The beauty of Social Security is its simplicity. Social Security is a self-financing system that workers and employers pay into, and upon retirement (or in the case of disability or death), workers and their families receive benefits commensurate with average wages. Pretty simple, and critical for millions of Americans. So when someone tries to distort the facts about Social Security, it’s pretty easy to see. Here’s one example.
Deficit hawk and former Senator Alan Simpson, co-author of the Bowles-Simpson Deficit Reduction Plan and infamous for calling Social Security “a milk cow with 310 million tits” is making a bold claim: in order to “save” Social Security for the next generation, it must be cut – substantially.
But in a recent post, Ross Eisenbrey at the Economic Policy Institute points out that Alan Simpson’s plan would actually be more harmful to future generations than no changes what-so-ever. “Our children and grandchildren will lose critical benefits under Simpson’s plan, while [current] seniors like him are mostly protected.”
Here’s why: future benefits are already scheduled to fall to a replacement rate of about 36% for middle class earners thanks to an increase in the retirement age, and because of earlier cuts from the 1980s. But Simpson’s plan would make even deeper cuts for a worker retiring at 65, lowering the replacement rate to 28%.
Under the Bowles Simpson’s plan, if a middle class earner retires at age 65 in 2080, Social Security will replace only 28% of their pre-retirement earnings. By contrast, a 65-year old who retired in 1980 had 49% of pre-retirement earnings replaced by Social Security.
Of course, there’s an easy solution not explored by Alan Simpson that would put Social Security on sound financial footing for future generations – Scrap the Cap.
Under the Scrap the Cap plan, Social Security can pay 100% of benefits after 2033, and even modestly expand benefits today, if Congress makes one simple change: eliminate Social Security’s cap on taxable income (now set at $110,100) so high income earners pay the same tax rate as middle class workers.
The additional funding could boost benefits for low-income earners, add credits for individuals (often women) who take time from work to raise their family, and restore benefits for college students that were cut in the 1980’s.
Cutting benefits and increasing the retirement age are not the only options. Scrapping the cap – and asking everyone to pay the same rate for the same guarantee – would put the Social Security system on solid financial footing for the long-term, and allow us to keep our promises to future generations.