Three conservative U.S. senators, including Utah's Mike Lee, have introduced a plan to save Social Security from eventual financial collapse. It would require Americans born after 1955 to retire at older ages than under current law, and it would reduce benefits. In other words, it relies entirely on spending cuts.
That's not likely to win the support of the American people at a time when defined-benefit pensions are increasingly rare and many people's savings in 401(k) and IRA plans are inadequate to provide for even bare-bones retirement.
The problem with the Lee plan is that it is one-dimensional. Basically, there are two ways to make Social Security viable for the long term. One is to reduce benefits, as this plan would do. Another would be to increase the payroll taxes that support the program. The best solution is likely to involve some combination of those two choices.
The plan that Lee is pushing rests only on benefit cuts. It would not raise payroll taxes. It would gradually raise the Social Security retirement age for full benefits to age 70 by 2032, and the age for early retirement from 62 to 64 by 2028. That saves money because the plan would pay benefits to retirees for fewer years.
After the full retirement goes to 70 years, the plan would index future changes in the retirement age to increases or decreases in life expectancy.
Finally, the plan would change the way that benefits are calculated. After 2018, all new retirees would receive benefits calculated on the basis of wage growth for the first $43,000 of their average lifetime yearly earnings. For amounts above $43,000 in average lifetime earnings, benefits would be calculated on the basis of price growth.
Because prices tend to grow more slowly than wages, this would mean that retirees who had higher incomes during their working lives would see their benefits increase at slower rates than would beneficiaries with lower incomes.
This is similar to a plan that former Sen. Bob Bennett of Utah floated in 2005, though his proposal involved a more sophisticated blending of wage and price indexes.
Part of the argument for raising Social Security retirement ages is that Americans live longer now than when the program was created. Unfortunately, people who do physical labor will wear out before they reach age 70. That's only one inequity in this plan.
Another is that wealth is much more concentrated at the top of the earning scale today. Any reform should require the wealthy to pay payroll tax above the current ceiling of $106,800 in earnings.