty at age 67 20 years; were enacted in 1972. These cuts are currently phasing in despite a
with 30 years of work. ██
Invest 40 percent of Trust Funds in equities, phased in from looming retirement income crisis facing the nation. The cuts have
2014-2028; come despite growing income and wealth inequality. Expanding
██
Combine the OASI Trust Fund with the DI Trust Fund. Social Security can help with both problems.
“This is the moment when we talk about
The Social Security Works All Generations Plan raises sufficient Social Security currently has a projected shortfall, still two decades
expanding Social Security.”
revenue to address the long-term shortfall and pay for significant away. That shortfall and all benefit expansions can be fully paid
—Senator Elizabeth Warren, Rachel Maddow benefit improvements, including significant benefit increases for for without undue burden on anyone, just as they always have
Show, November 18, 2013 today’s and tomorrow’s beneficiaries. been, throughout Social Security’s storied history over the last
three-quarters of a century. In addressing the cost, it is important to
Social Security has transformed American life by providing prudent recognize and keep in mind that, as important as the financing of
and sensible insurance protections against risks to which all are Social Security is, it is just a means to providing Americans with a
To strengthen protections across generations, the
subject – retirement, disability and death. Each generation has built foundation of economic security, not the end in itself. The end is the
All Generations Plan would: on Social Security’s structure to improve the economic security of economic security of the American people.
██
Provide up to 12 weeks of family leave benefits upon birth/adop- America’s working families. Now it is our turn. The Social Security
tion of a child or illness of a covered worker or family member; Works All Generations Plan and other Social Security expansion
██
Provide up to 5 years of Social Security benefit credits for caring plans illustrate that many paths exist for building on our existing
for one or more children under age 6; Social Security system to provide stronger and affordable protection
██
Facilitate higher education by restoring student benefits for for the American people.
II SOCIAL SECURITY WORKS ALL GENERATIONS PLAN SOCIAL SECURITY WORKS ALL GENERATIONS PLAN 1
Figure 3. Most Workers Are Unable to Figure 4. When Income Grows, Who Gains?
IMPROVING ECONOMIC SECURITY
Save Adequately for Retirement
Between 1948 Between 1979
FOR AMERICA’S WORKING FAMILIES
Typical Working-Age Household Has Only $3,000 in Retirement Account
Assets; Typical Near-Retirement Household Has Only $12,000
and 1979: and 2007:
All Households
Households with Top Bottom
Retirement Accounts
1% 90%
$0
Rest of
Top 10% Top Rest of
25–34
$13,000 1% Top 10%
Bottom
$1,400 90%
35–44
$31,000
T
his section describes three broad concerns the retirement age – whose prospects for a secure retirement have been $10,100
45–54
Social Security Works All Generations Plan is greatly diminished by the declining value of occupational pensions, $60,000 Average incomes grew Average incomes grew
loss of home equity, stagnant wages, job loss, the rising cost of
designed to help address: the retirement income health care and loans many families have taken out to support their
$12,000 by $22,204 by $17,458
55–64
crisis; the need for greater protection for America’s children’s college education. Nevertheless, the crisis is likely to affect The richest 10% got 33% The richest 10% got 91%
families; and the costs of the benefit expansions as well as those just entering the workforce as well. ALL $3,000
$100,000 of that growth. of that growth.
the currently projected shortfall. 25–64 $40,000 The bottom 90% shared The bottom 90% shared
Even before the Great Recession, the outlines of this crisis were
67% of income growth. 9% of income growth.
ADDRESSING THE NATION’S RETIREMENT clear. Applying the National Retirement Risk Index (NRRI), which
assumes people will work until age 65, researchers at Boston College
INCOME CRISIS Source: Nari Rhee, “The Retirement Savings Crisis: Is It Worse than We Think?” Source: “When Income Grows, Who Gains?” Economic Policy Institute, The State of
estimated that in 2006, 44 percent of households5 would not be National Institute on Retirement Security, June 2013. Working America, 2012 (in 2012 dollars).
The nation confronts a looming retirement income crisis. The able to maintain their standards of living during their retirement
American Dream of maintaining one’s standard of living in retire- years; a figure which grew to 65 percent of households when the cost
ment after a lifetime of work – never a reality for millions of workers of health and long-term care were taken into account.6 According between what households have versus what is needed to maintain have been decreasing and are projected to continue to do so. The
– is now fading for nearly all but the wealthiest among us. This crisis to Boston College’s Retirement Research Center, this represents a their standards of living in retirement.7 The virtual crash of the chart in Figure 2 shows the declining replacement rates for workers
is most acute for many in their mid-forties and fifties – those nearing $6.6 trillion dollar retirement income deficit: the aggregate shortfall economy furthered the deterioration of the retirement prospects of who earn around $40,000 a year.
countless individuals. A post-crash 2010 NRRI analysis shows a nine
percentage point increase, to 53 percent, of households on a glide In the past, some workers, predominantly those in unions, had
Figure 1. The National Retirement Figure 2. Social Security Replacement path to an inadequate retirement income, presumably more than 70 access to private sector defined benefits, which, while not portable,
Risk Index, 1983–2010 Rates are Falling percent if health and long-term care costs are counted.8 did provide a good supplement for workers who remained with the
same companies for their careers. Today, those plans are nearing
Retirement income experts generally measure whether retirement extinction in the private sector, and those remaining in the public
Medium Earner’s Replacement Rate at 65 income is adequate by comparing that income to pre-retirement sector are under ferocious attack.9 They have been replaced with
60%
(after Medicare Part B premium and taxation of benefits)
53%
wages. Because retirees do not have work expenses, they generally 401(k) and other savings plans which concentrate all the market risk
do not need 100 percent of pre-retirement wages to maintain on the individual. And, collectively, for the vast majority of work-
50%
45% 44% 40 39% their standards of living in retirement. Nevertheless, they generally ing Americans, 401(k)s and similar private schemes have failed to
35% need a minimum of about 70 percent. Low-wage workers need become an appreciable source of retirement, as shown in Figure 3.
