Back to Work - Bill Clinton [25]
Meanwhile, we have to figure out what to do for the next thirty-five to forty years, especially since seniors are living longer, and therefore will draw more benefits than previous generations. When Social Security was inaugurated, average life expectancy was slightly below the age at which benefits began. Today, older Americans have a considerably longer life expectancy. American men who reach age sixty-five have a life expectancy of eighty-two. For women, it’s eighty-four. It’s a good problem to have, one I’m trying to acquire myself, but it increases the cost of Social Security.
Not long ago, the age for receiving full benefits began to be raised two months each year, until it reaches sixty-seven in 2027. That will take some pressure off, but it won’t solve the problem. The Simpson-Bowles Commission thinks that over time we should gradually raise the eligibility age to sixty-nine, at least for people who don’t have strenuous jobs. The commission also advocates changing the way we calculate annual cost-of-living increases in Social Security payments, because the formula now used actually increases payments more than seniors’ living expenses go up. If we do lower the rate of benefit increases, provision will have to be made for older people of modest means who have health-related costs not fully covered by Medicare, or Medicaid if they qualify for that too.
The second challenge facing Social Security is that even though 90 percent of workers pay into the system, the percentage of earned income subject to the tax has dropped from its historical average of 90 percent to 86 percent, as more and more of the income gains for the last thirty years have gone to higher-income Americans. The maximum wage cap, now $106,800, has not increased as much as wages above the cap. According to the best available estimates, by 2020, when the cap is scheduled to be $168,000, only 83 percent of wages will be covered. Since 1980, the only time when the incomes of those in the lowest 20 percent of earners rose as much, in percentage terms, as the highest 20 percent was in the four years of my second term, thanks to a tight job market and more support for working families. Even then, the largest gains were concentrated in the top 10 percent and especially in the top 1 percent. Rising inequality is causing Social Security problems.
That’s why the Simpson-Bowles Commission recommended raising the cap to $190,000 in 2020 and returning to 90 percent coverage by 2050. If we adopt that approach, the highest-income Americans, who were the biggest winners in the last decade’s wage growth and tax cuts, still won’t make much of a contribution to solving the problem. Some experts have suggested that a better, fairer way to raise more money is to impose a surcharge of 1 to 1.5 percent on all earnings above the cap for employers and employees.
There have been a number of Social Security reform proposals that would make the system solvent for seventy-five years, by raising the retirement age and the earnings cap, reducing the role of automatic benefit increases, and actually increasing payments to the neediest, most vulnerable beneficiaries. The Simpson-Bowles Commission plan does that. You might also want to check out the ideas of President Obama’s former Office of Management and Budget director Peter Orszag and his colleague Peter Diamond, and those of Bob Pozen, who was a member of President Bush’s Social Security reform commission.6
The only sacrifice-free