Rarely have I seen a proposal for Social Security draw-out more public fanfare than the recent proposal offered by Sen. Elizabeth Warren. The coverage was staggering (Bloomberg, CNBC, LA Times, NYTimes, TheHill, WSJ, and more but you get the point).
In her blog post released just hours before the latest presidential debate, Warren called for an immediate increase in benefits of $200 per month for all retirees on top of more targeted hikes for “women and caregivers, low-income workers, public sector workers, students and job-seekers, and people with disabilities” who have mistreated by the unfairness of the system.
It is raining money in Washington.
Worrisome Portrayal of History
Senator Warren’s post worries: “Despite the data staring us in the face, Congress hasn’t increased Social Security benefits in nearly fifty years.”
She is right: the last time lawmakers increased Social Security benefits was in 1972 when Congress introduced a mathematical flaw to the payment formula that brought the entire system to the brink of insolvency within a decade.
That reform also incorporated rules enabling the program to increase benefits without Congressional intervention. So the data staring us in the face reveal unequivocally that the annual benefit for a typical senior has risen sharply, nearly doubling in real terms over the last 50 years, without the need of Congressional action. Combined with data on life expectancy, Social Security provides growing benefits to a growing audience of seniors over a longer duration.
Despite that trend, Warren laments: “In 2019, the average Social Security beneficiary received $1,354 a month, or $16,248 a year.”
It is true. It is also true that today’s average benefits are largely shaped by claiming patterning of the last two decades during which time Congress encouraged retirees to trade money early in retirement for lower benefits in the future. Early retirement costs the average retiree roughly double what Warren is proposing to create via political fiat.
The Earned Benefit Is Toast
History aside, maybe seniors need more, and maybe the rich should pay a larger share. The problem with her reasoning is that Social Security is a poor way to deal with these issues.
As Senator Warren herself points out, “Social Security is an earned benefit” because “you contribute a portion of your wages to the program over your working career.” That is true, until her proposal becomes law. In this case, the money isn’t earned by contribution. It is collected by political power. This is a reckless precedent for Social Security.
Shaking the Economic-Analysis-Tree
In its reporting, the media completely embraced the feasibility of the proposal because of independent analysis from Moody’s Analytics confirmed its viability.
If this proposal were a sound idea, Warren should introduce it as legislation in Congress where it would undergo the standard scrutiny of the actuarial experts of the Social Security Administration. As it is, she bypassed the unquestioned authority on the subject. She also skipped over the Congressional Budget Office and the Congressional Research Service, both of which have subject matter experts on staff.
The Warren Campaign overlooked a wealth of research options both private and public before selecting the independent analysis of Moody’s Analytics. As strong as this operation might be, I have never heard anyone cite its expertise on Social Security until today. The hard-truth is the complexity of the program does not lend itself well to a one-size-fits-all type of economic analysis.
Policy makers, nor the media, should expect to shake the economic analyst tree and have magically someone appear who understands the far-reaching implications of Social Security.
The Consequence Is Lacking Detail
While the independent analysis might be very good, we will never know because it lacks the detail necessary to make that type of judgment. There is no way to actually say that it evaluated the plan that Warren proposed.
For example, Warren’s proposal promises to apply a 14.8% tax on the investment income of those in the top 2% of wealth. Moody’s analysis on the other hand suggests that this levy will hit a lot more than 2% of the public because it suggests that the threshold that is not indexed to inflation.
To illustrate how the approach of static triggers unravels, Congress passed rules in 1983 intended to collect a modest tax on the benefits of people who were generally well off. As a result of unindexed thresholds, this levy now targets the middle-class retiree with some of the highest marginal tax rates in the entire tax code.
The independent analysis lacks the necessary detail to determine whether the conclusions track to Warren’s proposal, much less the promises.
A New Direction for This Proposal
This proposal may be a good idea. Honestly I don’t know.
Here is a suggestion: Introduce the legislation in Congress while you have the privilege. Allow the SSA to vet the terms; allow the media to provide accurate reports; allow the voters to make informed choices.
As it is, the proposal serves mainly to reduce a serious program into wedge politics.
