Raising the retirement age is a bad idea
When people talk about "raising the retirement age," they normally mean raising the "full-retirement age." That means the age where you get what Social Security calls "full benefits." Right now, it's about 66. But most people don't retire at 66. They retire at 62 or 63 -- that is to say, they retire as soon as they're eligible, even if it means getting less in benefits. That reveals an important preference: So much as pundits and elites think it's easy and natural for people to work later into life, most people don't actually agree. They retire as soon as possible.
If you raise the full-retirement age to 70, you'll probably still see people retiring at 62 or 63. They'll just get less in benefits. In that way, raising the retirement age is another way of saying "cutting benefits."
Andrew Biggs has proposed doing something different: He'd raise the "early-retirement age" -- that is, the age at which you can first retire and begin collecting benefits -- from 62 to 65. You couldn't retire at 62 and get less. Benefits would begin only at 65. This will improve the system's finances, he says, and also mean larger annual benefits when people do retire. "The evidence indicates that most Americans could work longer and would benefit from doing so," he writes. "This strikes me as sensible," says Andrew Sullivan.
Though I agree with Sullivan that this is, at least, a serious idea for reducing the deficit, count me out. The words "would benefit from doing so" are doing some heavy lifting here, and in a way even I find worryingly paternalistic. Biggs quotes evidence showing that health has improved among elderly Americans, and jobs have grown less physically demanding, since Social Security was founded. That's true, but it's also true that America is much richer than it once was. Adjusting for inflation, our gross domestic product in 1935 was $865 billion. In 2009, it was more than $12 trillion.
Leisure time at the end of life is something we can buy. The question is whether we want it. Elites don't, and so raising the retirement age is very popular among them. They -- or maybe I should say we -- want to work until 70, and 75, and 85. It's a painless reform for us, and so we've convinced ourselves it's a painless reform for most people. Conversely, we don't want to raise taxes on ourselves, and so you don't hear much about lifting the cap on the payroll tax that funds Social Security. But, funnily enough, when you pose the question to Americans, they see it differently: They don't like taxes, but benefit cuts are much less popular. And notice that that poll question doesn't even note that the relevant tax would mainly hit wealthier Americans.
So much as I don't like the idea of raising the full-retirement age and cutting benefits for people retiring -- as you can see in the chart atop this post, benefits aren't particularly generous even now -- I'm much more hostile to the idea of raising the early-retirement age. That's particularly true given that elite preferences on this question are diametrically opposed to the revealed preferences of Americans. People who like their jobs and make a lot of money working as pundits and legislators and think-tank experts have a special credibility on raising taxes on people who make more than average Americans, but it's the average American working a job she may or may not like who's credible on when most Americans want to retire, and the answer to that question seems to be "as early as possible." We should take that preference seriously.
You might say, of course, that we can't afford to take that preference seriously. Sorry, but that's just not true. For one thing, we could close the Social Security gap by applying payroll taxes to all income, rather than just to the first $106,000. Oddly, however, the "raise taxes on wealthy people with good jobs" has less traction among wealthy people with good jobs than "make average people work longer at jobs they want to retire from."
For another, the Social Security trust fund is an accounting fiction. Liberals think it's a sacrosanct bargain that's protected by the program, but I don't see much evidence of it. And it creates the problematic impression that Social Security must be internally solvent. Plenty of programs in government don't pay for themselves and are instead subsidized by revenues or cuts elsewhere. Education, for instance. or defense. And there are dozens of things I'd cut and dozens of taxes I'd impose that could partly or fully close the 0.7 percent of GDP that Social Security needs to become fully solvent. To name but a few, the mortgage-interest deduction, a carbon tax, the exclusion for employer-sponsored health care, the military budget, farm subsidies, Medicare, a VAT and the Bush tax cuts for income over $250,000.
Graph credit: CBPP.
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