Percent of Prior Earnings
40% 35
40% 37% 38% 38%
31% a higher proportion of income, as much as 88 percent, replaced
31% 31% 30% 30 because their tax liabilities and other pre-retirement expenses do With the decline in unionization and, with it, traditional pension
30% not decline as much. Moreover, because low-wage workers have plans, retirement preparedness has turned into an “on-your-own, do-
25 less discretionary income during their working lives, they generally it-yourself ” affair. Yet what is needed for a secure retirement, as well
20 save less and so have fewer savings on which to draw in retirement. as for replacement of wages in the event of severe and permanent
20%
And because a greater percentage of their wages have gone to disability or death is guaranteed income in the form of insurance.10
15 necessities, they need more of those wages replaced in retirement. Social Security is the only institution in our society that can provide
10% This is why, from the beginning, Social Security has provided that universal mandatory insurance.
10
benefits that represent a larger percentage of pre-retirement income
0
5 for lower income workers than higher income workers. STRENGTHENING FAMILY PROTECTIONS FOR
ALL GENERATIONS
92
98
04
10
83
86
89
95
01
07
0
19
19
20
20
19
19
19
19
20
20
2002 2015 2030 From the beginning, Social Security has provided benefits that rep-
resent a larger percentage of preretirement income for lower income Although seen by many as a program for seniors, Social Security
Source: Alicia Munnell et al., “The National Retirement Risk: An Update,” Center for Source: Virginia P. Reno and Elisa A. Walker, “Social Security Benefits, Finances, and workers than higher income workers, for the reasons stated above. in reality is a family protection program. It is the nation’s largest
Retirement Research at Boston College, Issue in Brief 12-20, October 2012. Policy Options: A Primer,” National Academy of Social Insurance (2013).
Unfortunately, Social Security’s replacement rates for all beneficiaries children’s program, providing benefits directly or indirectly, at
2 SOCIAL SECURITY WORKS ALL GENERATIONS PLAN SOCIAL SECURITY WORKS ALL GENERATIONS PLAN 3
Figure 5. Great Recession Pushes Wealth Figure 6. Social Security is Affordable Figure 7. Real GDP Per Capita in the Figure 8. The vast majority of Americans—
Gap Between Typical And Wealthiest United States across all age, political and income groups—are
Households To Record High willing to pay more to preserve Social Security
Social Security as a Percent of the Economy
(GDP), 2010–2090
The Ratio of the Wealthiest 1% to Median Wealth It is critical that we It is critical that we
50,000 preserve Social Security preserve Social Security
in the United States
50 even if it means even if it means
increasing Social increasing Social
250 Respondent Security taxes paid by Security taxes paid by
225 40,000
Characteristics Working Americans Wealthy Americans
(2011 U.S. Dollars)
40
Total 82% 87%
200 190
181
Percent of GDP
176 173 Generation
168 173 30
30,000
156 Silent 90% 87%
150
125 131 Baby Boomer 84% 88%
Ratio
20 20,000
Generation X 80% 87%
100 Generation Y 77% 84%
10 10,000 Family Income
5% 6% 6%
1960 1970 1980 1990 2000 2010 2020
50 Less than $30,000 78% 88%
Shaded areas indicate U.S. recessions. $30,000 to $49,999 85% 88%
0 2013 research.stlouisfed.org
2010 2020 2030 2040 2050 2060 2070 2080 2090 $50,000 to $74,999 83% 86%
0
1962 1983 1989 1992 1995 1998 2001 2004 2007 2009* $75,000 to $99,999 82% 85%
Source: Federal Reserve Bank of St. Louis, “Real GDP per Capita in the United States
*Data for 2009 estimated using Federal Reserve Flow of Funds data $100,000 or more 82% 82%
(USARGDPC),” 2013.
Note: Wealth defined as net worth (household assets minus debts). Source: Virginia P. Reno and Elisa A. Walker, “Social Security Benefits, Finances, and Party Affiliation
Policy Options: A Primer,” National Academy of Social Insurance, 2013.
Republican 74% 71%
Social Security, which is projecting a modest shortfall, still two Democrat 88% 97%
Source: “Great Recession Pushes Wealth Gap Between Typical and Wealthiest Households
build a strong middle class and taken some of the sharpest edges off decades away, would be restored to actuarial balance by increasing Independent 83% 86%
to Record High,” Economic Policy Institute, The State of Working America, 2012.
inequality. Because other pressures in society have caused those gains its revenue by 0.9 percent of GDP.15 This is a modest amount to pay
to erode, Social Security’s role should be increased. when the percentage of seniors in the population will grow from Source: Jasmine Tucker et al., “Strengthening Social Security: What Do Americans Want?”
any one point in time, to about 8 percent of the nation’s children. about 12 percent to 20 percent. It is a modest amount to pay to National Academy of Social Insurance, 2013.
