Retirement Security: The Latest From New America

Savings, Responsibility and Opportunity in America

Next Social Contract — Mon, 20 Apr 2009 20:09:00 -0400

When President Clinton signed the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, he changed the moral debate over poverty. No longer could Ronald Reagan's heirs wave help-wanted ads and ask sarcastically why those welfare queens couldn't find a job when there were so many to be had. Now everyone was working, training for a job, or looking for one. It was the law, after all. With benefits now linked to work, progressive politicians could have argued for a new type of social safety net.

Guide to Social Security: The 2008 Presidential Election

Fiscal Policy — Tue, 28 Oct 2008 09:17:00 -0400

Social Security is the single largest government program. In 2007, the program cost $585 billion and provided benefits for roughly 50 million retirees, dependents, survivors, and disabled workers. It is financed primarily through the payroll tax -- a 12.4 percent tax on wages up to $102,000. The tax is split equally between employees and employers. The remaining revenues come mainly from the taxation of Social Security benefits for wealthier recipients.

Next year, the program’s surpluses will begin to decline precipitously. The Social Security Trustees have repeatedly warned that the program is on an unsustainable path and that the system will begin running cash deficits in 2017. The trust funds have claims on government revenues sufficient to pay promised benefits until 2041, but redeeming the trust fund assets will require the government to raise taxes, cut government spending, or borrow. To finance promised benefits, payroll taxes would have to be increased from 12.4 percent today to around 16 percent in 2041 and increase gradually after that. Alternatively, benefits could be cut across the board by roughly 22 percent by 2041, and modestly cut on regular basis thereafter.

Changes will have to be made to Social Security. Ignoring the problem and pushing the necessary changes to a later date — as has been done in past years — only makes them more painful. Although there are hundreds of proposals to address Social Security’s long-term gap, most fall into two basic categories: cutting benefits or raising taxes.

The following table synopsizes the proposals and positions of both presidential candidates on reforming Social Security. For the full text of this paper, please see the PDF copy attached below.

	Barack Obama's Social Security Proposals	John McCain's Social Security Proposals
Tax Increases	Proposes a payroll surtax of 2-4% for individuals making over $250,000 a year. Has not specified the tax base or whether there would be corresponding benefits.	States "everything should be on the table" but has expressed strong opposition to raising taxes to increase revenue for Social Security.
Benefit Cuts	States "everything should be on the table" but has also argued that "cutting benefits is not the right answer."	Would be willing to accept necessary benefit cuts as part of a compromise plan and would consider reducing Social Security's Cost of Living Adjustments (COLAs).
Retirement Age	Does "not believe it is necessary or fair to hardworking seniors to raise the retirement age" and has stated that he would not do so.	Considering a plan that would increase the normal retirement age to 68 from the scheduled age of 67.
Private Accounts	Argues strongly against privatization. Supports implementing "Automatic Workplace Pensions" outside of Social Security.	Supports "add-on" retirement accounts, but not "as a substitute for addressing benefit promises that cannot be kept."
Bipartisanship	Advocates for taking a bipartisan approach to reforming the system. Argues that to reform Social Security, "we should approach it the same way Tip O'Neill and Ronald Reagan did back in 1983."	Points to the 1983 deal between President Reagan and Speaker Tip O'Neill as a model for reform, stating: "I'll reach my hand out to the Speaker of the House Nancy Pelosi. I'll reach my hand out to Harry Reid."
Resolve to Act	Is "committed to ensuring Social Security is solvent and viable for the American people, now and in the future." States "it is common sense that we are going to have to do something about [it]." Does not mention Social Security frequently on the campaign trail.	States he will "submit a plan to save Social Security... and I'll ask Congress to do the same.... no more kicking the can down the road... no more hoping that a future generation of leaders will have the courage we lack." Does not mention Social Security frequently on the campaign trail.

