Social Security Part B?

April 22, 2013 | Alex Stone

Ready for a fresh take on Social Security? Check out a new report that bypasses the binary “to cut benefits or not to cut benefits” debate. Instead, the authors of “Expanded Social Security” argue that the current levels of retirement insecurity in America make a good case for expanding Social Security and increasing benefits.

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.

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.

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Posted in Retirement Security, Social Security

Comments

  1. Winslow P. Kelpfroth says:

    I don’t follow your argument that because 401k’s lost 40% of their value a retiree’s remaining lifetime is ruined. One should draw down a retirement nest egg at around 4% per year. You’re making it seem as though the retiree must withdraw it all immediately upon retirement. Write with more clarity, please.

    • Alex Stone says:

      Winslow,

      Losing 40% of the value of a retirement account may or may not lead to disaster in retirement depending on how much one has in savings, their expected Social Security benefit, home equity, age, etc. However, for most people nearing retirement, losing 40% of the value of their 401k will dramatically reduce their monthly payments, cause them to work longer, and have other negative consequences. Sure, in an ideal world people would be able to draw down their nest egg at 4%/year, but less than half of boomers in Washington contribute to a 401k-style plan, and 1 in 4 of them have less than $25,000 in retirement savings. It’s clear there’s a problem here, the question is how to fix it.

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