For Immediate Release
FOR IMMEDIATE RELEASE October 22, 2008
WASHINGTON -- Even as an average of 10,000 baby boomers reach retirement age each day, the current economic crisis is devouring their investments and 401(k)s. The trouble on Wall Street is a reminder of how important Social Security is to Main Street.
For years we've heard of the increasing strains on Social Security due to demographic changes and increased life expectancy, but now Americans' retirement funds are in imminent danger -- the Social Security Trust Fund will begin to run a deficit by 2017, less than 10 years away. Without a change, the Trust Fund will completely run out of money by 2041, only 33 years from now, when today's baby boomers will be in their 80's and 90's.
For too long, the brain-dead politics of the left and right have caused efforts to reform the system to end in stalemate. Slash-and-burn tactics like huge tax increases and private accounts have all lead to dead ends.
The latest installment in the Progressive Policy Institute's (PPI) Memos to the Next President series, "A Progressive Fix for Social Security," calls on the next president to make significant changes in the Social Security system now to stop a disaster that looms on the not-too-distant horizon. PPI Scholar Bob Pozen argues for progressive solutions which would tailor benefits to the needs of the recipients, while maintaining purchasing power for all beneficiaries. You can read the whole Memo at www.ppionline.org.
"A Progressive Fix for Social Security" is the sixth in PPI¹s ongoing Memos to the Next President, a series of policy prescriptions written directly to the next occupant of the White House so that he can hit the ground running on the problems facing Americans today. PPI experts will propose solutions on issues ranging from economic growth to national security.
In his Memo, Pozen outlines a series of solutions that could reduce Social Security's projected 75-year deficit by up to $3.2 trillion. His proposals include:
Breaking Social Security beneficiaries into low, medium and high earners based on their average lifetime earnings. Pozen offers solutions tailored to the needs of each group.
Reforming the initial calculation of benefits upon retirement. Currently, those benefits are calculated from your average annual earnings and increased by the average increase in wages, not prices, over your career. That means that your initial benefits are linked to the average increase in wages, or "wage indexed." As wages have historically risen 1 percent faster than prices, this gives retirees increased buying power over a system based on the average increase in prices or "price indexing."
Linking the initial calculation of benefits upon the retirement to price rather than wage for the highest and median lifetime earners. This move alone could reduce the 75-year deficit of Social Security by between $2.6 and $3.2 trillion.
Maintaining purchasing power equal to or greater than benefits today for all workers by ensuring that all benefits either match or exceed the rate of inflation.
Ensuring that the benefits of low-wage earners remain linked to the increase in wages. If average wages continue to increase at 1 percent faster than prices, the purchasing power of the Social Security benefit indexed to wages is projected to be 50 percent higher by 2045 than in 2005 for a comparable beneficiary. This substantial increase in purchasing power will be reserved for the lowest 30 percent of earners who generally don't have other sources of retirement income.
To offset these modest changes in benefit calculations, Pozen advocates pairing them with a lift on the existing $150,000 income cap on the Roth IRA to benefit middle and high income retirees, and matching tax credits for low-wage earners who save more of their own money into IRAs.
You can read the full text of "A Progressive Fix for Social Security" along with the entire Memos to the Next President series, at www.ppionline.org.
For questions on "A Progressive Fix for Social Security" or for comment from Bob Pozen, contact Alice McKeon at (202) 608-1232 or amckeon@dlc.org.
The Progressive Policy Institute's mission is to define and promote a new progressive politics for America in the 21st century. Through its research, policies, and commentary, the Institute is fashioning a new governing philosophy and an agenda for public innovation geared to the Information Age. For additional information, web users may access the Progressive Policy Institute at www.ppionline.org, or contact PPI's press office at (202) 547-0001.