Presidential Promises

Asset Building — Fri, 19 Sep 2008 08:17:00 -0400

Twelve Principles for Fiscal Responsibility

Fiscal Policy — Tue, 20 May 2008 10:45:00 -0400

The United States faces a number of serious fiscal challenges. Budget deficits are back, the economy has weakened, Social Security is unsound, growing health care spending is putting immense pressure on the budget, tax policy is at a major crossroads, and borrowing is projected to reach unsustainable levels. Politicians will have to take concrete steps to confront these challenges, and some level of sacrifice will be required. The sooner decisions are made, the better-both because it will give the public more time to adjust and because it will allow us to spread the sacrifices more broadly.

The presidential campaign can either be helpful in this process, by allowing politicians to develop a mandate for change, or damaging, if politicians merely use the election as an opportunity to promise new tax and spending initiatives that would make the situation worse instead of better. It is not surprising that politicians tend to prefer to propose costly new initiatives given that proposals to increase taxes or cut spending are rarely met with appreciation by voters and are almost always met with attacks from political opponents. But considering our current fiscal situation, it is critical that policymakers be willing to address the country's budgetary imbalances. It will require real leadership to do so.

To help move the political discussion forward, the Committee for a Responsible Federal Budget has put forth "Twelve Principles for Fiscal Responsibility." These principles will help voters ask the necessary questions and develop a better understanding of important fiscal issues, and they will help politicians speak directly to these looming problems in a manner that will prepare the country for the necessary changes ahead. Unless the next president and Congress take action to put our fiscal house in order, they will put the budget, the economy, and the well-being of future generations at risk.

The twelve principles are:

1. Admit That We Face Serious Fiscal Problems
2. Elevate the Issue of Fiscal Responsibility
3. Commit to Reducing the Deficit
4. Suggest Solutions to Fix Social Security
5. Suggest Ways to Address Rising Health Care Spending
6. Suggest Solutions to Outstanding Tax Issues
7. Plan to Reform the Budget Process
8. Use Honest Numbers
9. Offset the Cost of New Policies
10. Do Not Perpetuate Budget Myths
11. Do Not Attack Someone Else's Plan (Unless You Put Forward an Alternative)
12. The Media Should Do Their Job

See the below PDF to read the entire report.

Rethinking Social Insurance

Fiscal Policy — Tue, 19 Feb 2008 00:00:00 -0500

The single greatest threat to the fiscal health of the United States is the runaway growth of the nation’s major retirement and health care entitlement programs. Social Security and Medicare are projected to grow from 7.5 percent of GDP today to almost 13 percent of GDP by 2030. Already, the two programs consume over a third of the federal budget. The total present value of costs that will exceed earmarked revenues of Social Security and Medicare over the next 75 years is $41 trillion, or, as the Government Accountability Office points out, a debt burden of $135,000 for every man, woman, and child in America. If nothing is done to check the growth of spending on social insurance, federal spending as a share of the economy will increase by half, from about 20 percent to almost 30 percent, over the next 30 years.

Meanwhile, absent a significant rise in revenue beyond the historical level of GDP, spending on Social Security, Medicare, and interest on the debt could squeeze out all other areas of the budget. Taxes could, in principle, be increased to cover these costs, but the unprecedented tax levels required would have an extremely negative impact on employment, wage growth, and our ability to compete internationally. Borrowing to pay for the programs, on the other hand, would lead to such high deficits that the debt would be unsustainable.

Social Security and Medicare are universal in design. That is, nearly all Americans participate in the programs, with workers financing them and retirees at all income levels collecting benefits. Their universality enhances their popularity, but it also means that resources are directed to the affluent, leaving less than is adequate for those in need. Bill Gates will qualify for subsidized benefits under Medicare, while other future retirees will be unable to afford the program’s deductibles and co-payments. Meanwhile, tens of millions of workers today go without any health insurance at all.

