The Social Security debate is about to take a big step backward. Starting Oct. 1, the Social Security Administration launches what it calls “the largest customized mailing ever undertaken by a federal agency.” About 125 million workers over 25 years old will receive annual estimates of their future Social Security benefits. This seems like a good idea, but it isn’t. It will unavoidably create much misinformation–many people will receive unrealistically low estimates of their benefits–and will probably harden popular resistance to overhauling Social Security and Medicare.
Let’s imagine the public reaction to these benefit statements. Not many are likely to think: “Uncle Sam is being too generous.” Some will conclude that their benefits are too low and should be raised. Others will see the benefits as untouchable. None of this will help us prepare for the aging of the Baby Boom generation.
Recall that by 2030 the projected ratio of workers to Social Security beneficiaries will drop from today’s roughly 3-1 to about 2-1. As now constituted, Social Security, Medicare and other retirement programs will rise to two-thirds of federal spending, even if non-retirement programs are cut sharply. If they aren’t, taxes or budget deficits will rise. The pressing need is a gradual and partial reduction in retirement spending through higher eligibility ages or lower benefits.
We ought to be debating these issues, but we aren’t. The debate concerns “saving Social Security” and “saving Medicare”–code words popularized by President Clinton for preserving all benefits or even increasing them. We ought to move in the opposite direction, though not to punish future retirees (born in 1945, I will–with luck–become a Baby Boom retiree).
There is a genuine dilemma here: What seems good for us as individuals (higher retirement benefits) may harm us as a country. But the “collective good” does not vote; individuals do. Only political leaders can disarm the dilemma by framing the larger national interest in terms that connect with individual voters. Clinton refuses to do this. The real issue is not `saving’ Social Security or Medicare but balancing the interests of younger and older Americans. The debate should involve, if you want a slogan, generational justice.
Given Clinton’s record, no one could be blamed for seeing Social Security’s mail campaign as an election-year device to remind voters that Democrats protect retirement benefits. It isn’t that, though the mailings may have the same effect. The program is the brainchild of Sen. Daniel Patrick Moynihan of New York. In 1989, he convinced Congress to adopt the requirement as a way “to reassure Americans that Social Security will be there for them.”
Because the mailings represented a “large administrative undertaking” (Moynihan’s words), Congress gave the agency a decade to comply. In fiscal 1995, SSA began test mailings to 7 million workers 60 and over. No doubt some good could come of this exercise. It could cause people to pay more attention to private saving by indicating that Social Security doesn’t fully replace wages or salaries.
Unfortunately, Social Security’s statements will be inaccurate. To estimate a worker’s benefits, the SSA has to know the worker’s future earnings. (Benefits are based on the highest 35 years of earnings.) Because the SSA doesn’t know this, it had to make an assumption. It assumed that workers’ present wages would stay the same until retirement. For older workers–say 50 and above–this may not matter much. Their wages may be near their peak. But for younger workers, it matters because earnings rise over time. In 1996, men between 25 and 34 working full time earned an average of $33,055; by contrast, earnings of men 45 to 54 averaged $51,705. As a result, SSA’s benefit estimates for younger workers may dramatically understate plausible payments.
Just how much confusion or resentment this will cause is unclear. To be fair, SSA’s approach is probably the best among bad choices. Estimating people’s future earnings would be hard to explain and might overstate benefits. (Note: People will receive statements about three months before their birthdays. Also, individuals may request benefit calculations based on their personal estimates of future earnings. Social Security’s phone is 800-772-1213.)
People can be sent pieces of paper with numbers. But they cannot legitimately be reassured. We can create theories of why all currently promised benefits can easily be paid. But we cannot prevent society from aging, nor predict the consequences. Unless other spending demands melt, future pressures for higher taxes, spending or deficits will be intense. One possible reaction would be to cut retirement benefits.
It would be prudent to make modest cuts now. This would recognize that older Americans are healthier and wealthier than they once were. It would give future retirees a fair warning. But our “leadership” declines to do this. The new benefit statements make a bad situation even worse.
