When it comes to Social Security reform, Wendell Primus of the Brookings Institution and Romina Boccia of the Cato Institute don’t agree on much. In fact, they don’t even agree on Social Security’s main purpose.
During a recent Concord Action online debate, Primus declared, “We can make Social Security solvent without changing any of the basic principles and keeping it as a wage replacement program and the cornerstone of our retirement systems.”
Boccia rejected the wage replacement model in favor of “a more sustainable and predictable guarantee against poverty and old age, while freeing up resources for younger workers to build retirement wealth through private saving and investment.”
Their different views of Social Security’s main purpose – wage replacement vs poverty protection – helps to explain their different ideas for reforming the program.
Nowhere is this more apparent than in Boccia’s recommendation to transform Social Security over many decades into a flat benefit program set at roughly 125% of the federal poverty level. This would end the program’s historic link between wages and benefit levels. It would also result in cost savings, precluding the need in Boccia’s plan for an increase in the payroll tax rate or the cap on taxable wages (currently $184,500).
“If we go back to what FDR had proposed,” Boccia said, “it was supposed to be insurance against poverty in old age; social insurance. A program that pays $120,000 in annual benefits to the highest earning couples who have substantial assets in their 401(k)s, in real estate and other forms, is not an insurance program against poverty. It is a redistribution program from younger working families to older and wealthier retirees, regardless of need.”
Primus, on the other hand, emphasized the importance of Social Security’s wage replacement role in retirement. “For a low earner,” he said, “it replaces about 50% of wages. For a middle income wage earner it replaces about 37% of wages, and for a higher earner, it replaces about 30%. The program has worked very well since 1983. There have been almost no changes whatsoever. It’s a beloved program.”
He described his own plan developed with colleagues at Brookings and the Urban Institute. “We basically keep the principles of Social Security unchanged. We increase taxes somewhat, and we also reduce future benefits. No one currently on the rolls will get a benefit reduction, but some future beneficiaries could I think take a reduction. So it ought to remain a wage replacement program. It is not a very good device for reducing poverty.”
Despite these differences, there are certain areas of agreement between Primus and Boccia that are worth noting:
- Social Security’s financing problem is serious and Congress should act before trust-fund depletion in 2032 to avoid a potential 22% across-the-board cut.
- Waiting makes the eventual adjustment more difficult.
- A mix of spending reductions (Boccia would have more) and revenue increases (Primus would have more) will be needed to sustain the system.
- Some increase should be made in the eligibility age. Primus would target the increase to the top 40% of earners because they have longer life expectancies. Boccia would have an across-the-board increase.
One final area of agreement is particularly important. They both agree that Social Security reform should be considered within the context of the federal government’s total budgetary obligations and the impact across generations. Accordingly, they both reject a scenario in which Congress simply bails out the trust fund in 2032 with general revenue transfers from the Treasury and declares the problem solved.
Given concerns about the $40 trillion debt, Primus said, “We should not rely on borrowing from the general revenues. Our [trust fund] solvency issue should be resolved by increasing taxes or reducing future benefits. It should not be resolved by additional borrowings from the American public.”
Boccia added, “I would generally agree with Wendell. We need to look at Social Security in the broader context of the U.S. federal budget crisis. We have debt at 100% of GDP.… If Congress decides to break through this trust fund firewall and just borrow to continue to pay benefits in full, it would be a massive increase in the national debt.”
Their conclusions on this point have an historical basis. Social Security is designed to be a self-financing social insurance program, not a general revenue financed support program. Workers and employers pay payroll taxes which are credited to a dedicated trust fund. But if the trust fund runs dry in 2032, and Congress decides to avoid benefit cuts or tax increases by allowing general revenue transfers, it would break the earned-benefit premise of the program’s original design, increase pressure on the federal budget and undermine public trust in Social Security’s financial integrity.
As President Franklin D. Roosevelt said in his signing statement of the Social Security Act on August 14,1935, “It is a structure intended to lessen the force of possible future depressions. It will act as a protection to future Administrations against the necessity of going deeply into debt to furnish relief to the needy. The law will flatten out the peaks and valleys of deflation and of inflation. It is, in short, a law that will take care of human needs and at the same time provide for the United States an economic structure of vastly greater soundness.” (emphasis added).
