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Old man's hand holding several pennies.
Austerity fever hasn't infected every Washington D.C. think tank or consulting group, and it's not just crazy bloggers who've noticed that finances have gotten very hard for retired people and those close to it. The New America Foundation just issued a big, new report that is even more radical than what the crazy bloggers have called for: increased Social Security benefits. NAF is calling for an entirely new benefits program to supplement Social Security.
The conventional wisdom about Social Security is profoundly misguided. According to today’s mistaken consensus, the U.S. as a society cannot afford to allocate the money to pay for the present level of Social Security benefits for retirees in future generations. The solution, it is widely argued, is to cut benefits—either directly by means-testing or indirectly by raising the retirement age or allowing inflation to erode their real value over time. In this narrative, tax-favored private savings vehicles like 401(k)s and IRAs should be expanded in order to compensate for the allegedly necessary cuts in Social Security. [...]

In reforming America’s retirement security system, we should build upon what works. Instead of compounding failure by expanding private benefits, a category that includes rapidly-disappearing defined benefit pensions, employer-provided 401(k)s and individual retirement accounts (IRAs), we should substantially expand the successful, purely public Social Security program.

Hear, hear! What NAF is calling for is a Social Security, Part B. Social Security as we know it, the earnings-based defined benefit program, would still exist as Part A. It would be shored up by increased revenues, rather than cuts. The new Part B would be a "new universal flat benefit [...] to supplement the traditional earnings-related benefit that would continue to be provided by Social Security A." They suggest $11,669 per year for all elderly earners as the supplement, funded not by the payroll tax, but by new revenue. That would allow Social Security to come much closer to replacing a worker's pre-retirement income. Here's a chart showing the difference:
Chart showing income-replacement percentage of traditional Social Security compared to Social Security with proposed part B supplement.
Would it cost a lot? Yes. About five percent of GDP, and it would require new taxes. But it would also make up for the $2.8 trillion the financial crisis wiped out from retirement plans. It would mean that the nearly 50 percent of all American households which don't have sufficient retirement income to maintain a decent standard of living in old age would have security. But, the authors point out, it would add up to "less as a share of the economy than the 2035 version of today’s far less fair and far riskier publicly-sponsored retirement system as a whole." And there's a potential huge economic benefit here that's not discussed by the authors: the spending power of the baby boom generation that isn't living in poverty, that has adequate finances and some money to spend.

This is a welcome answer, from a reputable and thoughtful group of experts, to the conventional wisdom lining up behind Social Security cuts. It's not a plan that's going to pass, but it's a damned fine left tent-pole to stick in the ground, and to start shifting the conversation to the real Social Security crisis the nation is facing: leaving seniors in poverty.

Let's spread the word. Send an email to President Obama and congressional leadership telling them to strengthen Social Security instead of cutting it.

Originally posted to Joan McCarter on Wed Apr 03, 2013 at 12:38 PM PDT.

Also republished by Social Security Defenders and Daily Kos.

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