It's time for a basic income (retirement)

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Presidential candidates attend the New Hampshire Democratic Party convention — MANCHESTER, NH – SEPTEMBER 07: Senator Elizabeth Warren (D-MA), Democratic presidential candidate, speaks at the New Hampshire Democratic Party convention at SNHU Arena on September 7, 2019 in Manchester, New York Hampshire. Nineteen presidential

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Senator and presidential candidate Elizabeth Warren has a new – and expansive – social security proposal. It's a myriad of changes, as seems to be the norm today, a list that includes the following:

A lump sum boost of $ 200 for the benefits of all beneficiaries. (Is the $ 200 amount a punctual boost or does it increase with inflation and why not incorporate it into the formula itself?)
The cost of living increases with the CPI-E, a version of the Consumer Price Index that is based on a typical "basket of goods" of a typical senior who places more emphasis on health, for example.
A caregiver credit based on the median wage, each month, a person provides 80 hours of unpaid care to a child under 6, a disabled dependent or an elderly parent. (There seems to be no requirement that people be out of the labor market, so this would seem to increase benefits for all parents with income below the median.)
Increase in survivor's benefits to 75% of the amount the couple received while alive. (Is it a "fair" or unfair subsidy for married couples? You are the judge.)
A helping hand for surviving disabled spouses, by repealing the age criteria.
Elimination of the disposal provision for unexpected gains and government pension compensation for public service employees. (Warren characterizes the WEP as unjustly "slash & lsqb; ing & rsqb; Social security benefits "; the reality is that without WEP, workers with years of work in the public sector, regardless of whether they are in the private sector or not participating in social security, would receive more generous benefits than citizens would deem just. For example, without WEP, a career teacher who works in the private sector this summer would appear to social securityS benefits to have been poor and to benefit from the relatively more generous benefit formula for the poor.)
Restoration of child benefits (students) for adult students and extension at 24 years old.
A reduction of up to three years in the calculation period of the social security average for apprentices and vocational training programs, in order to improve the history and benefits of average wages. (Why give special treatment to these programs? The average period of 35 years already excludes 14 years of working life of an adult – from 18 to 67 years – to account for education, unemployment and other absences from the labor market .)
A minimum benefit of $ 1,501 per worker – or 125% of the isolated poverty line plus $ 200, with 30 years of work experience. (Note that this is actually more than the current average benefit. For a married or cohabiting couple, their combined benefits would be 220% of their combined poverty level; even for unmarried retirees, the benefit is slightly higher than the eligibility level for Medicaid.)
And, like all proposals of this type, an additional tax on the upper middle class and the wealthy to finance it – expressed in the form of a "social security contribution requirement" of 14.8% on income over $ 250,000 plus 14.8% investment income tax, it's really nothing more. rather than raising marginal tax rates and directing income towards social security. (If this tax is equivalent to the equivalent tax for Medicare, it will be unindexed and will affect more and more workers over time. I will also repeat my observation that while you believe that tax increases are more important, all tax increases have an opportunity cost – social security funds can not be spent either. in health care, childcare or parental leave. At the same time, writer Vox Matthew Yglesias explains Warren's thinking is different: rather than spending the same pot of money half a dozen times, "To believe Warren ,. . . Economic resources are abundant – they have just been captured by a small number of people at the top. "Unlike many such proposals that claim to ensure long-term solvency, Warren is only saying that these changes extend the solvency of the trust fund by 20 years and not permanently. (Remember that the trust fund is currently sold out in 2035 – and these forecasts, as well as projections of future cash flows, are based on the optimism of a future increase in the fertility rate that may not occur.)

So, how do you make sense of that? Some of these changes seem small – special provisions for social security benefits for apprenticeship students, for example. Others are expensive, like the new minimum much higher. Almost all have in common eliminating or weakening the link between benefits and lifetime wages. Canada offers caregiver credits removing years from the average requirement, in order to maintain the link with an individual's work history, but Warren proposes treating individuals as "average employees" for each year in which they can claim part-time care. The boost to the surviving spouse further increases the level of couples' benefits compared to singles. The elimination of WEP ignores the true employment history of the worker. The new high income tax simply injects more money into the system, without any link to the accumulated profits. The increase in lump sum benefits and the new minimum benefit are obviously not income-related.

And maybe that's okay. After all, the current system has a benefit formula that strongly favors low wages. Nevertheless, as Warren says, "Social security is an earned benefit – you pay a portion of your salary into the program throughout your professional career, then you tell your family and you take advantage of the program. when you retire or leave the job market due to a disability. "

But these are only half measures.

If we really want to ensure that social security provides everyone with adequate benefits to meet their basic needs, then the obvious solution is simply a basic income type benefit.

And at the same time, Warren writes:

"For someone who has worked all his adult life at the average salary and who has retired at age 66 this year, social security will only replace 41% what they did. It is far from the 70% many financial advisors recommend a decent retirement "-

suggesting to readers that she thinks that social security itself should fill this gap, something that places it well outside the public opinion that what is needed is more attention to plans or programs that help middle-class Americans achieve this for themselves. (However, for a couple, $ 1,500 x 12 = $ 18,000 x 2 = $ 36.00, which is 70% of $ 51,000, which is another indicator of the level of their minimum benefit level. )

What we need, on the contrary, is my understanding social security reform in three installments, in which all Americans are excluded from poverty with a lump-sum benefit of "basic income", structures are put in place for the retirement savings of the second tranche and the risk draw of the income of life, and Americans make their own choices income savings tranche. The concept of income brackets means that no one should save on that part of their income that would be enough to meet their basic needs – like Andrew Biggs recently wrote to MarketWatchit may be better for the lowest wages to save for retirement – but only for retirement with an income bracket above this level. The lump sum benefit means that we can include all Americans but fund it through an income tax that leaves the debate on the "fair share" of rich or poor taxpayers. And a second-tier retirement savings program, by incorporating retirement savings into a completely redesigned social security program, also leaves out the debate about "privatization" or "unfair government savings mandates". .