Given the fiscal imbalances caused by Social Security and Medicare, we will have to make some major changes in our social insurance system if we are to address other pressing needs. Mandating giant tax increases or gutting spending in other areas are not viable options. Moreover, our economy has undergone vast changes since these programs were designed. A fundamental redesign of our social insurance programs is necessary if we are to deal successfully and fairly with the new economic conditions, risks, and opportunities we face.

We recommend that Americans, to the extent that they can reasonably be expected to do so, be obligated to save for an adequate level of retirement and insure themselves against ordinary risks, with three caveats. First, if needed, individuals should receive help in meeting the costs of such an obligation through tax relief and/or direct financial assistance. Second, government should help to spread large insurance risks widely so that insurance would be practical and affordable. Finally, existing social insurance programs should be revamped to provide a strong safety net...

For the full text of Bulter and MacGuineas' paper, please see the PDF attached below.

Click here for a statement from New America's Health Policy Program in response to ideas raised in this paper.

A Universal 401(k) Plan

adminn — Thu, 01 Feb 2007 00:30:00 -0500

Click here for a brief video discussion of this idea.

For those with access, America's private pension system provides powerful saving incentives: tax breaks and employer contributions, as well as the convenience and discipline of automatic payroll deduction and professional asset management. Unfortunately, this employer-based system covers only half of all workers. Moreover, two-thirds of the tax breaks for retirement saving go to the most affluent 20 percent who would save anyway.

The solution is a Universal 401(k) plan. All workers would have the option to contribute automatically to their own plan by payroll deduction -- and the government would match voluntary deposits with refundable tax credits deposited directly into the worker's account. This supplemental system would make retirement saving easier, automatic, fully portable, and fair.

The full text of this essay is available below in PDF format. To learn more about our other Big Ideas for a New America, please click here.

Universal Risk Insurance

adminn — Mon, 29 Jan 2007 09:57:00 -0500

In recent decades there has been a massive transfer of economic risk from shared institutional arrangements, such as unemployment insurance and basic benefit coverage provided by employers, onto the fragile balance sheets of families. Yet public programs have largely failed to respond.

"Universal Insurance" is a new response to this growing problem. It would provide short-term, stop-loss protection to families whose income (after taxes and public benefits) suddenly decline by a fifth or more due to job loss or catastrophic health expenses. All but the richest families would be eligible, but the program would be most generous for low-income families.

This type of broad-based insurance -- covering a range of risks but focused on substantial income drops or losses -- would provide a flexible new platform of security in a world of rapidly changing risks.

The full text of this essay is available below in PDF format. An expanded version of this paper was originally prepared for The Hamilton Project at The Brookings Institution, and is available at www.hamiltonproject.org.

To learn more about our other Big Ideas for a New America, please click here.

State Policy Options for Building Assets

Asset Building — Fri, 30 Jun 2006 15:49:00 -0400

States continue to play an important role in helping low- and moderate-resource families save and build wealth. They have been innovators in assets policy, whether on their own or through the forces of "devolution," in which federal funds and decision-making authority are shifting from the federal to the state level. These initiatives and experiments -- these "laboratories of democracy" -- have inspired and informed other states as well as policymakers at the national level.

The following ideas to broaden savings and asset ownership include a range of simple proposals that may have a significant impact with little associated cost; some medium cost ideas; and others that, with a somewhat larger investment, would potentially alter the longer-term outlooks and prospects of millions of struggling Americans.

For the complete document, please see the attached PDF version.

The Assets Report 2006

Asset Building — Wed, 15 Feb 2006 20:00:00 -0500

The second year of the Bush Administration’s second term is underway and the prospect of a large breakthrough for asset building policy appears remote at this time. The President’s second Inaugural Address, which highlighted the transformative potential of “ownership” and an “ownership society,” has given way to the political realities of budget deficits, international commitments, and uncertain electoral prospects.

