Over the last few months, Florida Sen. Marco Rubio has been releasing a series of domestic policy proposals, the most recent of which is the best yet. Drawing on the work of Andrew Biggs of the American Enterprise Institute, a leading expert on Social Security, among other things, Rubio has outlined a strategy for shoring up and improving Social Security for future generations. Rubio represents Florida, where 18.2 percent of the population is over the age of 65, which about a third higher than the U.S. average (13.7 percent). And when Rubio ran for the GOP Senate nomination in 2010, he took a real risk by explicitly calling for a Social Security reform that might, for example, raise the retirement age for younger workers. Rather than leave it at that, Rubio has now offered a proposal that ought to serve as a model for conservative policy innovation. First, Rubio made it extremely clear that he doesn’t just begrudgingly accept Social Security as a concession to political reality that he would eliminate if he could. He makes an affirmative case for Social Security, which he characterizes as a central element of the American dream. This is vitally important for conservatives, as it undermines the deep-seated notion that the right has a hidden agenda to dismantle the safety net. Second, Rubio calls for reform not just on the grounds that the Social Security system is fiscally unsustainable, though he does make that case, but also on the grounds that its current structure “does not line up with the needs and realities of our post-industrial economy.” That is, Rubio doesn’t just make the case for extending Social Security’s lifespan. He also makes the case for modernizing the program to better meet the needs of retirees. Third, he offers a proposal — opening access to the federal government’s Thrift Savings Plan to all citizens — that recognizes that many employers, including a large share of low-wage employers, don’t offer employer-sponsored 401K plans, and that the federal government can play a constructive role.
Though there are potential pitfalls to giving all Americans access to the Thrift Savings Plan, which I’m hoping my colleagues will address, Rubio is recognizing that, as Ray Boshara has observed, America’s asset-accumulating institutions do a much better job of serving high-earners than low-earners. By “asset-accumulating institutions,” I mean banks (which, believe it or not, are often worse at meeting the needs of low-income households than check-cashing outlets and payday lenders), employers (large firms that employ large numbers of high-wage workers are more likely to offer retirement savings plans and opportunities for advancement than small firms that tend to employ low-wage workers), and the tax code (which provides tax incentives for savers that benefit high-income households far more than low-income households). The irony is that while affluent people are embedded in institutions that make it easy to make good decisions, e.g., they’re more likely to have employers that default them into retirement savings plans, they’re already in a good position to make good decisions, as they don’t lead lives defined by resource scarcities that make it difficult to act in their best long-term interests. Poor people, meanwhile, are nudged in the direction of wealth-draining institutions like payday lenders and check-cashing outlets.
So what Rubio is trying to do is level the playing field — he doesn’t want to undermine the wealth-building institutions that benefit the well-off. Rather, he wants to extend a similar institution to those who’ve been left out by the status quo. This includes low-income households, but also the large and growing number of freelancers and others who can’t rely on an employer to provide them with simple, low-cost retirement savings options. His ideas bears a strong resemblance to Scott Winship’s call for “citizen benefits,” and it represents a promising turn in conservative thinking.
Rubio also calls for eliminating the Social Security payroll tax for retirement-age individuals, an idea that Biggs has championed on a number of occasions. Encouraging delayed retirement is a far more effective way to generate Social Security savings than, say, embracing chained CPI, yet it is politically challenging to simply raise the retirement age. Rather than just rely on the stick of a higher retirement age, Rubio employs the carrot of sharply reducing the tax burden on older workers. Biggs has observed that because Social Security benefits are based on the highest 35 years of earnings, additional year of work in your early 60s is unlikely to increase your benefits by much. Moreover, female retirees receive a spousal benefit, which is not impacted by additional taxes. And individuals who reach the full retirement age are ineligible for Social Security disability benefits, yet they still have to pay the disability payroll tax. So while the “net tax rate” (taxes minus benefits) imposed by Social Security on younger workers is low or even negative, it is quite high for near-retirees. He cites a number of scholar who’ve found that increasing after-tax earnings for over-62 workers would substantially increase this cohort’s labor supply, which is to say it would cause individuals to delay retirement. This in turn would (a) on average improve the health and well-being of this cohort by reducing its social isolation and (b) generate meaningful savings for the Social Security system. And again, these savings are achieved not by forcing older workers to work, but giving them a good reason to do so.
There are, to be sure, places where Rubio could have gone further. Biggs calls for transitioning Social Security to a universal flat benefit. But his proposal is truly excellent, and I hope that other conservative lawmakers learn from it.