Should Social Security Retirement Be Subsidized?

One of the central features of Social Security, and one that has helped insulate it from decades of effort to scale it back, is that it is designed to be self-funding, and to pay out an amount that is roughly consistent with what a retired worker paid into the program. The history of Social Security stands as a strong argument against turning it into a means-tested program, requiring higher-earning workers to contribute an even greater share of the cost of the program, or making benefits more contingent upon a retiree's assets and other sources of income than on his past contributions.

A few days ago, David Brooks argued that Medicare is too good of a deal for retirees - that, according to the Urban Institute, a couple of average income receive far more in Medicare benefits than they paid for over the course of their careers. Brooks did not offer a link to the Urban Institute's data and, in this era, the absence of a link makes me suspicious... so I searched until I found the source. Sure enough, the authors found that for a married couple earning an average wage and retiring in 2011 at age 65, under the author's formula the cost of Medicare to the couple was $119,000 and the benefit was $357,000.

Why wouldn't Brooks have linked to that? Because the figure for Social Security was contributions of $598,000, benefits of only $556,000. That is, if Brooks wants to argue that the couple is getting a great deal on Medicare, he has to admit that under the exact same analysis they're getting a raw deal on Social Security, and he apparently decided that rather than trying to reconcile his argument with the facts it would be better to play "hide the ball" with the numbers.

As it turns out, Social Security isn't a good deal for a single person earning an average wage - $299,000 in, and $290,000 out for a female recipient vs. $266,000 for a male. At average wage (or higher) the couple that sees a tremendous return on their investment is the one-earner couple, paying in the same $299,000 but receiving $448,000 in benefits. Looking at other data from the same authors, the subsidy to a couple with one low-earning partner and one partner with average earnings is modest, and everybody else earning an average or higher wage is providing a modest subsidy to other recipients.

There are plenty of reasons why we, as a society, would want to ensure that stay-at-home spouses will not be impoverished in their retirement in the event of divorce or the death of the spouse who was employed outside of the home.¹ The very fact that the phrase, "worked outside of the home" is preferred by many over "had a job" reflects a cultural value. If in fact we, as a society, choose to value and privilege the role of homemaker, that's fine - but taking that position raises the reasonable argument that it should be society, not other working adults, who subsidize that cultural value. We fund SSI benefits out of the general fund due to the disconnect between those benefits and an employment history; why not do the same for retirement benefits extended to people who lack a sufficient work history of their own to otherwise qualify?

To look at it another way, if a Member of Congress were to propose eliminating or substantially reducing the subsidy to retirees in households in which only one spouse worked outside the home, what sort of firestorm would be unleashed? If our societal feelings are so strong that we can't even discuss the economic side of the picture, then we should be willing to address the cultural issue and the benefit we receive as a society by providing a very large subsidy to those households in retirement.

If the program is largely in balance other than for our determination as a society that stay-at-home partners of wage earners should receive most of the benefits that they would obtain had they also been employed outside of the home, it's reasonable to argue that the subsidy should come from the general fund and not by increasing the Social Security taxes upon or decreasing the retirement benefits that would otherwise flow to other retirees.