It is, as well, the largest source of income for “ Grandfamilies” Because families are under increasing stress, financial and other- maintain basic economic security for America’s families. Moreover,
– families in which grandparents and other relatives (e.g., great wise, Social Security’s role should be increased. Today’s families, if the economy grows at even modest rates over the next 50 years,
aunts) share their homes with grandchildren.11 In addition to especially those with young children, are struggling, with working as economists and actuaries project it will, at a minimum, then Expanding Social Security is constrained by political will and mis-
being the most important source of life and disability insurance parents often holding two jobs to make ends meet. Time spent investing more than one percent of GDP to expand Social Security information, not economic possibilities or what, according to poll
for families with young children, Social Security will also be the caring for young children and other family members is an incred- protections is fully affordable.16 after poll, the American people want. As polling from the National
most reliable life, disability, and retirement protection for these ibly important transfer that takes place largely within the context Academy of Social Insurance has shown, this support cuts across all
children when they are older. of family and friendship. The “stuff” of family and community Though most Americans have been convinced that Social Security demographic and economic groups, and is shared by Republicans,
life, it is also the first, and continuing, line of support when is unaffordable and younger workers do not believe they will receive Democrats, and Independents.
Still, some claim that there is intergenerational unfairness where illness strikes and when family members deal with functional benefits, Social Security, in truth, is extremely efficient and afford-
more federal funds go to seniors than to children. Though this is disabilities. But this care, usually freely given, carries large costs able, as shown in Figure 6. Expanding Social Security, a time-tested and valued institution, is a
not the place to debunk that line of reasoning, it is important to for those providing it, more often than not women. Providing this realistic solution to the growing retirement income crisis; it advances
understand that those analyses are seriously flawed, conceptually as essential care often compromises earnings, employment advance- The facts belie the message of a well-orchestrated campaign to justice for the nation’s family caregivers; and it is a modest offset for
well as in their details. They focus on age, when, as shown in Figure ment, and credit towards Social Security and other retirement paint Social Security as unaffordable. In spite of recessions, the the nation’s unsustainable economic inequality. It provides the most
4, for many years, the growth of the economy has primarily ben- protections. The time is right for Social Security to provide more nation’s per capita GDP, adjusted for inflation, doubled over forty secure and widespread protection that Americans have, today and
efited the very well-off, not the middle class, not low-wage workers, support to family caregivers and those for whom they care. The years, from roughly $24,000 in 1970 to $48,000 in December tomorrow, against loss of earnings arising from the death, disability
and certainly not the poor. All Generations Plan uses Social Security, as other nations do with 2010 (see Figure 7).17 and retirement of workers.
their Social Security programs, to provide still more support for
The real culprits are pernicious and growing economic inequality (see families and children.13 For good and sound reasons, the majority of Social Security’s
Figure 5), deregulation of the financial sector, insufficiently regulated financing has always come from contributions of employers and
healthcare expenditures, tax cuts, unfunded wars, globalization and SECURING SOCIAL SECURITY FINANCING FOR employees. Under the All Generations Plan, that will continue.
employment policies. These are the forces greatly undermining the GENERATIONS TO COME The Social Security Amendments of 1983 introduced a new source
well-being of the nation’s children, especially disadvantaged low- and of progressive revenue in the form of dedicated income tax revenue
middle-income children, as well as working-age adults and seniors. Social Security’s benefits are modest by virtually any measure. from the taxation of benefits of higher income retirees. We propose
Moreover, the program is extremely efficient. It returns more than additional sources of progressive revenue, which have the felicitous
The reality is that those societies that spend most on their seniors 99 percent of its income in benefits, using less than a penny on the byproduct of reducing, to a small extent, our nation’s growing
also spend most on their children.12 Social Security helps all genera- dollar for administrative costs.14 The program’s entire shortfall is less income inequality.
tions. By all of us contributing for the good of all, it has helped than 1 percent of gross domestic product (“GDP”).
4 SOCIAL SECURITY WORKS ALL GENERATIONS PLAN SOCIAL SECURITY WORKS ALL GENERATIONS PLAN 5
IN BRIEF: APPENDIX I
Social Security Works All Generations Plan
I T
n this section we provide a brief description of our information and applying for benefits. As the result of severe budget his appendix provides a more detailed discussion payroll, expressing the projected deficit/surplus and the cost/savings of
cuts, that excellent service has been jeopardized. In addition to of the costs and savings of the proposals presented proposals in that form permits an easy comparison of costs.
proposal. For a more extensive description, please see
expanding Social Security’s modest benefits, which will create addi-
Appendix I. For the costs and savings of each proposal in the Social Security Works All Generations
tional administrative costs, Congress should, as a recent report of the Based on the actuaries’ estimates, in 2013 Social Security’s Board
individually, please see the chart contained in Appendix Strengthen Social Security Coalition highlights, provide adequate Plan. The plan raises sufficient revenue to address the of Trustees reported that under the most widely-accepted set of
II. As that chart shows, the All Generations Plan restores funding to reduce backlogs and ensure the world class service that projected 75-year shortfall and pay for significant benefit assumptions, the program had a 2.72 percent of taxable payroll
American workers and their families deserve.20 enhancements including significant benefit increases for shortfall over the 75 year estimating period. In other words, the
Social Security to full actuarial balance for the next 75 entire shortfall could be eliminated totally if the payroll tax rates on
today’s and tomorrow’s beneficiaries.
