Economy & Budget

Sanders’ Social Security plan won’t work

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Like him or not, Sen. Bernie Sanders (I-Vt.) is the most visible politician on the issue of Social Security.  He has a plan, one that his campaign claims holds a seal of approval from the actuaries of the Social Security Administration (“SSA”).

While Sanders’ plan is about as good as it gets, there is a downside: It doesn’t work even on a good day.  His campaign promotion inflates what the proposal delivers, and avoids the painful fact the results of his changes would directly contradict his reasoning for reform.

{mosads}The Sanders’ campaign overstates the revenue his plan will generate.  The evaluation provided by the SSA, assumes that taxes are collected in 2016, and 2017 for that matter. The fact is that revenue from Sanders’ proposal will not start flowing until he can convince House and Senate Republicans that his proposal is good policy. That process will drag well into 2017 at best.

Sanders promises voters that his proposal will “extend the solvency of Social Security for the next 50 years.” The wording of the commitment conceals the fact that the promise is based on the most optimistic forecast of a fairly optimistic economic outlook. There is no guarantee.

Even so, what does 50 years of solvency mean to America? Solvent for 50 years means that a typical 35 year-old will enter retirement in the exact same position as the new retiree does today. At full retirement, today’s younger worker will expect to outlive scheduled benefits, unless politicians can sell the greatest accomplishment of government to a new set of younger workers who expect to lose money on the system. 

In other words, 50 years of solvency is the cost to make the problem of Boomers an even larger problem for their children. 75 years of solvency is the cost to make the problem of voters a larger problem for non-voters. Solvency is the definition of kicking the can, where we are only haggling about how far the can is kicked.

Fixed should mean that there are no problems. When Sanders uses the word “fixed,” he means that the consequences arrive after he has left office.

The mechanics of the proposal are much more complicated than anyone suggests. Sanders’ campaign site says that the expansion of Social Security will be paid for by “lifting the cap on taxable income above $250,000.”  This proposal does significantly more than that lift the cap on taxable income. It changes the way Social Security works.

The plan eliminates the cap on taxable income entirely over about 20 years. It would expand the revenue reach of the system from wages to all income.  And most importantly, the changes would break the connection between contributions and benefits.

This adjustment really ends the concept of Social Security entirely for higher wages. FDR said that we put those contributions in place to give workers a legal, moral, and political right to benefits. The whole point of contributions is to give Social Security independence from other political priorities, like free college, climate change, and debt reduction.

Today, phasing-out Social Security at $250,000 sounds reasonable because the sum seems like a fantastic amount of money. The problem is that the threshold is fixed.  So as wages rise, the scope of the economic dead zone increases in size.  What does this scope creep mean to a 25 year-old today? If wage increases mirror those of the last 30 years, the death-zone would affect the type of worker who makes roughly $90,000 today.

Sanders’s paradigm enables politics to replace contribution as the determinate of benefits.  Politics could increase the benefits of current ‘low-income seniors’ completely independent of what someone had contributed in the past.  It could equally well reduce the benefits of future workers as Sanders currently proposes.

Sanders believes that this change is necessary to ensure “that everyone in this country can retire with the dignity and respect they deserve.” Comically enough, however, his proposed changes actually would accomplish the exact opposite. Seniors with the highest benefits would enjoy the largest share of Sanders’ expanded Social Security. His plan provides nothing to the 1/5th of seniors in the lowest income quintile who are not eligible for the program.

The Sanders’ plan promises failure at best, and exposes benefit levels to the whims of the damn politician that FDR feared.  And this is what we call a plan?

Smith is the founder of “Fix Social Security Now” which provides information on all alternatives in the public debate on Social Security through its site www.FixSSNow.Org.

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