A fair assessment of the budget deal signed by President Obama last week would allow for only at most two cheers. Its biggest achievement is raising the debt limit by enough to last until 2017, thereby at least temporarily eliminating the threat to the nation's credit worthiness. The deal also provides funding levels above the Spartan caps established by the 2011 Budget Control Act so that both domestic discretionary spending and military spending can avoid reductions against a baseline that was already low by historical standards. In addition, the deal avoids a cut in benefits in the Social Security Disability Insurance (SSDI) program that was about to have its trust account run dry, as well as a big increase in payments by a significant minority of Medicare beneficiaries.

That's a lot of good policy, achieved despite the partisanship that has been so characteristic of budget negotiations in recent years. So what's not to like? Two shortcomings of the deal are especially notable. The first is that the solution to the pending SSDI shortfall is disappointing. It would be hard to support the imposition of reduced benefits on recipients of a government insurance program for the disabled, but Congress has known for some years that SSDI was running out of money. Congress should have been working on solutions that involved less spending or more revenue, or perhaps both. Instead, the reforms that Congress passed provided a very minor adjustment in the way both initial and continuing eligibility are determined and ignored more basic reforms. A non-partisan group assembled by former House members Jim McCrery and Earl Pomeroy under the auspices of the Committee for a Responsible Federal Budget (CRFB) produced a host of proposals that would address the underlying problems of the SSDI program such as how to emphasize work to control the rising caseload, but they were virtually ignored. Taking the easy way out, Congress transferred nearly $120 billion in funds from the Social Security Trust Fund into the SSDI Trust Fund. Unfortunately, this action will preserve the SSDI Trust Fund only until 2021 or 2022, at which time it will likely be back in the perilous situation it was in until this temporary fix was put in place.

The second problem is that the lubricant Congress used to enact the deal was money it doesn't have. Thus, according to CRFB, all the spending in the deal cost $154 billion but the offsets in the bill amounted to only $78 billion. Thus, the true net cost of the bill, excluding budget gimmicks, was $76 billion. As always, the money will be obtained by additional borrowing, thereby increasing the nation's debt.

Increasing the nation's debt is the most important shortcoming of the bill. Due to improvements in the economy coupled with spending cuts and revenue increases achieved by previous budget deals reached since publication of the Simpson-Bowles Commission report in 2010, the fiscal outlook for the nation has improved. But the long-term debt problem has not been solved. The Center on Budget and Policy Priorities, based on figures from the Congressional Budget Office (CBO), projects that the ratio of the national debt to GDP will fall slightly from its current 74 percent to 73 percent by 2017. However, the ratio will then rise to 92 percent by 2040. This projection contrasts with the Center's 2010 projection in which the debt-to-GDP ratio increased by more than 200 percent.

Granted, this is good news. But not so fast. The assumptions built into the projections are likely to be too optimistic. The CRFB projects that under a more reasonable set of assumptions, the debt will rise to over 150 percent of GDP by 2040. As CRFB argues, the debt path under these more reasonable assumptions is, though improved, nonetheless "unsustainable."

Equally important, the big picture on the nation's budget shows that future spending increases in Social Security, Medicare and other health programs, and net interest will eat up all future increases in revenue. CBO projects that compared to average spending in these three budget categories between 1965 and 2014, spending as a percentage of GDP by 2040 on Social Security will increase by 55 percent, on federal health programs by 220 percent, and on interest on the debt by well over 100 percent. As a result, spending on everything else will decline by around 40 percent. No wonder a recent report from the Urban Institute shows that the share of federal spending on children has already begun to decline and will fall by nearly 30 percent between 2010 and 2024.

Despite the modest achievements of the latest budget deal, long-term budget prospects continue to look bleak and present spending priorities still emphasize programs for the elderly and interest on the debt while squeezing other programs, including those for children. Perhaps two cheers for the deal is one too many.

Editor's Note: this post first appeared in Real Clear Markets.

“Social security is not going broke,” said Carolyn Colvin, acting commissioner of the Social Security Administration, at a Brookings Retirement Security Project event this week. She was joined by Consumer Financial Protection Bureau Director Richard Cordray to discuss retirement planning and to unveil a new retirement calculator. “Social Security is the only guaranteed monthly income for a majority of older consumers,” Cordray said.

After their keynote addresses, a panel of retirement security experts moderated by Guest Scholar Joshua Gotbaum discussed efforts to improve retirement planning and what knowledge the average American needs to make retirement planning achievable. Ted Gayer, VP and director of Economic Studies at Brookings, introduced the event.

Here are 10 facts about Social Security and retirement planning mentioned during the event. Full video is available below and on the event’s page.

1/3 of U.S. households spend all of their available resources in every pay period

60 million people received Social Security benefits in September 2015

For the average worker, Social Security replaces only about 40 percent of pre-retirement earnings

45 million people are already 65 or order, and 10,000 people are turning 65 each day

The average American now spends about 20 years in retirement
(in 1950, the average was about 4 years)

4 in 10 Americans aged 51-59 are reaching retirement with limited or no savings,
and are projected to face a saving shortfall

~2/3 of the 40 million Americans 65 and older who receive Social Security benefits
depend on those benefits for ½ or more of their retirement income

It’s about 70 percent or more of income for those 80 or older

Only 60 percent of people who retire claim to have done any retirement planning at all

Delaying claiming Social Security “buys” people 6-8 percent more real benefits per year once they do take it

Olivia Mitchell, a professor at the Wharton School, University of Pennsylvania, explained this last point, noting that if a person stopped working at 62 but waited to claim benefits until 70, he or she would receive a benefit 76 percent higher in (real) dollars per month for life. “When to claim Social Security is many older Americans’ most important financial decision they will ever make in their lifetimes,” according to Mitchell.

Learn more about the event here and watch the video:

Video

• Helping America plan for retirement: Keynote remarks

Government spending on the elderly continues to climb.  Fueled by rapid growth in the number of Americans over age 65 and increased spending on benefits per person, public expenditures devoted to the elderly continue to edge up. A crucial question for future policy making is whether rising outlays on programs for the aged will squeeze out spending on programs for children, especially investments in their schooling. Many pessimists think this outcome is inevitable, and they urge us to reduce government commitments to the elderly to make room for spending on the young.

Federal spending is especially concentrated on the elderly. The Urban Institute publishes annual estimates of federal outlays on children and adults over 65. The estimates inevitably show a huge imbalance in spending on the two groups. In 2011, federal spending for the elderly amounted to almost $28,000 per person over 65.  In the same year, per capita spending on Americans under 19 amounted to just $4,900 per person. This means aged Americans received $5.72 in federal spending for every $1.00 received by a child 18 or younger.

The Urban Institute’s latest estimates show that federal spending on youngsters has trended down in recent years.  After reaching a peak of about $500 billion in 2010, expenditures on children fell 7 percent by 2012, and they have remained unchanged since then.

Future prospects are not encouraging. Urban Institute analysts predict that from 2014 to 2025, only 2 percent of federal spending growth will go to children. Almost 60 percent will be swallowed up by additional outlays on Social Security, Medicare, and Medicaid. Spending on many federal programs that provide benefits to children are financed out of discretionary programs. In contrast, big public programs for the aged seem to run on automatic pilot, with spending linked to changes in the cost of living and the size of the population past 65. Spending on most domestic discretionary programs is expected to be severely constrained as a result of Congressionally imposed budget caps. This is bad news for many federal programs targeted on children.

Focusing solely on federal government spending gives a misleading picture, however. While federal spending is heavily concentrated on the elderly, state and local spending tilts toward programs that help children, notably, through public school budgets.  Whereas aged Americans receive $5.72 in federal spending for each $1.00 received by someone under 19, those under 19 receive $10.11 in state and local spending for each $1.00 received by someone who is 65 or older. To be sure, total federal spending is considerably greater than that of state and local governments, but the imbalance of public spending on the young and the old is less extreme than federal budget statistics suggest.

Government spending on the aged is high because legislators (and voters) decided to establish government-backed pensions—through Social Security—in the 1930s and government-guaranteed health insurance for the elderly—through Medicare—in the 1960s.  In view of the overwhelming and enduring popularity of these two programs, most voters appear to think this was a sensible choice.  One implication of the policies is that Americans past 65 derive a sizable percentage of their retirement income, and an even bigger share of their health care, from public budgets.

The nation has not made an equivalent commitment to support the incomes or guarantee the health insurance of Americans under 65, except in special circumstances.  Those circumstances include temporary unemployment, a permanent work disability, and low household income.  Families headed by someone under 65 are expected to derive their support mainly from their jobs and from their own savings.  If non-aged families prosper, government spending on them falls.  If instead breadwinners become disabled or lose their jobs, government spending will increase as a result of higher disability payments, unemployment and food stamp benefits, and public assistance rolls.

Nearly all children are raised in families headed by someone under 65.  The government benefits they receive, except for free public schooling, increase in bad times and should decline when the unemployment rate falls.  The Urban Institute’s numbers are instructive.  Between 2007 and 2011, real federal spending on children increased 27 percent, or more than 6 percent a year, as the unemployment rate soared in the Great Recession. Federal spending on children then fell as unemployment—and outlays on government transfer payments—shrank.  For many categories of public spending on children, we cannot assume that lower spending signals a weaker commitment to children’s well-being. Instead it may signal a healthier private economy, a lower unemployment rate, and faster improvement in breadwinner incomes.

Of course, some components of government spending on children do not automatically rise in a slumping economy or shrink when breadwinners’ earnings improve.  Public investments in children’s preschool and K-12 education should be adjusted to reflect the needs of children for compensatory instruction and the expected payoff of added investment in schooling.  Statistics on public school budgets show that spending per pupil has increased considerably faster than inflation and faster than GDP per person over the past seven decades (see Chart 1). Whether spending has increased as fast as warranted is debatable, but rising government spending on the aged has not caused per-pupil spending on K-12 schools to shrink.

Government spending on children’s health has also increased over time as public insurance for children has been expanded.  In 2014 just 6 percent of Americans under age 19 lacked health insurance for the entire year.  The only age group with higher health insurance coverage was the population past 65, which is covered by Medicare (see Chart 2).  The main explanation for rising insurance coverage among children is that federal and state health insurance programs have been expanded to cover most low-income children.  Insurance coverage of children can and should be improved, but a sizeable expansion of public insurance has occurred despite the increase in public spending on the elderly.

