American Dreams (16 page)

Add to that the fact that many jobs, particularly low-wage ones, don't have employer-sponsored retirement plans. Seventy-five million Americans—mostly part-time employees of small businesses, women and minorities—are working for employers that do not offer a retirement plan.
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And the rapidity with which Americans change employers these days virtually guarantees that those who do have access to an employer plan won't for their full career. Some are never told about the existence of a plan or just choose not to go through the hassle of enrolling. It's no wonder, then, that so many Americans have a fatalistic attitude about saving for retirement. A full 80 percent of people ages thirty to fifty-four believe they won't have enough in the bank when it comes time to retire.
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Americans are rapidly on their way to giving up on saving for their retirement. Instead of spending their time trying to find Paul Ryan look-alikes to shove old ladies off cliffs, more politicians in Washington should be asking themselves why this is and what can be done about it. Instead of attacking anyone who dares question the status quo, Washington might stop to think about how retirement programs originally built for workers who had one job in their lifetime can conceivably be expected to meet the needs of workers who will have ten.

I think one reason members of Congress aren't sweating the retirement savings issue too much is because they have one of the most efficient employer-sponsored savings plans in America. Members of Congress and other federal employees have exclusive access to the Thrift Savings Plan (TSP). Like a traditional employer-sponsored 401(k), the TSP allows federal employees to save pretax money for retirement. But unlike the typical employer-sponsored plan, it charges fees that are a fraction of those charged by most private defined-contribution plans and offers high rates of return. When costs are lower and returns are higher, beneficiaries save more. So the twisted irony is that members of Congress—who are employees of the citizens of the United States—have access to a superior savings plan, while many of their employers—the American people—are often left with access to no plan at all.

The most obvious and most just solution, I believe, is to give Americans who don't have access to an employer-sponsored plan the option of enrolling in the federal Thrift Savings Plan. Giving Americans hard at work in the private sector who lack a retirement savings plan the same one that members of Congress enjoy can be done at little cost—the infrastructure is already in place. These private employees wouldn't be offered matching funds, so the only expense involved would be the additional administrative costs of handling the new deposits.

The workers who are most likely not to be offered retirement plans by their employers are younger and lower income—precisely the Americans who most need new incentives to save. Conservatives have long pointed to the Thrift Savings Plan as the gold standard when proposing new ways for Americans to save for retirement. Now is the time for us to act to give Americans more options to save. Opening Congress's retirement plan to the American people will allow us to bring the prospect of a secure, comfortable and independent retirement into reach for millions of people.

Giving Americans more options to save is the first part of solving the retirement security puzzle. The next part is ensuring that older workers have the ability to work as long as they want or need without being punished for it. And that brings us back to Joyce.

A couple of years ago, out of sheer desperation, Joyce elected to begin receiving Social Security benefits early, at sixty-two, while she was still working. But because of something called the Retirement Earnings Test, which penalizes workers who claim their benefits early while they still have jobs, Joyce estimates she's receiving $300 a month less than she would if she had waited until she was sixty-five to claim her benefits.

The Retirement Earnings Test is like a 50 percent tax levied on the earnings of older workers—a tax on top of the payroll tax they already pay to finance Social Security. It works by reducing benefits by approximately fifty cents for every dollar a person between the ages of sixty-two and sixty-five earns in excess of $15,000 a year. Someone like Joyce has no choice but to pay this tax—she had to keep working and accept the cut to her benefits. But other Americans who have the option not to work usually stop working when they get to be sixty-two for no other reason than to avoid paying this penalty.

The Retirement Earnings Test is as old as Social Security itself. It was born of a Depression-era impulse on the part of Washington to create jobs for younger workers by encouraging older workers to retire. Today, eighty years later, in a radically transformed economy with retirement savings at historic lows, it's still providing a disincentive for seniors to work. What is even more nonsensical about this policy is that it doesn't save any money. When a senior hit by this tax finally reaches sixty-five, his or her benefits are hiked way up to make up for any loss caused by the Retirement Earnings Test. The benefits received end up being mostly the same. This is good news for Joyce, but bad news for the older Americans who, not realizing their benefits will come back up to compensate, quit working to avoid the tax.

A 2014 Merrill Lynch study found that almost three out of four Americans over fifty say their ideal retirement includes some kind of work.
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And that's their
ideal
—to continue to do what they love, or start a new chapter with some new balance of work and leisure. Other older Americans will have no choice but to work past retirement. In either case, to avoid punishing them, we should eliminate the Retirement Earnings Test altogether. It's another low-cost, high-impact move we can make to ease the retirement crisis. One economist estimates that abolishing the tax would raise employment among early retirees by 5.3 percent, a significant increase for a reform that has no long-term budgetary cost.
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Another tax that provides a powerful disincentive for older Americans to continue to work is the 12.4 percent payroll tax itself. As the tax code is currently written, those who keep working past retirement age continue to pay Social Security taxes while receiving almost no extra benefits in return. The Social Security benefit is calculated based on a worker's highest thirty-five years of earnings. One or two more years of work isn't going to change what they receive. Seniors can do the math. Many of them choose to quit working because it's just not worth it.

