entitlement reform
Social Security Getting More and More Regressive

When politicians talk about reforming Social Security, it’s almost always in the context of fiscal discipline—that is, reducing benefits so that the program doesn’t consume an ever-growing share of the federal budget. While budget-conscious entitlement reform is a critical project, focusing only on the program’s impact on the government’s bottom line can obscure an equally important—and, potentially, equally destructive—defect in FDR’s signature policy innovation: the growing longevity gap between the rich and the poor means that the program is over time doing less and less for those it was supposed to help the most. The New York Times‘s Neil Irwin reports:

Social Security is designed to ensure that no workers go penniless in old age and also as an equalizer between rich and poor. It is structured to give more generous retirement benefits to low-income people, given the taxes they pay during their working years. […]

But in reality, a large body of research shows that the rich live longer — and that the life span gap between rich and poor is growing. And that means that the progressive ideal built into the design of Social Security is, gradually, being thwarted. In some circumstances, the program can actually be regressive, offering richer benefits to those who are already affluent.

Social Security is exhibiting a pattern common to blue model programs like student loan subsidies, occupational licensing rules, and strong unions: All these institutions once functioned reasonably well to support growth and expand opportunity, but the changing fiscal and demographic realities of the 21st century mean that they now increasingly favor the already-privileged at the expense of outsiders trying to break in.

Republican politicians are uncomfortable talking about how Social Security is tilted in favor of the rich because they are uncomfortable talking about inequality in general, and Democrats are uncomfortable talking about it because they worry that it will undermine support for the crown jewel of the American welfare state. As a result, we have Republicans floating proposals to privatize Social Security or raise the retirement age, while Democrats (and their fellow-traveler Donald Trump) promise to maintain or exacerbate the regressive and fiscally unsustainable status quo.

Any politically palatable version of Social Security reform will need to grapple seriously with the distributional as well as budgetary impacts of the program—and that means tying any benefit reductions to measures that ease the burden on working families. One way to do this is means-testing: reducing benefits only for people with income above a certain level. This is a sound idea that could be complemented by exempting the first, say, $10,000 of a workers’ income from the payroll tax, or taxing it at a lower rate (the 6.2 percent flat-rate Social Security tax is the largest tax that many working-class families pay).

But for any of these changes to be feasible, politicians need to do more than argue that Social Security as currently constituted is fiscally unsustainable. They need to argue that the compact Social Security was built on is no longer operative—that working and middle class people are increasingly getting ripped off by a program that was designed to serve them. Simply doubling down on such a system won’t do any good; what is needed is a reform that serves the interests of the middle class.

Features Icon
show comments
© The American Interest LLC 2005-2017 About Us Masthead Submissions Advertise Customer Service