years and beyond. ADDRESSING THE RETIREMENT INCOME CRISIS employers and employees, each, were increased immediately from
Social Security’s actuaries make annual 75-year projections of the 6.2 percent to 7.56 percent. That provides a sense of scale, but, as
We strongly believe that when Social Security legislation is con- ██
Increase monthly benefit amounts for all current and future financial status of Social Security, Old-Age, Survivors and Disability the All Generations Plan details, we believe that there are better ways
sidered, the companion program, Supplemental Security Income beneficiaries Insurance (OASDI), by comparing anticipated program expenditures to eliminate the projected shortfall and finance the projected costs of
(“SSI”), should, as recommended in a recent National Senior ██
Ensure that workers will not retire into poverty after a lifetime of work as a percent of all earnings subject to the payroll tax to anticipated the improvements described in Appendix II.
Citizens Law Center report, be expanded as well. Targeted to ██
Ensure that the value of benefits do not erode over time revenues as a percent of taxable payroll. Coming up with a 75-year
persons with very little income, SSI provides monthly benefits to 8.3 deficit or surplus expressed as a percent of taxable payroll is much In keeping with this standard method of expressing costs/savings
million persons, aged 65 and older, blind, or disabled. SSI’s income STRENGTHENING FAMILY PROTECTIONS FOR more useful than dollar amounts because over 75 years the value of and deficits/ surpluses, the chart in Appendix 2 expresses the
disregards have not been updated since the program was enacted ALL GENERATIONS the dollar will change considerably and even so-called constant dollars increased cost or savings from each element of the Social Security
in 1972 and its resource limit has not been increased since 1984. involve extremely large numbers. (It is the same reason that astrono- Works All Generations Plan in terms of percent of taxable payroll.
Its maximum federal benefit payment remains very low at $721 a ██
Increase benefits for families of disabled, deceased, or retired workers mers express distances in light-years rather than miles or kilometers.) The cost and revenue estimates are preliminary and do not include
██
Provide paid family leave upon the birth or adoption of a child, or Because the main source of Social Security’s financing is from taxable interaction effects.21
the illness of a family member or worker
██
Support care-giving functions of family by crediting that work
toward future benefits
██
Facilitate attainment of higher education by children whose
parents have died or become seriously and permanently disabled
██
Provide targeted benefit improvements for people with disabilities
SECURING SOCIAL SECURITY’S FINANCING
FOR GENERATIONS TO COME
██
Starting in 2016, gradually eliminate “the cap,” the maximum
taxable wage base, giving credit for these contributions
██
In recognition of the growing wealth inequality, require those with
annual incomes in excess of $1 million to pay a new dedicated tax
to Social Security
██
In recognition that additional revenues are needed to safeguard
the retirement income security of today’s and tomorrow’s workers,
month for individuals and $1,082 for couples in 2014. As is the gradually raise employer and employee payroll tax contribution
case for Social Security, the SSI COLA understates the impact of rate to 7.2% over 20 years.
inflation on seniors and persons with disabilities.18 These and other ██
Diversify trust fund investments by gradually investing 40% of
shortcomings should be addressed.19 trust funds in equities
██
In recognition that Social Security’s old age, survivors, and
It perhaps goes without saying that benefits earned on paper are disability benefits are inextricably intertwined, combine the Old
worthless if workers and their families are unable to access them. Age and Survivors Insurance Trust Fund with the Disability
From the beginning, those administering Social Security were com- Insurance Trust Fund
mitted to timely, helpful, and accurate assistance to those seeking
6 SOCIAL SECURITY WORKS ALL GENERATIONS PLAN SOCIAL SECURITY WORKS ALL GENERATIONS PLAN 7
Ensure that workers will not retire into poverty after of the monthly poverty level. For those with under 30 years of cover-
Figure 9. Social Security Benefit Levels Under Various CPI Measures a lifetime of work age but more than ten, the PIA per year of coverage is proportionately
reduced. Our proposal would index the initial PIA per year of cover-
(For Average Earner Retiring at Age 65, in wage-indexed 2012 Dollars)
From the beginning, Social Security supporters believed that age by wage growth for successive cohorts.
workers who contributed to Social Security should receive benefits
larger than they could receive simply by applying for means-tested STRENGTHENING FAMILY PROTECTIONS FOR
welfare. A minimum benefit was included in the 1939 amendments, ALL GENERATIONS
$18,000
$17,642 but because the formula did not differentiate between high-paid
workers who had only a few years of work and low-paid workers Increase benefits for families of disabled, deceased,
$17,500
with long work histories, Congress in 1972 introduced the so-called or retired workers
$17,000 CPI-E special minimum for low income workers with many years of work.
