Last month, Senator Marco Rubio (R-FL) presented a program for modernizing our national retirement security policies to meet 21st century needs. Below I will describe the major features of his address, given at the National Press Club, and offer brief analysis and commentary.
Social Security Finances: Perhaps the most significant policy element in the Rubio speech was his embrace of specific reforms to stabilize Social Security’s finances. Social Security is the single largest federal program; it also faces the greatest financing shortfall of all federal trust funds including Medicare’s. Reforms to maintain Social Security solvency would improve the federal fiscal outlook dramatically as well as strengthen the foundation of most Americans’ retirement security.
Senator Rubio embraced reforms that include progressive growth of Social Security’s benefit formula and a gradual increase in future eligibility ages. These concepts receive wide enough support from Social Security experts that they are likely to be included in any bipartisan Social Security solution.
It is a measure of the public education challenge facing reformers that some bloggers and reporters thereafter questioned whether Senator Rubio’s proposals would actually shore up Social Security finances, even though there are many publicly-available analyses demonstrating that they would. The SSA chief actuary found that one version of progressive indexing would by itself eliminate over half of the program’s actuarial imbalance as well as 89 percent of its annual shortfalls over the long term. Combining this with a gradual increase in Social Security eligibility ages as the Senator proposed would be more than sufficient to maintain Social Security solvency and allow for his other proposal of payroll tax relief for working seniors.
Siding with Working Seniors: Policy wonks have their pet causes. This one is mine, so I was particularly pleased to see Senator Rubio embrace it. An enormous public policy problem facing the United States is the departure of millions of baby boomers from the labor force just when their work skills, productivity, and tax contributions are most needed. Yet current federal policies, in a variety of ways, punish seniors who work. My friend and former colleague Andrew Biggs found that working seniors only get 2.5 cents back in Social Security benefits for each additional payroll tax dollar they contribute. I have also written extensively about this issue and proposed several reforms to mitigate the problem.
Thus I was especially pleased to see Senator Rubio embrace the cause of working seniors in his speech. He endorsed two reforms to address it: eliminating the Social Security retirement earnings test and providing payroll tax relief to working seniors. Of such tax relief proposals, my favorite is one developed by my Mercatus colleague Mark Warshawsky because it would provide work incentives throughout one’s career, not only after hitting one’s 60s. As I and another Mercatus colleague Jason Fichtner have written, there is still much policy work to be done in this area. It would be both good policy and good politics for elected officials to come down decisively on the side of working seniors.
Expanding Saving Opportunities: Senator Rubio’s proposal to open up the federal Thrift Savings Plan (TSP) to all Americans has already received considerable attention, so I will not review the details here. Suffice it to say that this proposal aims to provide Americans at all income levels with a reliable and low-cost way to accumulate retirement saving.
Senator Rubio’s proposal to open up TSP drew some criticism from the Heritage Foundation, which prefers an alternative approach to expanding individual retirement saving. The retirement saving challenge is much more complex than commonly understood, and there is not space here to explore it in adequate depth. That said, if given the choice between the Rubio approach and the Heritage approach, I would choose Senator Rubio’s for a number of reasons.
The Heritage approach basically starts from the presumption that most Americans should be saving more, and attempts to steer individuals in that direction by mandating that employers offer auto-IRA, requiring that individuals opt-out if they do not wish to participate, and having taxpayers pick up the tab for administrative costs faced by small employers. The foundational presumption underlying these ideas is not always the correct one, given that many low-income people now experience lower standards of living as workers than they later do as Social Security retirement beneficiaries.
Senator Rubio’s approach applies a lighter hand. It would give Americans an additional savings vehicle but not attempt to steer them into choosing it. Nor does it impose a mandate upon employers for which taxpayers pick up some of the costs. Total administrative costs would also almost certainly be lower under Rubio’s TSP framework.
Medicare: Senator Rubio basically endorsed the bipartisan Ryan-Wyden proposal to incorporate a premium support framework into Medicare, to improve incentives to reduce the growth of program costs while increasing the value of services bought with each Medicare dollar.
Summary: Under current law, federal entitlement programs affecting seniors promise far more than they can deliver. This unsustainable imbalance presents elected officials with a choice; they can either curry political favor with seniors’ groups by promising to defend benefit promises that they know cannot be honored, or they can accept the political risks associated with designing the changes required for these programs to benefit younger generations as well. Which choice an elected official makes can often be inferred by whether they speak primarily in terms of what they would not change about these programs, or in terms of the reforms they support.
Too few elected officials on both left and right make Senator Rubio’s choice to propose needed reforms, even though it is widely understood that continuing the status quo would lead to financial disaster. Perhaps the most significant aspect of the Rubio speech is his decision to lead with specific proposals in this critical policy area.
Charles Blahous is a senior research fellow for the Mercatus Center, a research fellow for the Hoover Institution, a public trustee for Social Security and Medicare, and a contributor to e21.
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