The presumption that rising outlays on programs for Americans past 65 must come at the expense of spending on children rests on the unstated assumption that voters will zealously defend programs for the aged while tolerating cuts in programs that fund education, income protection, and health coverage for the young.  The trend toward higher public spending on the elderly has been underway for at least five decades, but the predicted cuts in spending on the young have yet to materialize.

Editor's Note: this op-ed first appeared in Real Clear Markets.

The 2016 presidential election confronts the U.S. electorate with political choices more fundamental than any since 1964 and possibly since 1932. That statement may strike some as hyperbolic, but the policy differences between the two major parties and the positions of candidates vying for their presidential nominations support this claim.

A victorious Republican candidate would take office backed by a Republican-controlled Congress, possibly with heightened majorities and with the means to deliver on campaign promises. On the other hand, the coattails of a successful Democratic candidate might bring more Democrats to Congress, but that president would almost certainly have to work with a Republican House and, quite possibly, a still Republican Senate. The political wars would continue, but even a president engaged in continuous political trench warfare has the power to get a lot done.

Candidates always promise more than they can deliver and often deliver different policies from those they have promised. Every recent president has been buffeted by external events unanticipated when he took office. But this year, more than in half a century or more, the two parties offer a choice, not an echo. Here is a partial and selective list of key issues to illustrate what is at stake.

The Affordable Care Act, known as Obamacare or the ACA, passed both houses of Congress with not a single Republican vote. The five years since enactment of the ACA have not dampened Republican opposition.

The persistence and strength of opposition to the ACA is quite unlike post-enactment reactions to the Social Security Act of 1935 or the 1965 amendments that created Medicare. Both earlier programs were hotly debated and controversial. But a majority of both parties voted for the Social Security Act. A majority of House Republicans and a sizeable minority of Senate Republicans supported Medicare. In both cases, opponents not only became reconciled to the new laws but eventually participated in improving and extending them. Republican members of Congress overwhelmingly supported, and a Republican president endorsed, adding Disability Insurance to the Social Security Act.  In 2003, a Republican president proposed and fought for the addition of a drug benefit to Medicare.

The current situation bears no resemblance to those two situations. Five years after enactment of Obamacare, in contrast, every major candidate for the Republican presidential nomination has called for its repeal and replacement. So have the Republican Speaker of the House of Representatives and Majority Leader in the Senate.  

Just what 'repeal and replace' might look like under a GOP president remains unclear as ACA critics have not agreed on an alternative. Some plans would do away with some of the elements of Obamacare and scale back others. Some proposals would repeal the mandate that people carry insurance, the bar on 'medical underwriting' (a once-routine practice under which insurers vary premiums based on expected use of medical care), or the requirement that insurers sell plans to all potential customers. Other proposals would retain tax credits to help make insurance affordable but reduce their size, or would end rules specifying what 'adequate' insurance plans must cover.

Repeal is hard to imagine if a Democrat wins the presidency in 2016. Even if repeal legislation could overcome a Senate filibuster, a Democratic president would likely veto it and an override would be improbable. 

But a compromise with horse-trading, once routine, might once again become possible. A Democratic president might agree to Republican-sponsored changes to the ACA, such as dropping the requirement that employers of 50 or more workers offer insurance to their employees, if Republicans agreed to changes in the ACA that supporters seek, such as the extension of tax credits to families now barred from them because one member has access to very costly employer-sponsored insurance.

In sum, the 2016 election will determine the future of the most far-reaching social insurance legislation in half a century.

Social Security faces a projected long-term gap between what it takes in and what it is scheduled to pay out. Every major Republican candidate has called for cutting benefits below those promised under current law. None has suggested any increase in payroll tax rates. Each Democratic candidate has proposed raising both revenues and benefits. Within those broad outlines, the specific proposals differ.

Most Republican candidates would cut benefits across the board or selectively for high earners. For example, Senator Ted Cruz proposes to link benefits to prices rather than wages, a switch that would reduce Social Security benefits relative to current law by steadily larger amounts: an estimated 29 percent by 2065 and 46 percent by 2090. He would allow younger workers to shift payroll taxes to private accounts. Donald Trump has proposed no cuts in Social Security because, he says, proposing cuts is inconsistent with winning elections and because meeting current statutory commitments is 'honoring a deal.' Trump also favors letting people invest part of their payroll taxes in private securities. He has not explained how he would make up the funding gap that would result if current benefits are honored but revenues to support them are reduced. Senator Marco Rubio has endorsed general benefit cuts, but he has also proposed to increase the minimum benefit. Three Republican candidates have proposed ending payroll taxes for older workers, a step that would add to the projected funding gap.

Democratic candidates, in contrast, would raise benefits, across-the-board or for selected groups—care givers or survivors. They would switch the price index used to adjust benefits for inflation to one that is tailored to consumption of the elderly and that analysts believe would raise benefits more rapidly than the index now in use. All would raise the ceiling on earnings subject to the payroll tax. Two would broaden the payroll tax base.

As these examples indicate, the two parties have quite different visions for Social Security. Major changes, such as those envisioned by some Republican candidates, are not easily realized, however. Before he became president, Ronald Reagan in numerous speeches called for restructuring Social Security. Those statements did not stop him from signing a 1983 law that restored financial balance to the very program against which he had inveighed but with few structural changes. George W. Bush sought to partially privatize Social Security, to no avail. Now, however, Social Security faces a funding gap that must eventually be filled. The discipline of Trust Fund financing means that tax increases, benefit cuts, or some combination of the two are inescapable. Action may be delayed beyond the next presidency, as current projections indicate that the Social Security Trust Fund and current revenues can sustain scheduled benefits until the mid 2030s. But that is not what the candidates propose. Voters face a choice, clear and stark, between a Democratic president who would try to maintain or raise benefits and would increase payroll taxes to pay for it, and a Republican president who would seek to cut benefits, oppose tax increases, and might well try to partially privatize Social Security.

On no other issue is the split between the two parties wider or the stakes in their disagreement higher than on measures to deal with global warming. Leading Republican candidates have denied that global warming is occurring (Trump), scorned evidence supporting the existence of global warming as bogus (Cruz), acknowledged that global warming is occurring but not because of human actions (Rubio, Carson), or admitted that it is occurring but dismissed it as not a pressing issue (Fiorina, Christie). Congressional Republicans oppose current Administration initiatives under the Clean Air Act to curb emission of greenhouse gases.

Democratic candidates uniformly agree that global warming is occurring and that it results from human activities. They support measures to lower those emissions by amounts similar to those embraced in the Paris accords of December 2015 as essential to curb the speed and ultimate extent of global warming.

Climate scientists and economists are nearly unanimous that unabated emissions of greenhouse gases pose serious risks of devastating and destabilizing outcomes—that climbing average temperatures could render some parts of the world uninhabitable, that increases in sea levels that will inundate coastal regions inhabited by tens of millions of people, and that storms, droughts, and other climatic events will be more frequent and more destructive. Immediate actions to curb emission of greenhouse gases can reduce these effects. But no actions can entirely avoid them, and delay is costly.  Environmental economists also agree, with little partisan division, that the way to proceed is to harness market forces to reduce greenhouse gas emissions.” 

The division between the parties on global warming is not new. In 2009, the House of Representatives narrowly passed the American Clean Energy and Security Act. That law would have capped and gradually lowered greenhouse gas emissions. Two hundred eleven Democrats but only 8 Republicans voted for the bill. The Senate took no action, and the proposal died.

Now Republicans are opposing the Obama administration’s Clean Power Plan, a set of regulations under the Clean Air Act to lower emissions by power plants, which account for 40 percent of the carbon dioxide released into the atmosphere. The Clean Power Plan is a stop-gap measure. It applies only to power plants, not to other sources of emissions, and it is not nationally uniform. These shortcomings reflect the legislative authority on which the plan is based, the Clean Air Act. That law was designed to curb the local problem of air pollution, not the global damage from greenhouse gases. Environmental economists of both parties recognize that a tax or a cap on greenhouse gas emissions would be more effective and less costly than the current regulations, but superior alternatives are now politically unreachable.

Based on their statements, any of the current leading Republican candidates would back away from the recently negotiated Paris climate agreement, scuttle the Clean Power Plan, and resist any tax on greenhouse gas emissions. Any of the Democratic candidates would adhere to the Clean Power Plan and support the Paris climate agreement. One Democratic candidate has embraced a carbon tax. None has called for the extension of the Clean Power Plan to other emission sources, but such policies are consistent with their current statements.

The importance of global policy to curb greenhouse gas emissions is difficult to exaggerate. While the United States acting alone cannot entirely solve the problem, resolute action by the world’s largest economy and second largest greenhouse gas emitter is essential, in concert with other nations, to forestall climate catastrophe.

If the next president serves two terms, as six of the last nine presidents have done, four currently sitting justices will be over age 86 and one over age 90 by the time that presidency ends—provided that they have not died or resigned.

The political views of the president have always shaped presidential choices regarding judicial appointments. As all carry life-time tenure, these appointments influence events long after the president has left office. The political importance of these appointments has always been enormous, but it is even greater now than in the past. One reason is that the jurisprudence of sitting Supreme Court justices now lines up more closely than in the past with that of the party of the president who appointed them. Republican presidents appointed all sitting justices identified as conservative; Democratic presidents appointed all sitting justices identified as liberal. The influence of the president’s politics extends to other judicial appointments as well.

A second reason is that recent judicial decisions have re-opened decisions once regarded as settled. The decision in the first case dealing with the Affordable Care Act (ACA), NFIB v. Sibelius is illustrative.

When the ACA was enacted, few observers doubted the power of the federal government to require people to carry health insurance. That power was based on a long line of decisions, dating back to the 1930s, under the Constitutional clause authorizing the federal government to regulate interstate commerce. In the 1930s, the Supreme Court rejected an older doctrine that had barred such regulations. The earlier doctrine dated from 1905 when the Court overturned a New York law that prohibited bakers from working more than 10 hours a day or 60 hours a week. The Court found in the 14^th Amendment, which prohibits any state from ‘depriving any person of life, liberty or property, without due process of law,’ a right to contract previously invisible to jurists which it said the New York law violated. In the early- and mid-1930s, the Court used this doctrine to invalidate some New Deal legislation. Then the Court changed course and authorized a vast range of regulations under the Constitution’s Commerce Clause.  It was on this line of cases that supporters of the ACA relied.

