Memo to President Obama: Expand Social Security, Don't Cut It

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http://www.theatlantic.com/politics/archive/2013/04/memo-to-president-obama-expand-social-security-dont-cut-it/274728/



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Here's how it would work.

Just as Medicare already has different components called Medicare A, B, C, and D, the Expanded Social Security program would have two elements: Social Security A and Social Security B. The current Social Security program (to be renamed Social Security A) would remain an earnings-based, defined-benefit plan, in which workers would accrue benefits based on lifetime earnings. The expected shortfall in funding for promised benefits, predicted to occur in the 2030s, would be bridged not with benefit cuts but through revenue increases, such as increasing the current payroll cap, which unfairly results in millionaire bankers paying a far lower share of their income toward Social Security than average wage earners.

Next, this plan creates what we call Social Security B, a universal flat benefit for all older Americans. Combined, Social Security A and B would be set at a level to meet the goal of replacing 60 percent of income for a middle-income earner, indexed to inflation, which would put the U.S. much closer to the income-replacement level of most developed nations.

Social Security B would be funded by revenues other than the payroll tax, such as by reducing or eliminating the substantial tax deductions that chiefly benefit the affluent. This year the government will spend $165 billion to subsidize individual retirement savings, nearly 80 percent of which will accrue to the top 20 percent of earners. In addition, the U.S. government spends about $100 billion per year on the home-mortgage deduction, yet income filers making over $100,000 dollars per year received nearly 75 percent of this benefit in total dollars in 2011. And businesses receive substantial federal deductions in the amount of $126 billion annually in return for providing their employees with retirement plans.

But this expansion of Social Security would make both tax-favored employer-based pensions and tax-favored individual-savings vehicles less necessary, allowing the government to reduce or eliminate federal tax breaks for those private programs.