Some liberals in Congress have proposed that the Social Security payroll tax be raised on working people and their employers in order to expand Social Security benefits for all, regardless of their need. But unlike the income tax, everyone pays payroll tax, regardless of how little you earn. Raising a payroll tax on everyone would be a significant tax increase on millions of Americans who are barely getting by as it is. Therefore, instead of raising taxes (which seems to be the left's solution to every problem), a better approach would be to eliminate the payroll tax altogether for all Americans who have reached retirement age.

The reality of the new century is that more and more Americans will be working well past the legal retirement age. For some, like Joyce and Scott, this might be out of necessity. But for many others, including a significant percentage of my colleagues in the Senate, it will be by choice. I am now just a little over twenty years away from retirement age myself. It is hard for me to imagine retiring at sixty-five and spending the next quarter century not working. I expect to be working, doing something productive and fulfilling. I honestly know few people in my generation who do not expect the same. By the time people reach retirement age, they have already paid their fair share. We shouldn't punish them for choosing to keep working rather than immediately cashing in.

Eliminating the payroll tax on workers who have reached retirement age will do several things I dare say liberals would agree with. In addition to removing the disincentive to work, it will help seniors accelerate their savings by letting them keep more of their money. In fact, it could also make older workers more attractive to employers, since the employer's half of workers' payroll taxes would also be eliminated. Finally—and I can't believe there would be much argument about this—the elimination of the payroll tax for those past retirement age could be accomplished with little or no effect on Social Security revenues. A study cited by former deputy Social Security Commissioner Andrew Biggs found that a 10 percent increase in after-tax wages for those sixty-two and older would result in a 1.1 percent increase in the labor supply. This increase in workers, in turn, would raise federal tax revenue enough to offset about three quarters of the loss of revenue from the elimination of the payroll tax. When increased state tax revenue is taken into account, this payroll tax cut for older Americans essentially pays for itself.
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I have heard some people suggest that with unemployment so high and jobs so scarce, we shouldn't be pumping the labor force with more workers by giving seniors incentives to work longer. They reason that if seniors don't stop working we won't have enough jobs for younger workers. It's an interesting theory, but it's bad economics. The American economy doesn't work that way.

This argument is part of the same faulty logic used by opponents of free trade and legal immigration—and it's a cousin of the logic that says income inequality is more important than opportunity and upward mobility. All these arguments rest on two faulty assumptions. The first is that people are a liability. That more people, in our country or in our workforce, means more obligations on government. To the contrary, real conservatism views people as assets, not liabilities.

More people doesn't just mean workers or government beneficiaries. It also means more taxpayers for government and more consumers for business. So if a retiree remains in the workforce and as a result has a higher income, this means he or she will also be paying more taxes than otherwise. And the higher income also means he or she will be able to spend more at the places that employ younger Americans.

Which leads to the second false assumption: that the economy is a zero-sum game—more for you means less for me. In this case, the claim is that more jobs for older people means fewer jobs for younger people. In fact, studies show that an increase in older workers has no effect on the number of jobs for younger workers, and may even slightly boost the number of jobs for younger workers. Just like anyone else, older people who are employed have more money to spend, which creates more jobs.

More savings and more work are essential to hold off a retirement crisis. But the elephant in the living room for most Americans when they contemplate their golden years is Social Security. It can't be the only source of our income in old age, but it is the essential guarantee of a safe and secure retirement in America. It must be saved. And to be saved, it must be reformed.

Rather than reform Social Security, however, some folks in Washington would rather double down on the program as it exists and throw more money into it. Either that, or they deny there's any problem and refuse to take any action at all. When President George W. Bush offered a plan to reform the program in 2005, House Minority Leader Nancy Pelosi was asked when her Democratic colleagues would put forward their own proposal. Her answer? “Never. Is ‘never' good enough for you?”
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Failing to modernize Social Security, however, will eventually lead to an outcome we can't buy our way out of, no matter how high we might raise taxes. The 2013 Social Security Trustees Report declared that over the next decade Social Security will pay out about $984 billion more in benefits—almost $1 trillion—than it will collect in payroll taxes. The fact is, the country has changed enormously since the passage of Social Security. Yet the basic benefit rules have failed to adjust accordingly.

Take the retirement age. In 1940, when an American turned twenty-one, his chances of living to retirement age were only about 55 to 60 percent. But today, a twenty-one-year-old's chances of reaching retirement age are around 80 percent. Since we are living longer, we are working longer. If you doubt me, I invite you to come see the United States Senate at work. There you will find plenty of evidence that more and more Americans are choosing to work well past the age of retirement.