Nor did many observers doubt the power of Congress to require states to broaden Medicaid coverage as a condition for remaining in the Medicaid program and receiving federal matching grants to help them pay for required medical services.

To the surprise of most legal scholars, a 5-4 Supreme Court majority ruled in NFIB v. Sibelius that the Commerce Clause did not authorize the individual health insurance mandate. But it decided, also 5 to 4, that tax penalties could be imposed on those who fail to carry insurance. The tax saved the mandate. But the decision also raised questions about federal powers under the Commerce Clause. The Court also ruled that the Constitution barred the federal government from requiring states to expand Medicaid coverage as a condition for remaining in the program. This decision was odd, in that Congress certainly could constitutionally have achieved the same objective by repealing the old Medicaid program and enacting a new Medicaid program with the same rules as those contained in the ACA that states would have been free to join or not.

NFIB v. Sibelius and other cases the Court has recently heard or soon will hear raise questions about what additional attempts to regulate interstate commerce might be ruled unconstitutional and about what limits the Court might impose on Congress’s power to require states to implement legislated rules as a condition of receiving federal financial aid. The Court has also heard, or soon will hear, a series of cases of fundamental importance regarding campaign financing, same-sex marriage, affirmative action, abortion rights, the death penalty, the delegation of powers to federal regulatory agencies, voting rights, and rules under which people can seek redress in the courts for violation of their rights.

Throughout U.S. history, the American people have granted nine appointed judges the power to decide whether the actions taken by elected legislators are or are not consistent with a constitution written more than two centuries ago. As a practical matter, the Court could not maintain this sway if it deviated too far from public opinion. But the boundaries within which the Court has substantially unfettered discretion are wide, and within those limits the Supreme Court can profoundly limit or redirect the scope of legislative authority. The Supreme Court’s switch in the 1930s from doctrines under which much of the New Deal was found to be unconstitutional to other doctrines under which it was constitutional illustrates the Court’s sensitivity to public opinion and the profound influence of its decisions.

The bottom line is that the next president will likely appoint enough Supreme Court justices and other judges to shape the character of the Supreme Court and of lower courts with ramifications both broad and enduring on important aspects of every person’s life.

***

The next president will preside over critical decisions relating to health care policy, Social Security, and environmental policy, and will shape the character of the Supreme Court for the next generation. Profound differences distinguish the two major parties on these and many other issues. A recent survey of members of the House of Representatives found that on a scale of ‘liberal to conservative’ the most conservative Democrat was more liberal than the least conservative Republican. Whatever their source, these divisions are real.  The examples cited here are sufficient to show that the 2016 election richly merits the overworked term 'watershed'—it will be the most consequential presidential election in a very long time.

For decades, we have been hearing that the baby-boom generation was like a pig moving through a python–bigger than the generations before and after.

That’s true. But that’s also a very misleading metaphor for understanding the demographic forces that are driving up federal spending: They aren’t temporary. The generation born between 1946 and 1964 is the beginning of a demographic transition that will persist for decades after the baby boomers die, the consequence of lengthening lifespans and declining fertility. Putting the federal budget on a sustainable course requires long-lasting fixes, not short-lived tweaks.  

First, a few demographic facts.

As the chart below illustrates, there was a surge in births in the U.S. at the end of World War II, a subsequent decline, and then an uptick as baby boomers began having children.

Although the population has been rising, the number of births in the U.S. the past few years has been below the peak baby-boom levels, possibly because many couples chose not to have children during bad economic times. More significant, fertility rates–roughly the number of babies born per woman during her lifetime–have fallen well below pre-baby-boom levels.

Meanwhile, Americans are living longer. In 1950, a man who made it to age 65 could expect to live until 78 and a woman until 81. Social Security’s actuaries project that a man who lived to age 65 in 2010 will reach 84 and a woman age 86.

Put all this together, and it’s clear that a growing fraction of the U.S. population will be 65 or older.   

The combination of longer life spans and lower fertility rates means the ratio of elderly (over 65) to working-age population (ages 20 to 64) is rising. As the chart below illustrates, the ratio will rise steadily as more baby boomers reach retirement age–and then it levels off.  

Simply put, this doesn’t look like a pig in a python.  

So what do these demographic facts portend for the federal budget?  In simple dollars and cents, the federal government spends more on the old than the young. More older Americans means more federal spending on Social Security and Medicare, the health insurance program for the elderly. On top of that, health care spending per person is likely to continue to grow faster than the overall economy.

The net result: 85 percent of the increase in federal spending that the Congressional Budget Office projects for the next 10 years, based on current policies, will go toward Social Security, Medicare and other major federal health programs, and interest on the national debt.

Restraining future deficits and the size of the federal debt mean restraining spending on these programs or raising taxes–and probably both. One-time savings or minor tweaks won’t suffice. Nor will limiting the belt-tightening to annually appropriated spending.

The fundamental fiscal problem is not coping with the retirement of the baby boomers and then going back to budgets that resemble those of the past. The fundamental fiscal problem is that retirement of the baby boomers marks a major demographic transition for the nation, one that will require long-lived changes to benefit programs and taxes.

In last Thursday’s GOP debate, Marco Rubio, Ted Cruz, Jeb Bush and Chris Christie managed to avoid mentioning their common proposal to “reform entitlements” by raising the Social Security retirement age from 67 to 70. That was probably a good idea. Their proposal only demonstrates their lack of understanding about the demographics of older Americans, especially the dramatic disparities in their life expectancy associated with education and race. Recent research on life expectancy indicates that their proposed change would effectively nullify Social Security for millions of Americans and sharply limit benefits for many millions more.. While many people in their 30s and 40s today can look forward to living into their 80s, the average life expectancy for the majority of Americans who do not hold a college degree hovers closer to 70, or the average life expectancy for all Americans in 1950.

The Widening Inequalities in the Life Spans of Americans

This research, summarized recently in a study published in Health Affairs, found that life expectancy for various age cohorts of Americans is closely associated with both educational achievement and race. For example, the average life expectancy for college-educated American men who were age 25 in 2008, or age 33 today, is 81.7 years for whites and 78.2 years for blacks. (Table 1, below) By contrast, the projected, average life span of high-school educated males, also age 25 in 2008 or 33 today, is 73.2 years for whites and 69.3 years for blacks. Women on average live longer than men; but similar disparities based on education and race are evident. The average life expectancy of women age 25 in 2008, or 33 years old today, was 79 years for whites and 75.4 years for blacks for those with a high school diploma, and 84.7 years for whites and 81.6 years for blacks with college degrees. Most disturbing, the average life expectancy of Americans age 25 in 2008 without a high school diploma is just 68.6 years for white men, 68.2 years for black men, 74.2 years for white women, and 74.9 years for black women. Surprisingly, the researchers found that Hispanics in this age group have the longest life expectancies, even though they also have the lowest average levels of education. Since these data are anomalous and may reflect sampling problems, we will focus mainly on the life-expectancy gaps between African American and white Americans.

Tallying How Many People Are Adversely Affected

Census data on the distribution by education of people age 25 to 34 in 2010 (ages 30 to 39 in 2015) provide a good estimate of how many Americans are adversely affected by these growing differences. Overall, 56.3 percent of all Americans currently in their 30s fall are high school graduates or left school without a high school diploma, educational groups with much lower average life expectancies. (Table 2, below) More precisely, 10.1 percent or almost 4.8 million Americans in their 30s today lack a high school diploma, and 46.2 percent or 18.9 million thirty-somethings have high school diplomas and no further degrees. All told, they account for 23,702,000 Americans in their 30s; and among older Americans, the numbers and percentages are even higher.

Since race as well as education are major factors associated with differences in life expectancy, we turn next to education by race (Table 3, below). The totals differ modestly from Table 2, because Census data on education by race cover ages 30-39 in 2014, while Table 2 covers age 30-39 in 2015 (ages 25-34 in 2010).

• Among people in their 30s today, 45.4 percent of whites or 10,613,000 Americans have a high school degree or less – and their average life expectancy is 9.4 years less than whites in their 30s with a college or associate degree.
• Among people in their 30s todays, 64.4 percent of blacks or 3,436,000 Americans have a high school degree or less – and their life expectancy is 8.6 years less than blacks in their 30s with an B.A. or associate degree, and 11.6 years less than whites with a college or associate degree..
• Among people in their 30s today, 75.6 percent of Hispanics or 6,243,000 Americans have a high school degree or less – and their life expectancy is 5.0 years less than Hispanics in their 30s with a college or associate degree.

As a policy matter, these data tell us that across all communities—white, black, Hispanic—improvements in secondary education to prepare everyone for higher education, and lower-cost access to higher education, can add years to the lives of millions of Americans.

Preserving Meaningful Access to Social Security Benefits

The widening inequalities in average life expectancy associated with race and education have more direct policy implications for Social Security, because the number of years that people can claim its benefits depends on their life spans. The growing inequalities in life expectancy translate directly into growing disparities in the years people can claim Social Security benefits, based on their education and race. Assuming that Americans in their 30s today retire at age 67 (the age for full benefits for this age group), they can expect to claim retirement benefits, on average, ranging from 1.2 years to 19.3 years, based on their education and race. (Table 4, below)

The most pressing issues of life expectancy and Social Security involve white males, black males, and black females without college degrees: Among Americans age 33 today, white and black men without high school diplomas and black males with high school degrees, on average, can expect to live long enough to collect benefits for less than three years. Similarly, white and black women without high school diplomas and black women with high school degrees, on average, can expect to collect benefits for less than eight years. Together, they account for 25.2 percent of whites and 64.4 percent of blacks in their 30s today. By contrast, male and female white college graduates age 33 today, on average, can expect to collect Social Security for between 14.7 and 17.7 years, respectively; and 33-year old black men and women with college degrees, on average, will claim benefits for 11.2 to 14.6 years, respectively.

