Washington tends to see Social Security as a pot of money to be spent on the ever widening audience of political solutions. In short, we address issues by calling them “Social Security.”
This isn’t a new strategy.
Social Security is where it is today because Congress has expanded the program repeatedly without any consideration of cost. For example, survivor benefits were added in 1939. Costs of this nature tend to arise from premature deaths, rather than old-age. Not only were these benefits added, but Congress cut payroll taxes instead of increasing the cost to pay for the bonus benefits.
Originally, Social Security was a law that gave workers some measure of protection against falling into poverty ridden old-age. It was extended to survivors, spouses, ex-spouses, and children up to the age of college. We added a cost-of-living adjustment that by itself pushed the system to the brink of insolvency. All of these things may be necessary, but none of them have ever been priced into payroll taxes.
More recently, policy experts have recommended that we incorporate maternity leave into Social Security in the Disability system. The proposal would allow people to access to some of their Social Security retirement benefits to help pay for the transition following the birth or adoption of a child. This idea closely follows unrelated legislation that would enable student loan borrowers to exchange loan forgiveness for delaying their retirement benefits.
There is a simple problem with this concept. Maternity is neither disability nor old-age. To illustrate the point, my niece is 26 and needs a car. I am sure that society would benefit from her owning a car. That doesn’t mean that Social Security should pay for even a portion of her vehicle. Moreover, we should not encourage her to buy a car by creating a problem in her retirement.
The retirement side of Social Security is intended to lower the statistical probability of poverty ridden old-age. It is a steady stream of predictable income that enables seniors to plan the longest vacation of their lives. Without that secure stream of income, few could retire in their 60s for fear of living into their 90s.
We typically hear how important Social Security is to a retirement. Experts believe that benefits account for 90 percent of income for more than one-third of retirees. What you less frequently hear is that level of dependence nearly doubles between the ages of 70 and 80. Why? One reason is that people tend to eat into their savings during retirement. Moreover, as we age, we tend to lose the ability to work for wages.
In these plans, the government is generally encouraging younger Americans to discard protection for time when we can’t work. This is a terrible idea because most people have a difficult time assessing the importance of old-age insurance when they are very young. Moreover, many of these younger Americans believe that Social Security will not even exist when they retire. So the ability to form a reasoned decision is virtually nil.
An informed decision can’t even be made. For younger Americans, there is a virtual certainty that retirement age is going to rise. So the applicant has no idea whether his retirement age is going to increase from 67 to 68 or from 68 to 69. The only way that younger Americans can value this decision is money today is better than never getting money at all. This is a terrible way to make sense of maternity leave.
The most troubling aspect of these plans is the idea that these trade-offs are self-financing. One report suggested that taking 6 weeks of benefits now means that we would need to defer retirement benefits by 6 weeks. To state the obvious, spending $1,000 today will push the system to insolvency faster. The fact that someone is giving up retirement benefits far in the future is beside the point.
In politics, this is crisis arbitrage. All we are doing is buying a solution today at the expense of a larger problem in the future. In terms of politics, this is a political no-brainer. The solution today is worth votes, and the crisis tomorrow is someone else’s problem.
We need to stop looking at Social Security as the one-stop cure all for the needs of the nation.
Brenton Smith writes on all aspects of Social Security reform, translating the numbers and jargon of the issue into terms that everyone can understand. His work has appeared in Forbes, MarketWatch, Fox Business, The Hill, and a number of regional newspapers. To read more of his reports — Click Here Now.
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