Three (economy-boosting) ways to improve Social Security

Publication of the Social Security Trustees’ Report always seems to bring out political axe-grinders anxious to pronounce the program as doomed, despite all evidence to the contrary.

Social Security is one of the most successful and stable social programs in the country. For those who retire, those who lose income due to becoming disabled, or children/spouses who experience the death of a parent, Social Security replaces lost family income. For half of retirees, Social Security provides over 90% of their income.

In other words: Social Security is a bedrock of security for millions of families – and financially, it’s in sound shape until at least 2085. Now that we’ve yanked that little thorn, we can focus on the real economic uncertainties facing millions of American families, and think about how we could improve Social Security for today’s (and tomorrow’s) retirees, children and families.

It’s worth noting that Social Security is a formidable tool for economic stimulus. Providing more benefits to those who spend virtually every dollar they receive to meet monthly expenses would increase the flow of cash into the U.S. economy, stimulating both production and the jobs that go with it. Here are a few ideas that would make a major impact for a relatively modest cost:

1. Change the benefit formula to increase benefits for the lowest income earners. In 2009, Social Security recipients receiving a full benefit get 90% of the first $744 of their average monthly earnings. This should be increased to 100%. Between $744 and $4,483 a retiree currently receives 32% of earnings. This should also be increased, perhaps to 45%. This proposal would boost the incomes of those who need it the most with only a small increase in total costs – between 0.1% and 0.3% of payroll.

2. Increase elderly survivors’ benefits. Currently elderly widows and widowers lose one-third to one-half of the Social Security benefit the couple was receiving. Increasing the benefit for a surviving spouse to 75% of the couple’s pre-death benefit — with an income cap to limit the benefit for the highest income recipients — would help low and moderate-income widows and widowers. This reform would cost about .46% of payroll, according to “Strengthening Social Security for Women“.

3. Provide family care credits. Social Security benefits are based on the adjusted average of a worker’s 35 highest-earning years. However, while men average 44 years in the workforce, women spend far more time providing unpaid family care and average only 32 years of paid work. Any years under the 35-year threshold are counted as zeros in the Social Security formula, lowering the typical woman’s benefit. Fewer women would live in poverty in their old age if the formula were adjusted for time spent in family care-giving.

These are very modest changes to benefits – but if additional revenue is required to fund them, eliminating the income cap on Social Security deductions would cover it. Currently, earnings above $106,800 (in 2009) are exempt from Social Security taxes. Eliminating the cap would generate an additional 1.53% of payroll for Social Security — more than enough to cover the changes proposed above.

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