These findings dictate that proposals to raise the Social Security retirement age should be rejected as a matter of basic fairness. Among this year’s presidential hopefuls, as noted earlier, Ted Cruz, Marco Rubio, Jeb Bush and Chris Christie all have called for raising the retirement age to 70 years. Under this policy, black men in their 30s today without a college degree and white men now in their 30s without a high school diploma, on average, would not live long enough to collect any Social Security. The change would reduce the average number of years of Social Security for Americans in their 30s today,

• From 1.6 years to -1.4 years for white men with no high school diploma,
• From 1.2 years to -1.8 years for black men with no high school diploma, and
• From 2.3 years to – 0.7 years for black, male high-school graduates.

Furthermore, among Americans in their 30s today, white and black women without a high school diploma, white male high school graduates, and black female high school graduates, would live long enough, on average, to collect Social Security for just 3.2 to 5.4 years. The GOP change reduce the average number of years of Social Security for Americans in their 30s today,

• From 6.2 years to 3.2 years for white, male high school graduates,
• From 7.2 years to 4.2 years for white women with no high school diploma,
• From 7.9 years to 4.9 years for black women with no high school diploma, and
• From 8.4 years to 5.4 years for black, female high-school graduates.

All told, proposals to raise the retirement age to 70 years old would mean, based on the average life expectancy of Americans in their 30s today, that 25.2 percent of whites in their 30s and 64.4 percent of blacks of comparable age, after working for 35 years or more, would receive Social Security benefits for 5.4 years or less.

Social Security faces a financial shortfall. If Congress does nothing about it, current projections indicate that benefits will be cut automatically by 21 percent in 2034. Congress could close the gap by raising revenues, lowering benefits, or doing some of both. If benefits seem generous, Congress is likely to lean toward benefit cuts more than revenue increases. If they seem stingy, then the reverse.

Given the split between the two parties on whether to cut benefits or to raise them, evidence on the adequacy of benefits is central to this key policy debate. Those perceptions will help determine whether Social Security continues to provide basic retirement income for workers with comparatively low earnings histories and a foundation of retirement income for most others or it will become just a minimal safety-net backstop against extreme destitution?

Down-in-the-weeds disagreements among analysts often seem too arcane for anyone other than specialists. But sometimes they are too important to ignore. A current debate about the adequacy of Social Security benefits is an example.

The not-so-simple question is this: are Social Security benefits ‘generous’ or ‘stingy’? To answer this question, people long looked to the Office of the Social Security Actuary. For many years that office published estimates of something called the ‘replacement rate’—that is, how high are benefits paid to retirees and the disabled relative what they earned during their working years. A 2014 retiree with median earnings had average lifetime earnings of about $46,000. That worker qualified for a benefit at age 66 of about $19,000, a replacement rate of about 41%. Replacement rates vary with earnings. Dollar benefits rise with earnings, but they rise less than proportionately. As a result, replacement rates of low earners are higher than replacement rates of high earners.

As you might suppose, there are many ways in which to compute such ‘replacement rates. Because of analytical disputes on which method is best, the Social Security trustees in 2014 decided to stop including replacement rate estimates in their annual reports.

In December 2015, the Congressional Budget Office (CBO) offered what it considered a better measure of the generosity of Social Security. It estimated that replacement rates for middle income recipients were about 60%–dramatically higher than the 41% that the Social Security Trustees had estimated.

The gap between the estimates of CBO and those of Social Security is even larger than it seems. To see why, one needs to recognize that to sustain living standards retirees on average need only about 75% to 80% as much income as they did when working. Retirees need less income because they are spared some work-related expenses, such as transportation to and from work. Those are only average of course; some need more, some less.

If one believed the SSA actuaries, Social Security provides median earners barely more than half of what they need to be as well off as they were when working. Benefit cuts from that modest level would threaten the well-being for the majority of retirees who are entirely or mostly dependent on Social Security benefits—and especially for those with large medical expenses uncovered by Medicare.

On the other hand, if one accepted CBO’s estimates, Social Security provids more than three-quarters of the retirement income target. Against that baseline, benefit cuts would still sting, but they would pose less of a threat, and not much of a threat at all for most retirees who have some income from private pensions or personal savings.

When the CBO estimates came out, conservative commentators welcomed the findings and cited CBO’s well-established and well-earned reputation for objectivity. They correctly noted that many retirees have additional income from private pensions, 401ks, or other personal savings, and asserted that there was no general retirement income shortage. By inference, cutting benefits a bit to help close the long-term funding gap would be no big deal. Social Security advocates were put on the defensive, hard-pressed to challenge the estimates of the widely-respected Congressional Budget Office.

But earlier this year, CBO acknowledged that it had made mistakes in its Decameter estimates and revised them. The new CBO estimate put the replacement rate for middle-level earners at around 42%, almost the same as the estimate of the Social Security actuaries, not the much higher level that had sent ripples through the policy community. One conservative analyst, Andrew Biggs, who had trumpeted the initial CBO finding in The Wall Street Journal, promptly and honorably retracted his article.

Two aspects of this green-eyeshade kerfuffle stand out. The first is that policy debates often depend on obscure technical analyses that are, in turn, remarkably sensitive to ‘black-box’ methods to which few or no outsiders have ready access. The second is that CBO burnished its reputation for honesty by owning up to its own mistakes — in this case, a whopping overestimate of a key number. Such candor is all too rare; it merits notice and praise.

But there is a broader lesson as well. Technical issues of comparable complexity surround numerous current political disputes. Is Bernie Sanders’ single-payer plan affordable? Will Marco Rubio’s tax plan cause deficits to balloon? To vote rationally, people must struggle to see through the rhetorical chaff that surrounds candidates’ favorite claims. There is, alas, no substitute for paying close attention to the data, even if they are ‘down in the weeds.’

Editor's note: This piece originally appeared in Fortune.

Gary Burtless, a senior fellow in Economic Studies, explains new research on the growing longevity gap between high-income and low-income Americans, especially among the aged.

“Life expectancy difference of low income workers, middle income workers, and high income workers has been increasing over time,” Burtless says. “For people born in 1920 their life expectancy was not as long typically as the life expectancy of people who were born in 1940. But those gains between those two birth years were very unequally distributed if we compare people with low mid-career earnings and people with high mid-career earnings.” Burtless also discusses retirement trends among the educated and non-educated, income inequality among different age groups, and how these trends affect early or late retirement rates.

Also stay tuned for our regular economic update with David Wessel, who also looks at the new research and offers his thoughts on what it means for Social Security.

Show Notes

Later retirement, inequality and old age, and the growing gap in longevity between rich and poor

Disparity in Life Spans of the Rich and the Poor Is Growing

Subscribe to the Brookings Cafeteria on iTunes, listen on Stitcher, and send feedback email to BCP@Brookings.edu.

Researchers have long known that the rich live longer than the poor. Evidence now suggests that the life expectancy gap is increasing, at least here the United States, which raises troubling questions about the fairness of current efforts to protect Social Security.

There's nothing particularly mysterious about the life expectancy gap. People in ill health, who are at risk of dying relatively young, face limits on the kind and amount of work they can do. By contrast, the rich can afford to live in better and safer neighborhoods, can eat more nutritious diets and can obtain access to first-rate healthcare. People who have higher incomes, moreover, tend to have more schooling, which means they may also have better information about the benefits of exercise and good diet.

Although none of the above should come as a surprise, it's still disturbing that, just as income inequality is growing, so is life-span inequality. Over the last three decades, Americans with a high perch in the income distribution have enjoyed outsized gains.

Using two large-scale surveys, my Brookings colleagues and I calculated the average mid-career earnings of each interviewed family; then we estimated the statistical relationship between respondents' age at death and their incomes when they were in their 40s. We found a startling spreading out of mortality differences between older people at the top and bottom of the income distribution.

For example, we estimated that a woman who turned 50 in 1970 and whose mid-career income placed her in the bottom one-tenth of earners had a life expectancy of about 80.4. A woman born in the same year but with income in the top tenth of earners had a life expectancy of 84.1. The gap in life expectancy was about 3½ years. For women who reached age 50 two decades later, in 1990, we found no improvement at all in the life expectancy of low earners. Among women in the top tenth of earners, however, life expectancy rose 6.4 years, from 84.1 to 90.5. In those two decades, the gap in life expectancy between women in the bottom tenth and the top tenth of earners increased from a little over 3½ years to more than 10 years.

Our findings for men were similar. The gap in life expectancy between men in the bottom tenth and top tenth of the income distribution increased from 5 years to 12 years over the same two decades.

Rising longevity inequality has important implications for reforming Social Security. Currently, the program takes in too little money to pay for all benefits promised after 2030. A common proposal to eliminate the funding shortfall is to increase the full retirement age, currently 66. Increasing the age for full benefits by one year has the effect of lowering workers' monthly checks by 6% to 7.5%, depending on the age when a worker first claims a pension.

For affluent workers, any benefit cut will be partially offset by gains in life expectancy. Additional years of life after age 65 increase the number years these workers collect pensions. Workers at the bottom of the wage distribution, however, are not living much longer, so the percentage cut in their lifetime pensions will be about the same as the percentage reduction in their monthly benefit check.

Our results and other researchers' findings suggest that low-income workers have not shared in the improvements in life expectancy that have contributed to Social Security's funding problem.

It therefore seems unfair to preserve Social Security by cutting future benefits across the board. Any reform in the program to keep it affordable should make special provision to protect the benefits of low-wage workers.

Editor's note: This piece originally appeared in The Los Angeles Times. 

Open any magazine aimed at the upper middle class and you’ll find lots of ads about retirement planning: financial firms fighting over which one will ‘advise’ you and get you to invest your money with them.

But, for most people, that isn’t the most important part of retirement planning. In fact, most people don’t have significant retirement savings, so arguing about who or how to invest them is irrelevant. Their “financial planning” is more likely to be about whether and when to pay the credit card bill.

So what kind of retirement planning really matters? There are lots of answers, but here are two of the most important: How long you work and when you apply for Social Security. For most people, these matter far more than whether your savings are invested in stocks or bonds.

