Writing at Marketwatch, Brett Arrends discusses a Biggs-approved Social Security reform: convert Social Security to a flat benefit, either at 125% or 150% of the federal poverty threshold.
It’s worth taking a look at this type of reform, which is similar to the government retirement programs in countries like the United Kingdom, Australia and New Zealand.
Arrends relies on the Congressional Budget Office’s analysis of two flat benefit reforms. One would set a flat dollar benefit for retirees and the disabled at 125% of the federal poverty threshold, while the second would set the benefit at 150% of poverty. No one would get less than that.
Note that for a couple, Social Security benefits relative to the poverty line would be even higher because the poverty threshold for two people is less than twice the single threshold. For a couple, the flat Social Security benefit would range between 198% and 238% of the federal poverty line.
Either option would (easily) address Social Security’s long-term funding gap while (again, easily) eliminating poverty among seniors and the disabled. That wouldn’t merely save Social Security. It would help save the federal deficit and debt while making old-age poverty a thing of the past.
Lower costs, zero poverty, no $100,000 benefits. Bonus: no federal debt crisis.
I’m not aware of any proposed Social Security reform, from the left or right, that does so much to strengthen the safety net.
How can a flat Social Security benefit do so much — boosting benefits for the bottom quarter/third of beneficiaries? Simple: by reducing benefits for the top three-quarters/two-thirds of beneficiaries. Say, for the richest fifth of households born in the 1980s, annual benefits would be cut by 58% — more than in half.
Sounds catastrophic! Except without these reductions, that richest fifth of households would receive average annual Social Security benefits of $100,000 in today’s dollars. There is no other Anglo country — and, in fact, no country at all that I’m aware of — that pays such high benefits to high-income seniors.
I don’t think I’m going out on a limb in saying that it makes no sense for a “safety net” program to be paying $100,000 per year — roughly five times the federal poverty threshold — to households that are at zero risk of poverty and are more than capable of saving for retirement on their own.
All of this goes back to a thought experiment I utilize in my book, “The Real Retirement Crisis”: Don’t think about how you would save Social Security, in the sense of keeping it from going insolvent; think about what Social Security would look like if you were inventing it from scratch today. What would you want Social Security to do, and how would you want Social Security to do it?
That doesn’t mean we don’t need to keep Social Security solvent or that we can switch to a new model overnight. But I believe the best and easiest path to keeping Social Security solvent and effective is to think hard about what we really need the program to do.
Andrew Biggs is senior fellow at the American Enterprise Institute and author of “The Real Retirement Crisis.” This column is a reprint of a recent post in his Substack “Little-Known Facts.”