$17,202
Because the special minimum is only indexed to the rise in prices, Because the benefits of children and other qualified family members
$16,500 $16,871
CPI-W not wages, it has not kept pace with Social Security benefits gener- are derived from the same single benefit formula, the first proposal
$16,561 $16,546 ally. Consequently, it covers fewer and fewer workers each year. Our described above will increase the benefits of all current and future
(Current Policy)
$16,000 proposal would update the special minimum benefit to equal 125 family members who themselves are beneficiaries
percent of the federal poverty level. As a consequence, the fact of
$15,500 $15,774 Chained CPI Provide paid family leave upon the birth or adop-
growing older will not result in impoverished old age for workers
$15,000 and their families after a lifetime of hard work. tion of a child, the illness of a family member, or the
$15,025 illness of a worker
$14,500 Specifically, our proposal reconfigures the special minimum benefit as
follows: (a) A year of coverage is defined as a year in which 4 quarters Workers who are insured for Social Security disability benefits would
$14,000 of coverage are earned. (b) At implementation, set the Primary be eligible for up to 12 weeks of paid leave in the event of the birth
Insurance Amount (PIA) for 30 years of coverage equal to 125 percent or adoption, illness of a family member, or illness of the covered
$13,500 worker. The benefit would be two-thirds of gross salary, capped to a
Age 65 Age 75 Age 85 Age 95 monthly ceiling of $4,000 a month, indexed to wage growth.
In recognition of the value of care-giving, credit that
Source: SSW calculations based on Social Security OCACT, Memorandum to Rep. Becerra, June 21, 2011; work toward future benefits
SSA, Annual Statistical Supplement, 2012, Table 2.A26, 2012.
Anyone who has cared for children or sick relatives knows how impor-
tant to the family and how hard that work is, yet it is unremunerated.
In order to increase the economic security of those who engage in this
The Plan generates 5.70 percent of taxable income which is suf- 62 years of age and over. The CPI-E is generally higher than the mea- invaluable but uncompensated labor, our proposal provides up to five
ficient to address the 2.72 percent of taxable payroll shortfall, pay for sures used for the working and general population primarily because years of quarters of coverage and earnings credits, equal to one-half of
all proposed benefit improvements and provide for a .38 percent of seniors spend more money on health care, which has risen more than Social Security’s average-wage index for all past years, to newly eligible
taxable payroll surplus. prices generally, and less on clothes and recreation, where prices have retired- and disabled-worker beneficiaries.
risen slower. Nevertheless, Congress has never changed the index
ADDRESSING THE RETIREMENT INCOME CRISIS used to adjust Social Security benefits. Our proposal would require
Social Security to use the more accurate CPI-E to adjust benefits every
Increase benefits for all current and future
beneficiaries
January once they have begun to be paid. UNDER OUR PLAN, GROWING
OLDER WILL NOT RESULT
Social Security’s benefits are extremely modest, averaging just $1,162
a month for all beneficiaries in September 2013. This proposal
OUR PLAN RAISES SUFFICIENT IN POVERTY FOR WORKERS
would increase the benefits of all current and future beneficiaries REVENUE TO ADDRESS THE AND THEIR FAMILIES AFTER A
by a full ten percent up to a maximum of $150 a month. The $150
maximum would be indexed annually to account for wage growth. PROJECTED 75-YEAR SHORTFALL LIFETIME OF HARD WORK
Ensure that benefits do not erode over time by AND PAY FOR SIGNIFICANT
enacting a more accurate measure of the cost of
living experienced by seniors and people with
BENEFIT ENHANCEMENTS Specifically, the proposal would give credit to parents with a
disabilities child under age 6 for earnings for up to five years. The earn-
ings credited for a childcare year would equal one half of the
In recognition that seniors purchase different goods and services, and As Figure 9 shows, the Consumer Price Index for Urban Wage SSA average wage index. The credits would be available for all
so experience different rates of inflation, than the general population, Earners (CPI-W), currently used to determine the COLA, produces past years to newly eligible retired-worker and disabled-worker
Congress, in 1987, directed the Bureau of Labor Statistics to develop a a smaller benefit adjustment which grows each year. The Chained- beneficiaries starting in 2014. The 5 years are chosen to yield the
new consumer price index for the elderly. In response, BLS construct- CPI (C-CPI) which some are proposing as a benefit cut, would largest increase in AIME.
ed the CPI-E, the experimental Consumer Price Index for Americans result in even larger losses, relative to the CPI-E.
8 SOCIAL SECURITY WORKS ALL GENERATIONS PLAN SOCIAL SECURITY WORKS ALL GENERATIONS PLAN 9
Provide new child benefit of $1,000 at birth or adop- the maximum paying into Social Security all year, as other work- in Social Security’s progressive formula, and then adjusted, based
tion of a child ers do. Consistent with how Social Security has always operated, on the age at which the worker first retires and other factors. The
all wages on which contributions are made would be counted in formula for 2014 is:
Additional expenses come along with bringing a child into a family. calculating benefits, as described below.
The $1,000 benefit would be paid when the newborn child of a The sum of:
covered worker receives their Social Security card or when an adop- The maximum wage base would gradually be eliminated over ten
years, between 2015 and 2024, as follows: Ten percent of workers’ (a) 90 percent of the first $816 of average indexed monthly
earnings in excess of the current law maximum would be covered by earnings, plus
ANYONE WHO HAS CARED FOR Social Security in 2015, twenty percent would be covered in 2016,
and so on, with all earnings covered in 2024 and beyond.
(b) 32 percent of average indexed monthly earnings over $816
and through $4,917, plus
CHILDREN OR SICK RELATIVES (c) 15 percent of average indexed monthly earnings over $4,917.