Working Longer Requires More than Wishful Thinking. One of the great blessings of modern medicine is that people are living longer. But one of the consequences of that blessing is that unless people work longer and/or save more while they’re working, they’re more likely to run out of money in retirement than ever before. (The decline of traditional pensions, which paid lifetime income benefits, hasn’t helped either.) Most folks know this and are responding. According to a recent survey, 65 percent of baby boomers expect to work past 65.

But those expectations may not be met. Currently, about half of workers stop working before age 65: some are wealthy enough; more often they’re just not healthy enough.

Flexible retirement is more slogan than fact. Moreover, the job market isn’t as flexible as some may hope. Yes, an increasing percentage of seniors are working at least occasionally (~35 percent of men over 60, ~25 percent of women), but that doesn’t mean they’re doing their dream job on their chosen schedule. Increasingly, most of those who do work past 65 work full-time. Twenty years ago about 60 percent of workers over the age of 65 worked part-time; today about 60 percent work full-time.

It’s not clear why part-time work has declined, but one reason may be that employers still haven’t adjusted to the idea. A recent Transamerica Survey found that 66 percent of age 55+ US workers expect they will enter retirement flexibly -- but only 25 percent report that their employer offers the opportunity to move from full-time to part-time. However, the best way for employers to change is for their employees to ask (or have a union that does).

Retirement planning involves more than wishful thinking. If you want a flexible or a phased retirement, you need to know what your options really are – and the time to find out is long before you’re on the verge of retirement.

Defer Applying for Social Security? The other step that matters for most people is when they choose to apply for Social Security. Many apply as soon as they legally can do so, generally at age 62. For most people, that’s a mistake, because it means they will get reduced payments for the rest of their lives. Most others claim their Social Security benefits by the time they reach the “normal retirement age”, which for baby boomers is 66 years. (The normal retirement age is gradually being raised; for those born after 1959 it’s age 67.) For many people, that’s a mistake, too, because your lifetime benefit increases each year that you delay from 62 up to age 70.

How much more will your Social Security be if you start taking it at 70 instead of claiming benefits at the earliest possible age? A lot. For baby boomers, waiting till 70 increases the annual benefit by about 8% or each year of delay. That means instead of taking an annual payment at 62 of $10,000 a year, waiting 8 years means your annual payment will rise to $17,600 – inflation indexed for life. (If you keep working after age 62, then the math can be even more compelling, because Social Security is based on your highest 35 years of earnings.) If you are married, delaying also increases payments to your spouse after you die.

Of course, lots of folks have justifications for taking the lower payment at 62. Some say, “I won’t live long enough to make up the difference” – but in fact most people do live that long and many live longer. Others say, “I need the money to pay my bills.” But if you have savings or home equity, it’s worth using those first and taking Social Security later.

So the next time someone approaches you about moving your 401k money over to them, consider the option they won’t tell you about: spending it first and deferring Social Security. After all, Social Security gives you a guaranteed 8% return for waiting – and an 8% guaranteed return is hard to beat. (But they probably won’t tell you that, either.)

Editor's note: This piece originally appeared in Inside Sources.

The American people deserve to have a federal government that is both responsive and effective. That simply isn’t the case for more than 1 million people who are awaiting the adjudication of their applications for disability benefits from the Social Security Administration.

Washington can and must do better. This gridlock harms applicants either by depriving them of much-needed support or effectively barring them from work while their cases are resolved because having any significant earnings would immediately render them ineligible. This is unacceptable.

Within the next month, the Government Accountability Office, the nonpartisan congressional watchdog, will launch a study on the issue. More policymakers should follow GAO’s lead. A solution to this problem is long overdue. Here’s how the government can do it.

Congress does not need to look far for an example of how to reduce the SSA backlog. In 2013, the Veterans Administration cut its 600,000-case backlog by 84 percent and reduced waiting times by nearly two-thirds, all within two years. It’s an impressive result.

Why have federal officials dealt aggressively and effectively with that backlog, but not the one at SSA? One obvious answer is that the American people and their representatives recognize a debt to those who served in the armed forces. Allowing veterans to languish while a sluggish bureaucracy dithers is unconscionable. Public and congressional outrage helped light a fire under the bureaucracy. Administrators improved services the old-fashioned way — more staff time. VA employees had to work at least 20 hours overtime per month.

Things are a bit more complicated at SSA, unfortunately. Roughly three quarters of applicants for disability benefits have their cases decided within about nine months and, if denied, decide not to appeal. But those whose applications are denied are legally entitled to ask for a hearing before an administrative law judge — and that is where the real bottleneck begins.

There are too few ALJs to hear the cases. Even in the best of times, maintaining an adequate cadre of ALJs is difficult because normal attrition means that SSA has to hire at least 100 ALJs a year to stay even. When unemployment increases, however, so does the number of applications for disability benefits. After exhausting unemployment benefits, people who believe they are impaired often turn to the disability programs. So, when the Great Recession hit, SSA knew it had to hire many more ALJs. It tried to do so, but SSA cannot act without the help of the Office of Personnel Management, which must provide lists of qualified candidates before agencies can hire them. SSA employs 85 percent of all ALJs and for several years has paid OPM approximately $2 million annually to administer the requisite tests and interviews to establish a register of qualified candidates. Nonetheless, OPM has persistently refused to employ legally trained people to vet ALJ candidates or to update registers. And when SSA sought to ramp up ALJ hiring to cope with the recession challenge, OPM was slow to respond.

In 2009, for example, OPM promised to supply a new register containing names of ALJ candidates. Five years passed before it actually delivered the new list of names. For a time, the number of ALJs deciding cases actually fell. The situation got so bad that the president’s January 2015 budget created a work group headed by the Office of Management and Budget and the Administrative Conference of the United States to try to break the logjam. OPM promised a list for 2015, but insisted it could not change procedures. Not trusting OPM to mend its ways, Congress in October 2015 enacted legislation that explicitly required OPM to administer a new round of tests within the succeeding six months.

These stopgap measures are inadequate to the challenge. Both applicants and taxpayers deserve prompt adjudication of the merits of claims. The million-person backlog and the two-year average waits are bad enough. Many applicants wait far longer. Meanwhile, they are strongly discouraged from working, as anything more than minimal earnings will cause their applications automatically to be denied. Throughout this waiting period, applicants have no means of self-support. Any skills applicants retain atrophy.

The shortage of ALJs is not the only problem. The quality and consistency of adjudication by some ALJs has been called into question. For example, differences in approval rates are so large that differences among applicants cannot plausibly explain them. Some ALJs have processed so many cases that they could not possibly have applied proper standards. In recognition of both problems, SSA has increased oversight and beefed up training. The numbers have improved. But large and troubling variations in workloads and approval rates persist.

For now, political polarization blocks agreement on whether and how to modify eligibility rules and improve incentives to encourage work by those able to work. But there is bipartisan agreement that dragging out the application process benefits no one. While completely eliminating hearing delays is impossible, adequate administrative funding and more, better trained hearing officers would help reduce them. Even if OPM’s past record were better than it is, OPM is now a beleaguered agency, struggling to cope with the fallout from a security breach that jeopardizes the security of the nation and the privacy of millions of current and past federal employees and federal contractors. Mending this breach and establishing new procedures will — and should — be OPM’s top priority.

That’s why, for the sake of everyone concerned, responsibility for screening candidates for administrative law judge positions should be moved, at least temporarily, to another agency, such as the Administrative Conference of the United States. Shortening the period that applicants for disability benefits now spend waiting for a final answer is an achievable goal that can and should be addressed. Our nation’s disabled and its taxpayers deserve better.

Editor's note: This piece originally appeared in Politico.

Critics of the nation's retirement system regularly complain that the system is in crisis. Too many private companies fail to offer their employees a retirement plan. Many employees who are covered by a plan fail to make contributions to it. Those who do make contributions may contribute too little or invest their savings unwisely. The end result: Many of us will reach retirement age with miniscule pensions or too little savings to enjoy a comfortable old age.

The argument that our retirement system has gaping holes is well founded. The notion that it faces an imminent "crisis" is nonsense. If the system currently faces a crisis, it has faced the same one for the past 40 years. While elderly Americans have seen their incomes and living standards improve in recent decades, the median working-age family has experienced little improvement in its real income. Nonelderly families that depend solely on the earnings of breadwinners who have below-average schooling saw a drop in their incomes.

In recent research with Brookings colleagues, I tracked the real incomes of families headed by aged and nonaged Americans. In the 34 years ending in 2012, the median real income of working-age families climbed a little more than 2 percent (in other words, by less than one-tenth of a percentage point per year). The median real income of families headed by someone past 62 increased a little more than 40 percent. The numbers suggest our retirement system is doing a decent job improving the living standards of the aged. Unfortunately, the labor market is doing a much worse job boosting the living standards of middle-class wage earners.

Critics of the retirement system might worry that it succeeds in protecting the incomes of the middle class elderly but fails to protect the incomes of the poor -- a concern not supported by the evidence. Income inequality has gone up among the elderly as it has among the nonelderly. But older low-income Americans have fared much better than low-income working-age adults. In the late 1950s, by far the highest poverty rate of any age group was that for people over 65. Even in the late 1980s, the elderly had a higher poverty rate than adults between 18-64. Since the middle of the last decade, however, the elderly have had the lowest poverty rate of any age group.

People who warn us of a retirement "crisis" are nonetheless correct in pointing to sizeable holes in the current system. Too few companies, especially small ones, offer their workers a retirement plan. According to recent government estimates, only about half of workers in companies with fewer than 100 employees are offered a retirement plan. Offer rates are higher in bigger companies and in government agencies, but about 30 percent of all employees are not offered any pension or retirement savings plan where they work. When retirement plans are offered, however, workers are very likely to participate in them -- even if they must make a voluntary contribution out of their pretax wages.

What is crucial for a retirement savings plan's success is automatic payroll withholding. Dollars that are withheld from workers' paychecks are harder for workers to spend on something other than retirement savings. A crucial improvement in our current system would be to require all employers to establish automatic payroll withholding for voluntary retirement savings in an IRA (individual retirement account). Companies that already offer a qualified pension or retirement savings plan should be exempt from any extra obligation.

