Exactly. And we’ve never really gotten the other two legs of the stool strong enough, or widespread enough, to keep it level.
A lot of ideas are out there to improve retirement. You’ve got states, including now California, requiring every worker to have access to a savings account. You have 401(k)s “nudging” workers into saving by automatically signing them up. You don't seem to think those ideas are really moving the needle. Why?
Well, some of these efforts have some impact. If you set up your "nudge" right, you can raise the share of people participating in their 401(k) plan by a few percentage points. But you don’t raise it to 100 percent, and there are still an awful lot of people who don’t participate. States trying to set up portable plans is a good idea, and we should be doing that. But ultimately what all these plans are relying on is voluntary contributions from people who aren’t necessarily making enough money to be able to make those contributions.
Social Security offers two things that you can’t really get through anything other than defined-benefit pensions, which are less and less common. One, a Social Security payment is an annuity: The money keeps coming as long as you live. That’s really useful. If you’re living on private retirement savings, even if you saved enough, you have to be very careful how you spend it down, because you don’t know how long you need it to last.
The other thing that Social Security solves is market risk. We basically leave it to people to figure out how to invest their own retirement savings, sometimes with guidance from their employers, sometimes not. They’re often taken advantage of by financial advisers who don’t have their best interests in mind and by mutual fund companies that charge very high fees. But even if they invest perfectly, there’s still a risk that, as they’re getting closer to retirement, [a market event like] 2008 happens. They thought they had enough money for retirement, and then, all of a sudden, they don’t.
So what are you proposing?
We should be expanding Social Security. We should be making it more generous. That will require more revenues, but this is not taking money away from people. It’s just giving people a better way to save for retirement. Instead of having the Social Security payroll tax rate be 6.2 percent, we could make it 7.2 percent, and all of a sudden everybody’s Social Security benefit gets 15 percent larger.
Second, the share of income not covered by the Social Security tax has gone way up as inequality has gone up. [Currently, workers pay Social Security taxes only on income below $118,500.] If we raise the cap and start taxing higher incomes, we can expand benefits by a lot without increasing the burden on middle-class workers. We can also use that money to help cover the financing shortfall we have under the current system.
Third, we should create ways for people to “top up” their Social Security benefit. If somebody wants to save more, then we should give them a way to contribute more and get a promise of higher benefits later. It would be much cheaper, in terms of administrative costs, than current private accounts, and it would offer benefits you can’t get through private accounts.
How does this fit with what Donald Trump has been talking about? He says he doesn't want to cut Social Security, but he’s also said he won’t expand it. He is also proposing the largest tax cuts ever, $6.2 trillion over the next decade.