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Column: Seniors Don’t Need More Government Help

The left wing of the Democratic Party is trumpeting a new test of true progressivism: support for a dramatic expansion of Social Security.

Although some Democrats — including, at times, President Obama — have spoken of reining in future transfer payments to the elderly as part of a long-term fiscal stabilization plan, defenders of the faith, led by Sen. Tom Harkin, D-Iowa, and Rep. Linda Sanchez, D-Calif., are promoting a bill to expand benefits.

Currently, the Social Security payroll tax applies only to income up to $113,700. The measure would subject all wages and salaries to the tax. It would use the proceeds to extend the life of the Social Security trust fund while increasing monthly benefits by $70 per month, on average, and boosting inflation adjustments.

The latest liberal to board the Harkin-Sanchez bandwagon is Sen. Elizabeth Warren, D-Mass., touted on the Democratic left as a potential tribune in the 2016 presidential race. (Last Wednesday, she said she is not running.) Expanding Social Security would counter “a real and growing retirement crisis,” she said in the Senate last month, prompting New York Times columnist Paul Krugman to declare her “stirring floor speech” a “very good sign” of pushback against the “fiscal scolds.”

Actually, it looks a lot like old wine — pandering to seniors — in a new bottle.

If the country needs more revenue to meet pressing financial needs, the rich should pay their fair share. Broadening the Social Security tax base, which hits 83 percent of national payroll, is one option.

The issue, however, is how to spend the federal government’s limited resources. After national defense, the next two largest items in the fiscal 2013 federal budget were Social Security and Medicare, programs mostly for retirees. The total tab was $1.3 trillion.

Should additional support for retirees get first priority, given that the rich can be tapped only so many times — and that economic privation in this country is disproportionately common among the young, not the old? The poverty rate for seniors in 2012 averaged 9.1 percent, much lower than the rate for children, which was 21.8 percent, and lower than the overall U.S. rate of 15 percent.

Some 15 percent of youths ages 16 to 24 are neither employed nor attending school, according to a recent study by Opportunity Nation. For middle-class youths, college tuition costs are a constant source of insecurity.

To be sure, social insurance is a major reason for relatively low poverty rates among the elderly. It is also true that the elderly poverty rate is higher, and child poverty lower, when measured according to the Census Bureau’s “supplemental poverty” concept, which tries to factor in government transfer payments and living-expense variables such as older people’s medical costs.

But even by this adjusted measure, elderly poverty is still lower than that of other groups.

What about that “retirement crisis”? It’s said to result from the decline of defined-benefit corporate pensions and their partial replacement with comparatively meager “defined-contribution” programs, such as 401(k) plans and IRAs. The “gigantic failure” of 401(k)s, Krugman writes, threatens “tens of millions” with a “sharp” decline in living standards and makes a “sharp” increase in poverty among the aged “highly likely.”

Yes, there has been a shift from pensions to individual tax-free accounts, but a calmer view would describe this as a trade-off, in which workers lose some predictability and gain some portability: A worker’s 401(k) balance always follows him from job to job, which is not necessarily true for a defined-benefit pension. Nor did corporate pensions always survive intact when their corporate sponsors went bankrupt.

Richard W. Johnson, director of the nonpartisan Urban Institute’s Program on Retirement Policy, estimates that the median retirement-plan assets available to retirees born between 1970 and 1974 will be about 19 percent less than those of retirees born between 1940 and 1944.

Yet inflation-adjusted retirement income will rise anyway, Johnson reports: The 1970 to 1974 cohort’s actual household income will be 28 percent higher than that of the 1940 to 1944 group, thanks to such factors as planned increases in Social Security benefits, working women’s greater wealth accumulation and everyone’s longer working lives.

The upshot? Johnson estimates that 70 percent of 1970s-vintage retirees will be able to replace three-quarters of their peak working-age earnings, assuming that most annuitize their retirement accounts. That’s a 5-percentage-point decline compared with retirees born in the 1940s — but not quite a “crisis” necessitating vast new transfers from younger to older.

This country’s near-abolition of old-age poverty is a great achievement for which Social Security deserves credit. Preserving it as society ages, without exacerbating intergenerational transfers that favor the old, or the government’s long-term fiscal predicament, is a major challenge. Populist alarmism, dressed up as “progressive” politics, doesn’t help.

Charles Lane is a member of The Washington Post’s editorial board.