The harshest critics of the current retirement system would go much further than this. Many want to bring back traditional retirement plans that guaranteed workers a specific monthly pension linked to their job tenure, final pay, and age at retirement. The advantages of such a plan for workers are that their employer is typically responsible for funding the plan and for ensuring that pensions are paid, regardless of the ups and downs of financial markets. A big disadvantage is that the promised benefits are not worth much if the worker's career with a company is cut short, either because of a layoff or quitting.

People who are nostalgic for old-fashioned pensions may be right that workers would prefer to be covered by such a plan, despite their disadvantages for short-tenure workers. I'm less persuaded that traditional pensions offer better protection to typical workers than modern 401(k)-type plans. Regardless of the pros and cons of the two kinds of plan, it is wildly unrealistic to think small employers or new employers will want to take on the risks and administrative burdens connected with an old-fashioned pension plan.

All U.S. workers are covered by a traditional, defined-benefit pension: it's called Social Security. It has worked well over the past four decades in protecting and even lifting the incomes of the retired elderly. It may not work as well in the future if benefits are cut substantially to keep the program solvent. Boosting workplace retirement savings is a sensible way to insure future retirees will have adequate incomes, even if Social Security benefits have to be trimmed. An essential first step to boosting savings is to require companies to put a retirement savings plan in every workplace.

Editor's note: This piece originally appeared in Real Clear Markets.

Ahead of Tuesday’s primary elections in Ohio, Florida and other states, the 2016 presidential candidates have been talking about the future of Social Security and its funding shortfalls.

Over the next two decades, the money flowing into Social Security will be too little to pay for all promised benefits. The reserve fund will be exhausted soon after 2030, and the only money available to pay for benefits will be from taxes earmarked for the program. Unless Congress and the President change the law before the reserve is depleted, monthly benefits will have to be cut about 21%.

Needless to say, office holders, who must face voters, are unlikely to allow such a cut. Before the Trust Fund is depleted, lawmakers will agree to some combination of revenue increase and future benefit reduction, eliminating the need for a sudden 21% pension cut. The question is: what combination of revenue increases and benefit cuts does each candidate favor?

The candidate offering the most straightforward but least credible answer is Donald Trump. During the GOP presidential debate last week, he pledged to do everything within his power to leave Social Security “the way it is.” He says he can do this by making the nation rich again, by eliminating budget deficits, and by ridding government programs of waste, fraud, and abuse. In other words, he proposed to do nothing specifically to improve Social Security’s finances. Should Trump’s deal-making fail to make us rich again, he offered no back-up plan for funding benefits after 2034.

The other three GOP candidates proposed to repair Social Security by cutting future pensions. No one in the debate, except U.S. Sen. Marco Rubio from Florida, mentioned a specific way to accomplish this. Rubio’s plan is to raise the age for full retirement benefits. For many years, the full retirement age was 65. In a reform passed in 1983, the retirement age was gradually raised to 66 for people nearing retirement today and to 67 for people born after 1960. Rubio proposes to raise the retirement age to 68 for people who are now in their mid-40s and to 70 for workers who are his children’s age (all currently under 18 years old).

In his campaign literature, Rubio also proposes slowing the future rate of increase in monthly pensions for high-income seniors. However, by increasing the full retirement age, Rubio’s plan will cut monthly pensions for any worker who claims benefits at 62 years old. This is the earliest age at which workers can claim a reduced pension. Also, it is by far the most common age at which low-income seniors claim benefits. Recent research suggests that low-income workers have not shared the gains in life expectancy enjoyed by middle- and especially high-income workers, so Rubio’s proposed cut could seriously harm many low-income workers.

Though he didn’t advertise it in the debate, Sen. Ted Cruz favors raising the normal retirement age and trimming the annual cost-of-living adjustment in Social Security. In the long run, the latter reform will disproportionately cut the monthly pensions of the longest-living seniors. Many people, including me, think this is a questionable plan, because the oldest retirees are also the most likely to have used up their non-Social-Security savings. Finally, Cruz favors allowing workers to fund personal-account pensions with part of their Social Security contributions. Although the details of his plan are murky, if it is designed like earlier GOP privatization plans, it will have the effect of depriving Social Security of needed future revenues, making the funding gap even bigger than it is today.

The most revolutionary part of Cruz’s plan is his proposal to eliminate the payroll tax. For many decades, this has been the main source of Social Security revenue. Presumably, Cruz plans to fund pensions out of revenue from his proposed 10% flat tax and 16% value-added tax (VAT). This would represent a revolutionary change because up to now, Social Security has been largely financed out of its own dedicated revenue stream. By eliminating the independent funding stream, Cruz will sever the perceived link between workers’ contributions and the benefits they ultimately receive. Most observers agree with Franklin Roosevelt that the strong link between contributions and benefits is a vital source of the enduring popularity of the program. Social Security is an earned benefit for retirees rather than a welfare check.

Gov. John Kasich does not propose to boost the retirement age, but he does suggest slowing the growth in future pensions by linking workers’ initial pensions to price changes instead of wage changes. He hints he will impose a means test in calculating pensions, reducing the monthly pensions payable to retirees who have high current incomes. Many students of Social Security think this a bad idea, because it can discourage workers from saving for retirement.

All of the Republican candidates, except Trump, think Social Security’s salvation lies in lower benefit payouts. Nobody mentions higher contributions as part of the solution. In contrast, both Democratic candidates propose raising payroll or other taxes on workers who have incomes above the maximum earnings now subject to Social Security contributions. This reform enjoys broad support among voters, most of whom do not expect to pay higher taxes if the income limit on contributions is lifted. Sen. Bernie Sanders would immediately spend some of the extra revenue on benefit increases for current beneficiaries, but his proposed tax hike on high-income contributors would raise enough money to postpone the year of Trust Fund depletion by about 40 years. Hillary Clinton is less specific about the tax increases and benefit improvements she favors. Like Sanders, however, she would vigorously oppose benefit cuts.

None of the candidates has given us a detailed plan to eliminate Social Security’s funding imbalance. At this stage, it’s not obvious such a plan would be helpful, since the legislative debate to overhaul Social Security won’t begin anytime soon. Sanders has provided the most details about his policy intentions, but his actual plan is unlikely to receive much Congressional support without a massive political realignment. Cruz’s proposal, which calls for eliminating the Social Security payroll tax, also seems far outside the range of the politically feasible.

What we have learned from the GOP presidential debates so far is that Republican candidates, with the exception of Trump, favor balancing Social Security through future benefit cuts, possibly targeted on higher income workers, while Democratic candidates want to protect current benefit promises and will do so with tax hikes on high-income workers. There is no overlap in the two parties’ proposals, and this accounts for Washington’s failure to close Social Security’s funding gap.

Editor’s note: This piece originally appeared in Fortune.

The long-term finances of Social Security are in bad shape. Its reserves are expected to run out in less than 20 years, and under current law that will force cuts in benefits.

Some experts argue that the best way to get the system’s finances back in shape would be to raise the full retirement age above the scheduled 67. That would bolster the program’s finances in two ways. First, by increasing payroll tax revenues, because people would work longer. And second, by reducing the period each American would collect benefits.

That approach might seem fair, since on average Americans are living longer. Life expectancy is more than 15 years higher than when Social Security began in 1937.

But we are not all average. Lower-income Americans have not seen much increase in life expectancy, while more affluent people have. Thus raising the retirement age would cut total lifetime benefits proportionately more for those on the bottom rungs of the income ladder.

But let’s think differently about Social Security. Right now, monthly checks are linked to a person’s earnings during their working years. So, better-paid workers get bigger checks. True, lower-paid workers pay much less in Social Security payroll taxes and usually get back much more than they paid in taxes – even counting in interest on their tax contributions. Upper-income workers typically get back a lot less than they paid in, despite larger checks.

But low-wage workers still get smaller Social Security checks to try to meet their monthly needs in retirement. Many end up falling below the poverty line and have to apply for means-tested assistance from Supplementary Security Income (SSI), another part of the Social Security system.

What if we were to recast regular Social Security as true insurance? Insurance is something that pays out only when things go wrong. If you don’t have a car crash, or your house doesn’t burn down, you don’t get your premiums back later in life. What you do get is protection and peace of mind.

So imagine Social Security as insurance protection against being financially insecure in retirement. If it were that, it would be very different from today.

For one thing, we would want the lowest-income retirees to get the largest regular check – assuming they had dutifully paid their payroll tax “premiums” when working – and also enough to keep them comfortably out of poverty without having to rely on SSI. Some retirees with a modest income from, say, an IRA, might still need a small Social Security “insurance payout” to maintain a reasonable standard of living.

In a true insurance model like this, retired Americans with healthy income from assets would get no Social Security check at all, rather than getting the largest checks as they do today. If Social Security is seen as insurance against financial insecurity then Warren Buffet clearly doesn’t need a check. Nor do other older Americans for whom a monthly Social Security check is just a little bit more icing on an already rich cake.

If we reformed Social Security to make it more like real insurance, we’d need to do it gradually so people could plan, with the changes only fully affecting workers who are perhaps in their early 40s today. There would be a significantly higher basic benefit check for the least well-off. For retired singles with retiree income over, say, $25,000 in today’s dollars, the check would be reduced according to income until for a retiree with, say, $100,000 in other income there would be no check at all.

With this reform, regular Social Security would more efficiently protect the elderly against economic insecurity and from poverty without the stigma of applying for SSI “welfare.” And it would help put the program on a more secure footing. To be sure, some would say it’s not fair that many Americans would pay Social Security taxes and get nothing in return. But that misses the point that Social Security should be insurance. And what’s really not fair is that many today pay high payroll taxes for a check that doesn’t keep them out of poverty.

Some other critics might argue that without checks for all, the coalition needed to preserve Social Security would unravel. I doubt that very much. Social Security has an iconic status in America and there is no public support for ending it.

So let’s not allow Social Security’s deteriorating finances to make it a steadily worse deal for those who need it most. It’s time instead to look at a reform that refocuses its mission on insuring financial security for seniors.

Editor's note: This piece originally appeared in Real Clear Markets.