Or, on the other hand, maybe not so new.

As always, you are invited to comment on JaneTheActuary.com!

Senator and presidential candidate Elizabeth Warren presented a new (expanded) social security proposal. It's a myriad of changes, as seems to be the norm today, a list that includes the following:

A lump sum boost of $ 200 for the benefits of all beneficiaries. (Is the $ 200 amount a punctual boost or does it increase with inflation and why not incorporate it into the formula itself?)
The cost of living increases with the CPI-E, a version of the Consumer Price Index that is based on a typical "basket of goods" of a typical senior who places more emphasis on health, for example.
A caregiver credit based on the median wage, each month, a person provides 80 hours of unpaid care to a child under 6, a disabled dependent or an elderly parent. (There seems to be no requirement that people be out of the labor market, so this would seem to increase benefits for all parents with income below the median.)
Increase in survivor's benefits to 75% of the amount the couple received while alive. (Is it a "fair" or unfair subsidy for married couples? You are the judge.)
A helping hand for surviving disabled spouses, by repealing the age criteria.
Elimination of the disposal provision for unexpected gains and government pension compensation for public service employees. (Warren characterizes the WEP as unjustly "slash[ing] Social security benefits "; the reality is that without WEP, workers with years of work in the public sector, regardless of whether they are in the private sector or not participating in social security, would receive more generous benefits than citizens would deem just. For example, without WEP, a career teacher who works in the private sector this summer would appear to social securityS benefits to have been poor and to benefit from the relatively more generous benefit formula for the poor.)
Restoration of child benefits (students) for adult students and extension at 24 years old.
A reduction of up to three years in the calculation period of the social security average for apprentices and vocational training programs, in order to improve the history and benefits of average wages. (Why give special treatment to these programs? The average period of 35 years already excludes 14 years of working life of an adult – from 18 to 67 years – to account for education, unemployment and other absences from the labor market .)
A minimum benefit of $ 1,501 per worker – or 125% of the isolated poverty line plus $ 200, with 30 years of work experience. (Note that this is actually more than the current average benefit. For a married or cohabiting couple, their combined benefits would be 220% of their combined poverty level; even for unmarried retirees, the benefit is slightly higher than the eligibility level for Medicaid.)
And, like all proposals of this type, an additional tax on the upper middle class and the wealthy to finance it – expressed in the form of a "social security contribution requirement" of 14.8% on income over $ 250,000 plus 14.8% investment income tax, it's really nothing more. rather than raising marginal tax rates and directing income towards social security. (If this tax is equivalent to the equivalent tax for Medicare, it will be unindexed and will affect more and more workers over time. I will also repeat my observation that while you believe that tax increases are more important, all tax increases have an opportunity cost – social security funds can not be spent either. in health care, childcare or parental leave. At the same time, writer Vox Matthew Yglesias explains Warren's thinking is different: rather than spending the same pot of money half a dozen times, "To believe Warren ,. . . Economic resources are abundant – they have just been captured by a small number of people at the top. "Unlike many such proposals that claim to ensure long-term solvency, Warren is only saying that these changes extend the solvency of the trust fund by 20 years and not permanently. (Remember that the trust fund is expected to be exhausted in 2035 – and this, together with future cash flow projections, are based on the optimism of a future increase in the fertility rate that might not occur. )

So, how do you make sense of that? Some of these changes seem small – special provisions for social security benefits for apprenticeship students, for example. Others are expensive, like the new minimum much higher. Almost all have in common eliminating or weakening the link between benefits and lifetime wages. Canada provides caregiver credits by removing the number of years from the averaging requirement to maintain a connection to work history, but Warren proposes treating individuals as "average earners" for each year when they can apply for part-time care. The boost to the surviving spouse further increases the level of couples' benefits compared to singles. The elimination of WEP ignores the true employment history of the worker. The new high income tax simply injects more money into the system, without any link to the accumulated profits. The increase in lump sum benefits and the new minimum benefit are obviously not income-related.

But these are only half measures.

If we really want to ensure that social security provides everyone with adequate benefits to meet their basic needs, then the obvious solution is simply a basic income type benefit.

And at the same time, Warren writes:

What we need, instead, is my comprehensive three-tiered social security reform, in which all Americans are excluded from poverty with a lump-sum "basic income" benefit, structures are put in place. Place for retirement savings and second-tranche risk share income in life, and Americans make their own choices with respect to upper-income savings. The concept of income brackets means that no one should save on that part of their income that is just enough to meet their basic needs – as Andrew Biggs recently wrote on MarketWatch, it may be more beneficial low wages not to save for retirement – but save only for retirement on this income bracket above this level. The lump sum benefit means that we can include all Americans but fund it through an income tax that leaves the debate on the "fair share" of rich or poor taxpayers. And a second-tier retirement savings program, by incorporating retirement savings into a completely redesigned social security program, also leaves out the debate about "privatization" or "unfair government savings mandates". .

Or, on the other hand, maybe not so new.

As always, you are invited to comment on JaneTheActuary.com!