In this difficult political environment, a “dual track” strategy should be pursued: continuing to lay the foundation for larger, more ambitious asset-building policies while aggressively pursuing lower-cost policies that are poised to boost savings and asset accumulation by the poor in the near term -- especially ensuring that the IRS’s “split refunds” proposal becomes a reality in 2007, as promised. The other potentially low- to modest-cost idea that could advance this year is promoting financial education for children and youth by creating a KIDS Accounts at birth for all newborns. Congressional attention is likely to focus on financial education following the Administration’s release of a “national strategy” paper in April. The purpose of this annual report is to summarize and take stock of the current state of federal policy through an asset-building lens, especially as it affects the asset base of the poor. Accordingly, this report is divided into three sections. The first is a review of policy developments of the past year related to asset building; the second is an examination of the President’s budget proposals for Fiscal Year 2007 from an assets perspective; and the third is a forecast of the assets policy issues that may be considered in Congress during 2006.

For the complete document, please see the attached PDF version.

Nonpartisan Social Security Reform Plan

Fiscal Policy — Wed, 14 Dec 2005 00:00:00 -0500

The three of us -- former aides to President Clinton, Senator McCain, and President Bush -- did an experiment to see if we could develop a reform plan that we could all support. The Liebman-MacGuineas-Samwick (LMS) plan demonstrates the types of compromises that can help policy makers from across the political spectrum agree on a Social Security reform plan. The plan achieves sustainable solvency through progressive changes to taxes and benefits, introduces mandatory personal accounts, and specifies important details that are often left unaddressed in other reform plans.

The plan also illustrates that a compromise plan can contain sensible but politically unpopular options (such as raising retirement ages or mandating that account balances be converted to annuities upon retirement) -- options that could realistically emerge from a bipartisan negotiating process, but which are rarely contained in reform proposals put out by Democrats or Republicans alone because of the political risk they present.

For the complete document, please see the attached PDF version below.

Budget Update -- July 2005

Fiscal Policy — Tue, 12 Jul 2005 00:00:00 -0400

Being a budget watchdog generally involves a healthy degree of pessimism and the last few weeks have provided plenty of reminders why. It was encouraging to see the appropriations process moving forward within the tight spending limits set by the budget resolution. That is, until a political firestorm over veterans benefits erupted, leading to pressure for increased spending. While efforts to achieve the modest savings in mandatory spending programs are moving forward slowly, momentum is growing for further tax cuts beyond those contemplated in the budget resolution, which already increases the deficit above current law.

Discussion about restoring Social Security solvency has been replaced by a debate about whether to save Social Security surpluses in government trust funds or individual accounts, which, for whatever their merits, would not improve solvency.

For the complete document, please see the attached PDF version.

Key Questions the Media Should Ask the Presidential Candidates

Fiscal Policy — Thu, 26 Aug 2004 00:00:00 -0400

CRFB's suggested questions on the deficit, federal debt, allocation of resources, Social Security, Medicare and the overall size of government. For the full list, please see the attached PDF file.

The Way Women Work

Workforce and Family — Thu, 04 Mar 2004 00:00:00 -0500

Women are the primary caregivers in a family . . .

70 percent of women in dual-earner couples report taking greater responsibility for routine child care than their male partners in 2002. 70 percent of women also report responsibility for taking time off work because of children.s needs, in comparison with 30 percent of men (Families and Work Institute).
More than 20 percent of households are responsible for some or all of the care of elderly relatives (US Department of Labor).
According to a 1997 survey, 72 percent of family members providing elder care are women (National Caregiving Alliance).

Although they constitute approximately half of the workforce, women often lack the flexibility to accommodate their family responsibilities . . .

39 percent of all wage and salary workers report .very little. or .no control. over the scheduling of their work hours (Families and Work Institute).
53 percent of working women caregivers report they are unable to take days off to care for children. 49 percent say they lack the flexibility to change starting and quitting times at work (Jody Heymann, The Widening Gap).
Formal workplace flexibility arrangements are unevenly distributed . even women in full-time jobs are less likely than men to have flexibility (Lonnie Golden 2000).
40 percent of private sector employees at companies with more than 100 workers report that using flexible schedules and taking time off for family reasons . when these options are available . .somewhat. or .strongly. hinders job advancement (Families and Work Institute).
As a result of the Family and Medical Leave Act, full-time employees can take up to 12 weeks of family and medical leave, but this leave is unpaid and applies only to workers at firms with 50 or more employees.