Recently, Brookings has posted two articles commenting on proposals to raise the full retirement age for Social Security retirement benefits from 67 to 70. One revealed a fundamental misunderstanding of how the program actually works and what the effects of the policy change would be. The other proposes changes to the system that would subvert the fundamental purpose of the Social Security in the name of ‘reforming’ it.

A number of Republican presidential candidates and others have proposed raising the full retirement age. In a recent blog, Robert Shapiro, a Democrat, opposed this move, a position I applaud. But he did so based on alleged effects the proposal would in fact not have, and misunderstanding about how the program actually works. In another blog, Stuart Butler, a conservative, noted correctly that increasing the full benefit age would ‘bolster the system’s finances,’ but misunderstood this proposal’s effects. He proposed instead to end Social Security as a universal pension based on past earnings and to replace it with income-related welfare for the elderly and disabled (which he calls insurance).

Let’s start with the misunderstandings common to both authors and to many others. Each writes as if raising the ‘full retirement age’ from 67 to 70 would fall more heavily on those with comparatively low incomes and short life expectancies. In fact, raising the ‘full retirement age’ would cut Social Security Old-Age Insurance benefits by the same proportion for rich and poor alike, and for people whose life expectancies are long or short. To see why, one needs to understand how Social Security works and what ‘raising the full retirement age’ means.

People may claim Social Security retirement benefits starting at age 62. If they wait, they get larger benefits—about 6-8 percent more for each year they delay claiming up to age 70. Those who don’t claim their benefits until age 70 qualify for benefits -- 77 percent higher than those with the same earnings history who claim at age 62. The increments approximately compensate the average person for waiting, so that the lifetime value of benefits is independent of the age at which they claim. Mechanically, the computation pivots on the benefit payable at the ‘full retirement age,’ now age 66, but set to increase to age 67 under current law. Raising the full retirement age still more, from 67 to 70, would mean that people age 70 would get the same benefit payable under current law at age 67. That is a benefit cut of 24 percent. Because the annual percentage adjustment for waiting to claim would be unchanged, people who claim benefits at any age, down to age 62, would also receive benefits reduced by 24 percent.

In plain English, ‘raising the full benefit age from 67 to 70' is simply a 24 percent across-the-board cut in benefits for all new claimants, whatever their incomes and whatever their life-expectancies.

Thus, Robert Shapiro mistakenly writes that boosting the full-benefit age would ‘effectively nullify Social Security for millions of Americans’ with comparatively low life expectancies. It wouldn’t. Anyone who wanted to claim benefits at age 62 still could. Their benefits would be reduced. But so would benefits of people who retire at older ages.

Equally mistaken is Stuart Butler’s comment that increasing the full-benefit age from 67 to 70 would ‘cut total lifetime retirement benefits proportionately more for those on the bottom rungs of the income ladder.’ It wouldn’t. The cut would be proportionately the same for everyone, regardless of past earnings or life expectancy.

Both Shapiro and Butler, along with many others including my other colleagues Barry Bosworth and Gary Burtless, have noted correctly that life expectancies of high earners have risen considerably, while those of low earners have risen little or not at all. As a result, the lifetime value of Social Security Old-Age Insurance benefits has grown more for high- than for low-earners. That development has been at least partly offset by trends in Social Security Disability Insurance, which goes disproportionately to those with comparatively low earnings and life expectancies and which has been growing far faster than Old-Age Insurance, the largest component of Social Security.

But even if the lifetime value of all Social Security benefits has risen faster for high earners than for low earners, an across the board cut in benefits does nothing to offset that trend. In the name of lowering overall Social Security spending, it would cut benefits by the same proportion for those whose life expectancies have risen not at all because the life expectancy of others has risen. Such ‘evenhandeness’ calls to mind Anatole France’s comment that French law ‘in its majestic equality, ...forbids rich and poor alike to sleep under bridges, beg in streets, or steal loaves of bread.’

Faulty analyses, such as those of Shapiro and Butler, cannot conceal a genuine challenge to policy makers. Social Security does face a projected, long-term funding shortfall. Trends in life expectancies may well have made the system less progressive overall than it was in the past. What should be done?

For starters, one needs to recognize that for those in successive age cohorts who retire at any given age, rising life expectancy does not lower, but rather increases their need for Social Security retirement benefits because whatever personal savings they may have accumulated gets stretched more thinly to cover more retirement years.

For those who remain healthy, the best response to rising longevity may be to retire later. Later retirement means more time to save and fewer years to depend on savings. Here is where the wrong-headedness of Butler’s proposal, to phase down benefits for those with current incomes of $25,000 or more and eliminate them for those with incomes over $100,000, becomes apparent. The only source of income for full retirees is personal savings and, to an ever diminishing degree, employer-financed pensions. Converting Social Security from a program whose benefits are based on past earnings to one that is based on current income from savings would impose a tax-like penalty on such savings, just as would a direct tax on those savings. Conservatives and liberals alike should understand that taxing something is not the way to encourage it.

Still, working longer by definition lowers retirement income needs. That is why some analysts have proposed raising the age at which retirement benefits may first be claimed from age 62 to some later age. But this proposal, like across-the-board benefit cuts, falls alike on those who can work longer without undue hardship and on those in physically demanding jobs they can no longer perform, those whose abilities are reduced, and those who have low life expectancies. This group includes not only blue-collar workers, but also many white-collar employees, as indicated by a recent study of the Boston College Retirement Center. If entitlement to Social Security retirement benefits is delayed, it is incumbent on policymakers to link that change to other ‘backstop’ policies that protect those for whom continued work poses a serious burden. It is also incumbent on private employers to design ways to make workplaces friendlier to an aging workforce.

The challenge of adjusting Social Security in the face of unevenly distributed increases in longevity, growing income inequality, and the prospective shortfall in Social Security financing is real. The issues are difficult. But solutions are unlikely to emerge from confusion about the way Social Security operates and the actual effects of proposed changes to the program. And it will not be advanced by proposals that would bring to Social Security the failed Vietnam War strategy of destroying a village in order to save it.

Editor’s note: The remarks below were delivered to the Committee for a Responsible Federal Budget on release of their report on the SSDI Solutions Initiative. 

I want to thank Marc Goldwein for inviting me to join you for today’s event. We all owe thanks to Jim McCrery and Earl Pomeroy for devoting themselves to the SSDI Solutions Initiative, to the staff of CFRB who backed them up, and most of all to the scholars and practitioners who wrote the many papers that comprise this effort. This is the sort of practical, problem-solving enterprise that this town needs more of. So, to all involved in this effort, ‘hats off’ and ‘please, don’t stop now.’

The challenge of improving how public policy helps people with disabilities seemed urgent last year. Depletion of the Social Security Disability Insurance trust loomed. Fears of exploding DI benefit rolls were widespread and intense.

Congress has now taken steps that delay projected depletion until 2022. Meticulous work by Jeffrey Liebman suggests that Disability Insurance rolls have peaked and will start falling. The Technical Panel appointed by the Social Security Advisory Board, concurred in its 2015 report. With such ‘good’ news, it is all too easy to let attention drift to other seemingly more pressing items.

But trust fund depletion and growing beneficiary rolls are not the most important reasons why policymakers should be focusing on these programs.

The primary reason is that the design and administration of disability programs can be improved with benefit to taxpayers and to people with disabilities alike. And while 2022 seems a long time off, doing the research called for in the SSDI Solutions Initiative will take all of that time and more. So, it is time to get to work, not to relax.

Before going any further, I must make a disclaimer. I was invited to talk here as chair of the Social Security Advisory Board. Everything I am going to say from now on will reflect only my personal views, not those of the other members or staff of the SSAB except where the Board has spoken as a group. The same disclaimer applies to the trustees, officers, and other staff of the Brookings Institution. Blame me, not them.

Let me start with an analogy. We economists like indices. Years ago, the late Arthur Okun came up with an index to measure how much pain the economy was inflicting on people. It was a simple index, just the sum of inflation and the unemployment rate. Okun called it the ‘misery index.’

I suggest a ‘policy misery index’—a measure of the grief that a policy problem causes us. It is the sum of a problem’s importance and difficulty. Never mind that neither ‘importance’ nor ‘difficulty’ is quantifiable. Designing and administering interventions intended to improve the lives of people with disabilities has to be at or near the top of the policy misery index.

Those who have worked on disability know what I mean. Programs for people with disabilities are hugely important and miserably hard to design and administer well. That would be true even if legislators were writing afresh on a blank legislative sheet. That they must cope with a deeply entrenched program about which analysts disagree and on which many people depend makes the problems many times more challenging.

I’m going to run through some of the reasons why designing and administering benefits for people determined to be disabled is so difficult. Some may be obvious, even banal, to the highly informed group here today. And you will doubtless think of reasons I omit.

First, the concept of disability, in the sense of a diminished capacity to work, has no clear meaning, the SSA definition of disability notwithstanding. We can define impairments. Some are so severe that work or, indeed, any other form of self-support seems impossible. But even among those with severe impairments, some people work for pay, and some don’t.

That doesn’t mean that if someone with a given impairment works, everyone with that same impairment could work if they tried hard enough. It means that physical or mental impairments incompletely identify those for whom work is not a reasonable expectation. The possibility of work depends on the availability of jobs, of services to support work effort, and of a host of personal characteristics, including functional capacities, intelligence, and grit.

That is not how the current disability determination process works. It considers the availability of jobs in the national, not the local, economy. It ignores the availability of work supports or accommodations by potential employers.

Whatever eligibility criteria one may establish for benefits, some people who really can’t work, or can’t earn enough to support themselves, will be denied benefits. And some will be awarded benefits who could work.

Good program design helps keep those numbers down. Good administration helps at least as much as, and maybe more than, program design. But there is no way to reduce the number of improper awards and improper denials to zero.

Second, the causes of disability are many and varied. Again, this observation is obvious, almost banal. Genetic inheritance, accidents and injuries, wear and tear from hard physical labor, and normal aging all create different needs for assistance.

These facts mean that people deemed unable to work have different needs. They constitute distinct interest groups, each seeking support, but not necessarily of the same kind. These groups sometimes compete with each other for always-limited resources. And that competition means that the politics of disability benefits are, shall we say, interesting.

