The major problem with raising the retirement age
Editor’s Note: Christopher Howard is the Pamela C. Harriman Professor of Government and Public Policy at the College of William & Mary. He is a member of the National Academy of Social Insurance and the Scholars Strategy Network. His latest book is “Who Cares: The Social Safety Net in America.” The opinions expressed in this commentary are the writer’s own. View more opinion on CNN.
Social Security and Medicare need to be reformed in the next decade, and some of those changes will be difficult. These programs won’t ever go bankrupt, as many fear, but officials must find ways to collect more revenues or cut spending in order to keep Social Security and Medicare on sound fiscal footing. Basically, they have to figure out how to spread the pain.
One option being discussed is raising the retirement age. Republicans such as Louisiana Sen. John Kennedy, South Carolina Rep. Nancy Mace and presidential candidate Nikki Haley have recently proposed doing that. Last year a group of House Republicans called for increasing the retirement age to 70 for Social Security and Medicare, then indexing it to life expectancy. Republicans are not alone — according to Semaphor, a bipartisan group of senators is reportedly trying to devise a reform package for Social Security, with a higher retirement age as a prominent option.
Raising the retirement age seems to make economic sense on the surface of things. It would generate more revenue as payroll taxes would be collected for a longer period of time, and it would reduce the amount of benefits paid. This option has been used before — the Social Security Amendments of 1983 made several changes to the program, and one of the most important was gradually increasing the retirement age from 65 to 67.
The most common justification for the age hike is that Americans are living longer than their parents and grandparents. Increasing the retirement age to 68, 70 or higher looks like a rational adjustment.
However, this option has a serious flaw. Life expectancies in this country vary a lot by race and class. Raising the retirement age would disproportionately hurt Black Americans and people with lower incomes because they have shorter life expectancies. A higher retirement age is morally suspect because it discriminates against groups who are already disadvantaged.
Americans born in 2019 can expect to live an average of 78.8 years, according to the Centers for Disease Control and Prevention’s National Vital Statistics Reports. Yet averages can be deceiving. Life expectancy for non-Hispanic Blacks is four years less than for non-Hispanic Whites, per the CDC. The Black-White gap for men is five years.
These gaps widened during the Covid-19 pandemic. Between 2019 and 2021, according to the National Center for Health Statistics, life expectancy declined by 2.4 years for non-Hispanic Whites and 4.0 years for non-Hispanic Blacks. A Black child born in 2021 can expect to live for 70.8 years; a White child’s life will be 5.5 years longer.
If you identify policies as racist by looking at their effects rather than their intentions, then raising the retirement age would be racist.
Other inequities are just as disturbing. The Congressional Research Service found that in 1990, a 50-year-old man would have lived, on average, to the age of 88 — as long as his income was in the top decile. If that man had an income in the lowest decile, he would have most likely died 12 years sooner.
Life expectancy also varies considerably by educational attainment, with college graduates enjoying a larger advantage than they did a generation ago. These days, as The Economist put it, “a 25-year-old American with a university degree can expect to live a decade longer than a contemporary who dropped out of high school.”
To make matters worse, racial minorities and individuals with lower incomes are the most reliant on Social Security. They often lack other sources of retirement income such as job-based pensions. Among the elderly, poverty rates are about twice as high for Blacks as compared to Whites.
Fortunately, better reform options are available.
The last time Social Security was reformed (in 1983), officials didn’t lift the cap on income subject to payroll taxes even as they raised the retirement age. The result was that Black Americans and people with lower incomes were made to bear more of the burden than higher-income workers.
Today, because the federal government doesn’t collect taxes for Social Security on wage and salary income above $160,200, workers earning $50,000 a year pay a higher percentage of their income than millionaires do. Although the cap usually goes up each year, it has not kept pace with the growing share of income held by the richest Americans.
According to the Congressional Budget Office, 83% of total earnings from employment were subject to Social Security taxes in 2020. By increasing the cap so that 90% of total earnings were taxed — the same percentage as in 1983 — we would generate $670 billion more in revenue for Social Security over the next decade. Or, if we applied the payroll tax to all incomes above $250,000, then Social Security would collect $1.2 trillion more than the status quo.
Increasing the cap could make a huge difference for Social Security, and it’s not a radical idea. Payroll taxes for Medicare have applied to all wage and salary income for three decades. Of course, that means lifting the cap will not help Medicare because the cap no longer exists. But the Biden administration has recently proposed a number of changes to improve Medicare’s finances that don’t involve increasing the retirement age or otherwise disproportionately hurting Blacks or lower-income individuals. There is simply no need to raise the retirement age on Social Security or Medicare when we have better options.