Consistent with Social Security’s progressive benefit formula, which
KNOWS HOW IMPORTANT TO provides benefits which are a higher dollar amount but represent a The percentage factors are fixed by law while the dollar amounts
lower rate of return for workers (and their families) who earn more (known as “bend points,”) are adjusted annually by the percentage
THE FAMILY THAT WORK IS – and contribute more to Social Security, our proposal would provide increase of average wages nationwide.
YET IT IS UNREMUNERATED benefits, in the event of death, disability and death, which are higher
dollar amounts, though lower rates of return, to those workers (and Our proposal would add two additional brackets onto the formula
their families) who earn above the current-law maximum and con- to take into account the elimination of the current-law maximum
tribute to Social Security on those wages, as a result of this proposal. benefits base. The new percentage factors will be 5 percent and 0.25
tion is finalized. This one-time payment would be to the parent or percent and the bend points will be at about the level of the current
parents residing in the same household as the newly-born or newly- From the beginning, Social Security has employed a progressive law maximum (divided by 12 to achieve a monthly amount), or
adopted child. The payment would be accompanied by information benefit formula in recognition that lower wage workers have less $9,750 (indexed to the AWI)), and twice that amount, or $18,500
about the Social Security protections earned on behalf of the child discretionary income and less ability to save, and so need a larger (indexed to AWI). As a result, under our proposal Social Security’s
by the covered parent(s). percentage of their preretirement wages replaced to maintain the benefit formula will be, in 2014 dollars:
Provide equity for disabled widow(er)s by eliminat- standard of living they enjoyed during their working years.
Facilitate the attainment of higher education by ing both the age-50 requirement and 7-year rule, The sum of:
children whose parents are insured under Social and by providing unreduced benefits To calculate benefits, a worker’s career earnings are indexed to
Security and have died or become seriously and account for real wage growth, averaged to determine a monthly (a) 90 percent of the first $816 of average indexed monthly
permanently disabled Under current law, a disabled widow(er) may only collect benefits amount, (the “average indexed monthly earnings” or AIME) inserted earnings, plus
if she or he is at least age 50, and the disability began within seven (b) 32 percent of average indexed monthly earnings over $816
Most parents see their responsibility toward their children to years of the worker’s death or seven years after the last month he or and through $4,917, plus
include helping them obtain post-secondary school education, she was eligible to receive a benefit as a surviving spouse with child (c) 15 percent of average indexed monthly earnings over $4,917
if the children so desire. In recognition that parents who are no in care. Relative to disability benefits for other adults, benefits for and through $9,750, plus
longer earning wages as the result of death or disability cannot disabled widow(er)s are substantially lower, 71 percent of the deceased (c) 5 percent of average indexed monthly earnings over $9,750
provide for their children, Social Security used to provide chil- spouses PIA, from ages 50 through 59 and also subject to reductions if and through $18,500, plus
dren’s benefits not just to age 18, but to children ages 19 to 22, if accepted from age 60 through 64. (c) 0.25 percent of average indexed monthly earnings over
those children were enrolled in college, university, or vocational $18,500
programs. In a misguided effort at cost-saving, that student benefit Our proposal would extend protection to persons under age 50,
was repealed in 1981. Our proposal would restore the student eliminate the seven year rule and provide benefits equal to 100 per-
benefit for children, up to age 22, who are attending college, cent of the deceased spouse’s PIAs, aligning the treatment of disabled SOCIAL SECURITY HAS AN
university or vocational programs. widow(er)s more closely to that of other disability beneficiaries.
ACCUMULATED RESERVE OF $2.7
Encourage independence and work of disabled adult SECURING SOCIAL SECURITY’S FINANCING
children and support families giving care to them TRILLION, WHICH BY LAW IS
Starting in 2015, gradually eliminate the maximum
Under current law, Social Security’s maximum family benefit contributions and benefits wage base, resulting in INVESTED SOLELY IN INTEREST-
formula, which limits the amount that can be paid based on larger benefits for workers who earn and contribute BEARING OBLIGATIONS OF THE
a worker’s earnings record, may apply, regardless of whether more and for their families
the disabled adult child (DAC) lives at home. This can have UNITED STATES
the unfortunate side effect of reducing benefits for the parents Under current law, employees contribute to Social Security 6.2 percent
because when a disabled adult child beneficiary draws benefits, of their wages up to a maximum wage of $117,000 in 2014, with an
the worker’s benefits and the benefits of any other dependent(s) equal amount matched by employers. Zero is contributed with respect Enact a new dedicated 10 percent marginal income
are adjusted for the family maximum. While this adjustment may to wages above that amount. Only those wages on which contribu- tax rate on yearly incomes in excess of $1 million (No
make sense when a DAC beneficiary lives in the family home and tions are made are taken into account in determining benefits. additional tax would be levied on the first $1 million
shares household expenses, it makes little sense for the increasing dollars of yearly income).
number of DAC beneficiaries who do not live with their parents, Our proposal would eliminate the maximum taxable wage base by
and poses a significant barrier for DAC beneficiaries who wish to 2024 for both employers and employees. When fully phased in, this In 1983, Congress created a new dedicated revenue stream from
live more independently. would result in the roughly 6 percent of workers with earnings above the taxation of benefits of higher income taxpayers. This proposal
10 SOCIAL SECURITY WORKS ALL GENERATIONS PLAN SOCIAL SECURITY WORKS ALL GENERATIONS PLAN 11
builds on that provision by creating a new dedicated source of
revenue from the taxation of incomes above $1 million. Those
fortunate taxpayers would pay no additional tax on their first $1
million of income. On their million and first dollar, and every dol- APPENDIX II
lar after that, they simply pay an additional 10 cents. This strikes
us as extremely reasonable to ask of those who have benefited so
greatly from the common wealth.
