Rand Paul is an eye surgeon, but when it comes to fixing Social Security he seems to prefer a blunt instrument to the scalpel.
Kentucky's Republican Senate candidate likes to conflate Social Security's long-term solvency problems with the broader deficit issue, and says the solution is boosting the retirement age to 70. Never mind that Social Security continues to run enormous surpluses, with the combined old age and disability trust funds projected to grow from $2.5 trillion in 2009 to $3.8 trillion in 2020, according to the Economic Policy Institute.
Paul's position on Social Security is part of a much broader well-orchestrated, fact-free attack on Social Security from Wall Streeter Pete Peterson, the Tea Party and others on the right.
Social Security is the most important source of retirement income for most Americans -- and it's a critical source of security in our recession-ravaged economy. The National Academy of Social Insurance (NASI) estimates that if seniors had to rely on only their income other than Social Security, nearly one in two would be poor.
So, let's revisit the facts.
Social Security made headlines earlier this year when it became known that the program will -- for the first time -- take in less cash this year than it pays out on a current-year basis. It's basically a pay-as-you go program with current benefits funded by today's workers. Unfortunately, recession-induced unemployment has cut into collections of the payroll tax that funds the program (the FICA tax) and the number of older unemployed workers filing for benefits has soared.
But Social Security also has that big surplus, which has been accumulating since the last "fix" to the program was implemented during the Reagan years. That fix included a gradual boost of the retirement age from 65 to 67, and a substantial boost in payroll taxes that fund Social Security. Those changes were intended to raise a substantial cushion for the future retirement of all those boomers. It worked, and the money sits in something called the Social Security Trust Fund.
True, as boomers start to retire in greater numbers, there won't be enough current workers coming along behind them to keep the program solvent on a pay-go basis. That means the surplus funds will be drained -- eventually. As in ... 2037. But even then, income coming into the fund would cover about 75 percent of benefit payouts.
So, what we need is a set of sensible solutions to the long-term solvency issue -- a surgical approach, rather than simply taking a whack at the retirement age.
NASI has laid out a menu of more than 20 carefully-researched ways to restore Social Security's long-term solvency. NASI's solutions--which provided the basis for reform now recommended by the U.S. Senate Special Committee on Aging--include options for boosting benefits adequacy, increasing the Social Security Trust Fund's solvency and benefit reductions.
So, what about Rand Paul's suggestion to push the retirement age to 70?
The NASI report outlines one possible approach to making 70 the new Normal Retirement Age that it says could cut the long-term Trust Fund shortfall by one-third:
Accelerate the increase to 67; then increase the full-benefit age by 1 month every 2 years to age 70. This option would continue to increase the full-benefit age to 70. If policymakers speed up the increase in the full-benefit retirement age to reach age 67 for those born in 1953, and then extend it one month every two years until it reaches age 70 for people born in 2025, these changes would reduce the long-term deficit by 0.62 percent of taxable payroll, thereby eliminating just under one third of the long-range shortfall.
However, NASI notes that this change would effectively reduce lifetime benefits from age 65 by 30 percent -- and 43 percent from age 62.
There's no doubt that many of us will be working longer in the years ahead as part of the broad, ongoing reinvention of traditional retirement that has nothing to do with Social Security or politics. That makes sense; longevity is rising, and many people will be diving into second careers, launching businesses or working part-time as consultants. Indeed, a recent Rand Corp. labor force forecast concluded that an "unprecedented upturn in the number of older Americans who delay retirement is likely to continue and even accelerate over the next two decades, a trend that should help ease the financial challenges facing both Social Security and Medicare. . . "
Here's the problem: working longer won't work for everyone.
Rand -- along with everyone else pushing this solution -- bases its argument on the ability of highly skilled knowledge workers to stay in the labor force well past age 65. Writes Rand:
A principal reason why retirement rates have dropped is because of an evolution in the skill composition of the nation's workforce ... As American workers have gained more education, they have achieved jobs that are more fulfilling, they face fewer physical demands in the workplace and they are paid more for their efforts.
Fair enough. But how about low-income workers who do physically-demanding jobs? Will we tell them to keep doing those jobs until age 70? This is a part of the labor force that isn't experiencing rising longevity, and it is more reliant on Social Security than the population as a whole.
The Urban Institute reports boosting the Normal Retirement Age to 70 and Early Retirement Age to 65 would push an additional 1.5 million older Americans into poverty by 2050. That increase in poverty could be mitigated. For example, an increase in retirement age could be coupled to a guaranteed minimum benefit -- an idea that NASI included in its menu of recommendations.
So, let's repair Social Security with some fine cuts -- no slashing required.