Women are more likely to be employed in part-time and nonstandard jobs . . .

25 percent of employed women work part-time compared with 11 percent of employed men (Bureau of Labor Statistics).
Women are more likely than men to work part-time for reasons related to child care problems, personal or family obligations, and school. For men, only 12 percent work part-time for reasons related to work-life balance, compared to 45 percent for women (The Employment Policy Foundation).
31 percent of employed women work in a nonstandard arrangement, compared to only 22 percent of men (Economic Policy Institute).

These work patterns put women at economic risk . . .

In earnings: Researchers have identified a well-established parent penalty. The gap between men.s and women.s wages is 10 to 15 percent larger for women with children than for women without children (Jane Waldfogel 1998). Regular part-time workers earn $3.97 less per hour than regular full-time workers (Economic Policy Institute).
In health insurance: While 69 percent of regular full-time workers have health insurance coverage provided through their employers, only 14 percent of nonstandard workers receive employer-provided health insurance benefits (Economic Policy Institute). Women are about 15 percent less likely than men to be offered health insurance directly through their employer (Commonwealth Fund).
In pensions: 16 percent of nonstandard workers receive pension benefits through their employer, in comparison with 66 percent of regular full-time workers (Economic Policy Institute). The average income from pensions in 1996 for women was $3,679, while the average pension income for men was $6,442 (Urban Institute).

A PDF version of this fact sheet is also available.

Newly Released CBO Baseline

Economic Growth — Mon, 26 Jan 2004 00:00:00 -0500

Please see the attached PDF version of this document, which outlines the key numbers and long-term implications of the latest Congressional Budget Office baseline estimates.

The Impact of Labor Market Trends on Health and Pension Benefit Coverage and Inequality

Retirement Security — Fri, 01 Jun 2001 00:00:00 -0400

This study examines labor market trends related to the receipt of health and pension benefits as compensation by private sector workers over the 19-year period from 1979 to 1998. This focus on trends in benefit coverage as compensation is important, among other reasons, because employerpaid benefits continue to be the primary source of both health insurance and of private retirement savings for the vast majority of Americans under 65 years of age. As policy makers continue to consider targeted and incremental solutions to the problem of millions of Americans without health insurance or adequate retirement savings, a fuller understanding of how labor market trends are affecting work-based coverage and inequality -- and anticipating future trends in coverage -- will be useful for developing meaningful policy options and proposals for reform.

The study divides into two main sections. The first uses household survey data from the Current Population Surveys between 1979 and 1999 to investigate labor market trends in employer-provided health and pension coverage in the private sector over the past two decades. In order to focus on trends affecting benefits paid as compensation, we define coverage as benefits received from a worker’s own employer and therefore ignore health and pension coverage from other sources, as well as offers of coverage that are not taken up. The primary analytical question addressed is how much of the decline in private work-based health and pension coverage after 1979 can be attributed to structural shifts in employment (i.e., shifts in the U.S. job mix by industry or occupation) and how much is due to broader-based changes in the rate of coverage within detailed industries. A final part of the first section projects rates of health and pension coverage in 2008 using employment projections data from the BLS Office of Employment Projections.

The second half of the study examines trends in the self-reported rate of health and pension coverage by earnings quintile and decile using data from the CPS at five points over the 1979 to 1998 period. The trend is then decomposed by major occupation and industry group to identify significant differences by income group. Because the dollar value of coverage varies greatly across firms and over time, unpublished hourly compensation data from the BLS are used to measure changes in actual employer expenditures for health and pension benefits relative to wages levels by industry and broad occupational "collar."

For the complete document, please see the attached PDF version.