SOCIAL SECURITY WORKS ALL GENERATIONS PLAN*
Current Projected 75 year shortfall as a percent of taxable payroll -2.72
OUR PROPOSAL WOULD
ELIMINATE THE MAXIMUM Addressing the Retirement Income Crisis
Cost/Savings as per-
cent of taxable payroll
TAXABLE WAGE BASE BY 2024 Increase benefits for all current and future beneficiaries by 10%, up to a maximum of $150 a month (ad-
justed for inflation after 2014)
-1.20
FOR BOTH EMPLOYERS AND
Ensure that benefits do not erode over time by enacting the more accurate CPI-E -.37
EMPLOYEES
Provide a minimum benefit, at full benefit age, of 125 percent of poverty for covered workers, who have
30 years of work
-.19
Treat all salary reduction plans the same as 401(k) Strengthening Family Protections for All Generations
plans with respect to the definition of wages under
Social Security. Provide up to 12 weeks of paid family leave upon the birth or adoption of a child, the illness of a covered
worker or family member
-.40
By treating all salary reduction plans the same as 401(k) plans with
respect to the definition of wages under Social Security, this proposal In recognition of the value of care-giving, give credits towards future Social Security benefits for up to five
years of caring for a child under age 6.
-.25
corrects an inconsistency in the law. Combine the OASI Trust Fund with DI Trust Fund
Facilitate higher education by restoring student benefits for children up to age 22 whose covered parents
Increase Social Security contribution rate by 1/20th Social Security’s disability, survivors and retirement benefits are all -.07
have died or become disabled
of a percentage point per year from 2020-2039 until intertwined, generated from the same benefit formula. For this rea-
the rate reaches 7.2 percent on both employers and son, the annual trustees report often treats the separate trust funds as Provide $1,000 new child benefit at birth or adoption of a child -.07
employees. a single entity. This proposal simply makes that change a reality.
Encourage work and support family caregiving by not applying the Family Maximum when Disabled Adult
Children do not live at home
-.01
Social Security’s contribution rate has not been increased since 1990. Policymakers should address the retirement income crisis, improve
This proposal would increase the rate modestly and gradually. Its the economic security of America’s working families, and eliminate,
impact would be to require a worker earning an average income to without cuts, Social Security’s projected long-range shortfall. The Provide equity for disabled widow(er)s by eliminating both the age 50 requirement and 7-year rule, and
by providing unreduced benefits
-.04
contribute about 50 cents more a week to our Social Security system. Social Security Works All Generations Plan provides a road map for
those efforts. Other expansion plans exist as well: some with differ-
Invest 40 percent of Trust Funds in equities, phased ent, or more modest, benefit expansions; others that rely on different Securing Social Security’s Financing for Generations to Come
in from 2014-2028 financing mechanisms. (In that regard, two financing sources we
Starting in 2016, gradually eliminate the maximum taxable wage base, giving credit for these contribu-
did not include, but believe should receive serious consideration,
tions, up to a maximum benefit
+1.95
Social Security currently has an accumulated reserve of $2.7 trillion, are dedicated revenues from a financial transactions tax and or the
which by law is invested solely in interest-bearing obligations of federal estate tax). Together, these plans illustrate that there are many Enact a new dedicated 10% marginal income tax rate on yearly incomes in excess of $1 million (No ad-
the United States. Standard investment advice is to diversify one’s paths to building on our existing Social Security system to provide ditional tax on the first $1 million of yearly income)
+1.50
portfolio, investing in both equities and bond instruments. This stronger and affordable protection for the American people.
proposal would achieve that diversification. Treat all salary reduction plans the same as 401(k) plans with respect to the definition of wages under
Social Security
+.25
The proposal directs 40 percent of trust fund assets to be invested
Increase Social Security contribution rate by 1/20th of a percentage point per year, on employers and
by 2028 in a broadly diversified, indexed equity fund or funds. Like
employees each, from 2020-2039, until rate reaches 7.2 percent on both employers and employees
+1.41
other federal plans, including the Federal Railroad Retirement Plan
and the Federal Reserve Board pension plan, that invest their assets Invest 40% of Trust Funds in equities, phased in from 2014-2028 +.59
in this manner, a variety of safeguards would be introduced to assure
no interference with the market or the entities in which the trust Combine the OASI Trust Fund with DI Trust Fund 0
funds are invested. A Federal Reserve-like board would be appointed
responsible for selecting indexed funds or funds in which to invest LONG-RANGE SURPLUS +0.38
Social Security assets and responsible for hiring fund managers.
*These estimates are preliminary and do not include the interaction effects.
12 SOCIAL SECURITY WORKS ALL GENERATIONS PLAN SOCIAL SECURITY WORKS ALL GENERATIONS PLAN 13
ENDNOTES 1 Health Care Financing Administration. “Key Milestones in Medicare and Medicaid History, Selected Years: 1965-2003.” Health Care Financing Review, 27, no. 3 (2005): 1-3. 2 There is one exception, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which authorized Medicare coverage of outpatient prescription drugs. Thomas Oliver, Philip Lee, and Helene Lipton, “A Political History of Medicare and Prescription Drug Coverage.” The Milbank Quarterly 82, no. 2 (2004): 283–354. http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2690175/ 3 Trudy Lieberman, “What a higher Retirement Age really means,” Columbia Journalism Review, September 13, 2012. http://www.cjr.org/united_ states_project/what_a_higher_retirement_age_r.php?page=all&print=true 4 Virginia P. Reno, “What’s Next for Social Security? Essential Facts for Action,” National Academy of Social Insurance. p. 4, 2013. 5 Alicia Munnell, Mauricio Soto, Anthony Webb, Francesca Golub-Sass, and Dan Muldoon. 2008, “Health Care Costs Drive up the National Retire- ment Risk Index.” Issue in Brief 8-3. Chestnut Hill, MA: Center for Retirement Research at Boston College. http://crr.bc.edu/wp-content/up- loads/2008/02/ib_8-3.pdf 6 Ibid. 7 Retirement USA, “The Retirement Income Deficit,” 2013. http://www.retirement-usa.org/retirement-income-deficit-0. 8 Alicia Munnell, Anthony Webb, and Francesca Golub-Sass, “The National Retirement Risk: An Update,” Issue in Brief 12-20. Chestnut Hill, MA: Center for Retirement Research at Boston College, 2012. http://crr.bc.edu/wp-content/uploads/2012/11/IB_12-20-508.pdf. 9 Alicia Munnell, Kelly Haverstick, and Mauricio Soto, “Why Have Defined Benefit Plans Survived in the Public Sector?” State and Local Pension Plans 2. Chestnut Hill, MA: Center for Retirement Research at Boston College, December 2007 http://crr.bc.edu/wp-content/uploads/2007/12/slp_2.pdf. 10 Nancy J. Altman, “The Striking Superiority of Social Security’s Wage Insurance in the Provision of Wage Insurance,” Harvard Journal on Legislation, Vol- ume 50, pp. 109-168, 2013 (describing the need for insurance, not savings, for retirement). http://www.harvardjol.com/archive/volume-50-number-1/ 11 Generations United, “Grandfamilies Statistics,” 2013. http://www2.gu.org/OURWORK/Grandfamilies/GrandfamiliesStatistics.aspx. 12 Shawn Fremstad, “Contra the Crowd-Out Thesis: Countries that Spent More on Seniors Also Spend More on Children,” Center on Economic Policy Research, March 18, 2013. http://www.cepr.net/index.php/blogs/cepr-blog/contra-the-crowd-out-thesis-countries-that-spent-more-on-seniors- also-spend-more-on-children 13 OECD Social Policy Division, “Gender Brief,” March 2010. http://www.oecd.org/els/family/44720649.pdf. 14 Social Security Trustees, “Table III.A6.—Administrative Expenses as a Percentage of Non-interest Income and of Total Expenditures, Calendar Years 2008-12,” The 2013 Annual Report of the Board of Trustees of the Federal Old-‐Age and Survivors Insurance and Federal Disability Insurance Trust Funds, May 31, 2013. http://www.ssa.gov/oact/tr/2013/tr2013.pdf. 15 The 2013 Annual Report of the Board of Trustees of the Federal Old-‐Age and Survivors Insurance and Federal Disability Insurance Trust Funds, May 31, 2013, at p. 16. http://www.ssa.gov/oact/tr/2013/tr2013.pdf. 16 Social Security Trustees,“V.B1.— Principal Economic Assumptions,” The 2013 Annual Report of the Board of Trustees of the Federal Old-‐Age and Survivors Insurance and Federal Disability Insurance Trust Funds, May 31, 2013. http://www.ssa.gov/oact/tr/2013/tr2013.pdf. 17 Federal Reserve Bank of St. Louis, “Real GDP per Capita in the United States (USARGDPC),” 2013. http://research.stlouisfed.org/fred2/ graph/?id=USARGDPC. 18 The Supplemental Security Income Restoration Act (H.R. 1601), sponsored by Representative Raúl Grijalva and supported by more than two dozen national organizations, would update the income disregards, would: “increase the SSI resource limit from $2,000 for individuals ($3,000 for a couple) to $10,000 ($15,000 for an eligible couple); update the general income disregard from $20 to $110 per month[and] …the earned income disregard from $65 to $357 per month; and repeal the in-kind support and maintenance provision as well as the transfer penalty” Raul Grijalva, “Supplementary Security Income (SSI) Restoration Act,” National Senior Citizens Law Center, April 2013. http://www.nsclc.org/wp- content/uploads/2013/04/SSI-Restoration-Act.pdf ). 19 One-third of persons receiving SSI benefits, 2.8 million people, are so-called “dual eligibles,” receiving Social Security as well as SSI (Social Security Administration, “Monthly Statistical Snaphsot,” August 2013. http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/). Under current law, after a $20 per month disregard, SSI monthly benefits are reduced dollar for dollar by Social Security benefits. Consequently, it will be important for legislation that expands Social Security benefits be accompanied by a technical provision ensuring that the Social Security benefit improvements be passed on to persons receiving SSI benefits. 20 Strengthen Social Security Coalition, “Transition Report for the New Commissioner of Social Security: How to Ensure the World-Class Service the American People Deserve,” March 2013. 21 Please note that, unless otherwise stated, the proposals are intended to take effect as soon after enactment as possible. 14 SOCIAL SECURITY WORKS ALL GENERATIONS PLAN
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