Third, the design of programs to help people deemed unable to work is important and difficult. Moral hazard is endemic. Providing needed support and services is an act of compassion and decency. The goal is to provide such support and services while preserving incentives to work and to controlling costs borne by taxpayers.

But preserving work incentives is only part of the challenge. The capacity to work is continuous, not binary. Training and a wide and diverse range of services can help people perform activities of daily living and work.

Because resources are scarce, policy makers and administrators have to sort out who should get those services. Should it be those who are neediest? Those who are most likely to recover full capacities? Triage is inescapable. It is technically difficult. And it is always ethically fraught.

Designing disability benefit programs is hard. But administering them well is just as important and at least as difficult.

These statements may also be obvious to those who here today. But recent legislation and administrative appropriations raise doubts about whether they are obvious to or accepted by some members of Congress.

Let’s start with program design. We can all agree, I think, that incentives matter. If benefits ceased at the first dollar earned, few who come on the rolls would ever try to work.

So, Congress, for many years, has allowed beneficiaries to earn any amount for a brief period and small amounts indefinitely without losing eligibility. Under current law, there is a benefit cliff. If—after a trial work period—beneficiaries earn even $1 more than what is called substantial gainful activity, $1,130 in 2016, their benefit checks stop. They retain eligibility for health coverage for a while even after they leave the rolls. And for an extended period they may regain cash and health benefits without delay if their earnings decline.

Members of Congress have long been interested in whether a more gradual phase-out of benefits as earnings rise might encourage work. Various aspects of the current Disability Insurance program reflect Congress’s desire to encourage work.

The so-called Benefit Offset National Demonstration—or BOND—was designed to test the impact on labor supply by DI beneficiaries of one formula—replacing the “cliff” with a gradual reduction in benefits: $1 of benefit last for each $2 of earnings above the Substantial Gainful Activity level.

Alas, there were problems with that demonstration. It tested only one offset scenario – one starting point and one rate. So, there could be no way of knowing whether a 2-for-1 offset was the best way to encourage work.

And then there was the uncomfortable fact that, at the time of the last evaluation, out of 79,440 study participants only 21 experienced the offset. So there was no way of telling much of anything, other than that few people had worked enough to experience the offset.

Nor was the cause of non-response obvious. It is not clear how many demonstration participants even understood what was on offer.

Unsurprisingly, members of Congress interested in promoting work among DI recipients asked SSA to revisit the issue. The 2015 DI legislation mandates a new demonstration, christened the Promoting Opportunity Demonstration, or POD. POD uses the same 2 for 1 offset rate that BOND did, but the offset starts at an earnings level at or below earnings of $810 a month in 2016—which is well below the earnings at which the BOND phase-out began.

Unfortunately, as Kathleen Romig has pointed out in an excellent paper for the Center on Budget and Policy Priorities, this demonstration is unlikely to yield useful results. Only a very few atypical DI beneficiaries are likely to find it in their interest to participate in the demonstration, fewer even than in the BOND. That is because the POD offset begins at lower earnings than the BOND offset did. In addition, participants in POD sacrifice the right under current law that permits people receiving disability benefits to earn any amount for 9 months of working without losing any benefits.

Furthermore, the 2015 law stipulated that no Disability Insurance beneficiary could be required to participate in the demonstration or, having agreed to participate, forced to remain in the demonstration. Thus, few people are likely to respond to the POD or to remain in it.

There is a small group to whom POD will be very attractive—those few DI recipients who retain a lot of earning capacity. The POD will allow them to retain DI coverage until their earnings are quite high. For example, a person receiving a $2,000 monthly benefit—well above the average, to be sure, but well below the maximum—would remain eligible for some benefits until his or her annual earnings exceeded $57,700. I don’t know about you, but I doubt that Congress would favorably consider permanent law of this sort.

Not only would those participating be a thin and quite unrepresentative sample of DI beneficiaries in general, or even of those with some earning capacity, but selection bias resulting from the opportunity to opt out at any time would destroy the external validity of any statistical results.

Let me be clear. My comments on POD, the demonstration mandated in the 2015 legislation, are not meant to denigrate the need for, or the importance of, research on how to encourage work by DI recipients, especially those for whom financial independence is plausible. On the contrary, as I said at the outset, research is desperately needed on this issue, as well as many others. It is not yet too late to authorize a research design with a better chance of producing useful results.

But it will be too late soon. Fielding demonstrations takes time:

• to solicit bids from contractors,
• for contractors to formulate bids,
• for government boards to select the best one,
• for contractors to enroll participants,
• for contractors to administer the demonstration,
• and for analysts to process the data generated by the demonstrations.

That process will take all the time available between now and 2021 or 2022 when the DI trust fund will again demand attention. It will take a good deal more time than that to address the formidable and intriguing research agenda of SSDI Solutions Initiative.

I should like to conclude with plugs for two initiatives to which the Social Security Advisory Board has been giving some attention.

It takes too long for disability insurance applicants to have their cases decided. Perhaps the whole determination process should be redesigned. One of the CFRB papers proposes just that. But until that happens, it is vital to shorten the unconscionable delays separating initial denials and reconsideration from hearings before administrative law judges to which applicants are legally entitled. Procedural reforms in the hearing process might help. More ALJs surely will.

The 2015 budget act requires the Office of Personnel Management to take steps that will help increase the number of ALJs hired. I believe that the new director, Beth Colbert, is committed to reforms. But it is very hard to change legal interpretations that have hampered hiring for years and the sluggish bureaucratic culture that fostered them.

So, the jury is out on whether OPM can deliver. In a recent op-ed in Politico, Lanhee Chen, a Republican member of the SSAB, and I jointly endorsed urged Congress to be ready, if OPM fails to deliver on more and better lists of ALJ candidates and streamlined procedures for their appointment, to move the ALJ examination authority to another federal organization, such as the Administrative Conference of the United States.

Lastly, there is a facet of income support policy that we on the SSAB all agree merits much more attention than it has received. Just last month, the SSAB released a paper entitled Representative Payees: A Call to Action. More than eight million beneficiaries have been deemed incapable of managing $77 billion in benefits that the Social Security Administration provided them in 2014.

We believe that serious concern is warranted about all aspects of the representative payee program—how this infringement of personal autonomy is found to be necessary, how payees are selected, and how payee performance is monitored.

Management of representative payees is a particular challenge for the Social Security Administration. Its primary job is to pay cash benefits in the right amount to the right person at the right time. SSA does that job at rock-bottom costs and with remarkable accuracy. It is handing rapidly rising workloads with budgets that have barely risen. SSA is neither designed nor staffed to provide social services. Yet determining the need for, selecting, and monitoring representative payees is a social service function.

As the Baby Boom ages, the number of people needing help in administering cash benefits from the Social Security Administration—and from other agencies such as the Veterans Administration—will grow. So will the number needing help in making informed choices under Medicare and Medicaid.

The SSAB is determined to look into this challenge and to make constructive suggestions. We are just beginning and invite others to join in studying what I have called “the most important problem the public has never heard of.”

Living with disabilities today is markedly different from what it was in 1956 when the Disability Insurance program began. Yet, the DI program has changed little. Beneficiaries and taxpayers are pay heavily the failure of public policy to apply what has been learned over the past six decades about health, disability, function, and work.

I hope that SSA and Congress will use well the time until it next must legislate on Disability Insurance. The DI rolls are stabilizing. The economy has grown steadily since the Great Recession. Congress has reinstated demonstration authority. With adequate funding for research and testing, the SSA can rebuild its research capability. Along with the external research community, it can identify what works and help Congress improve the DI program for beneficiaries and taxpayers alike. The SSDI Solutions Initiative is a fine roadmap.

The past few months have seen a flurry of reports on discouraging trends in life expectancy among some of the nation’s struggling populations. Different researchers have emphasized different groups and have tracked longevity trends over different time spans, but all have documented conspicuous differences between trends among more advantaged Americans compared with those in worse circumstances.

In a study published in April, Stanford economist Raj Chetty and his coauthors documented a striking rise in mortality rate differences between rich and poor. From 2001 to 2014, Americans who had incomes in the top 5 percent of the income distribution saw their life expectancy climb about 3 years. During the same 14-year span, people in the bottom 5 percent of the income distribution saw virtually no improvement at all.

Using different sources of information about family income and mortality, my colleagues and I found similar trends in mortality when Americans were ranked by their Social-Security-covered earnings in the middle of their careers. Over the three decades covered by our data, we found sizeable differences between the life expectancy gains enjoyed by high- and low-income Americans. For 50-year old women in the top one-tenth of the income distribution, we found that women born in 1940 could expect to live almost 6.5 years longer than women in the same position in the income distribution who were born in 1920. For 50-year old women in the bottom one-tenth of the income distribution, we found no improvement at all in life expectancy. Longevity trends among low-income men were more encouraging: Men at the bottom saw a small improvement in their life expectancy. Still, the life-expectancy gap between low-income and high-income men increased just as fast as it did between low- and high-income women.

One reason these studies should interest voters and policymakers is that they shed light on the fairness of programs that protect Americans’ living standards in old age. The new studies as well as some earlier ones show that mortality trends have tilted the returns that rich and poor contributors to Social Security can expect to obtain from their payroll tax contributions.

If life expectancy were the same for rich and poor contributors, the lifetime benefits workers could expect to receive from their contributions would depend solely on the formula that determines a worker’s monthly pensions. Social Security’s monthly benefit formula has always been heavily tilted in favor of low-wage contributors. They receive monthly checks that are a high percentage of the monthly wages they earn during their careers. In contrast, workers who earn well above-average wages collect monthly pensions that are a much lower percentage of their average career earnings.

The latest research findings suggest that growing mortality differences between rich and poor are partly or fully offsetting the redistributive tilt in Social Security’s benefit formula. Even though poorer workers still receive monthly pension checks that are a high percentage of their average career earnings, they can expect to receive benefits for a shorter period after they claim pensions compared with workers who earn higher wages. Because the gap between the life spans of rich and poor workers is increasing, affluent workers now enjoy a bigger advantage in the number of months they collect Social Security retirement benefits. This fact alone is enough to justify headlines about the growing life expectancy gap between rich and poor

There is another reason to pay attention to the longevity trends. The past 35 years have provided ample evidence the income gap between America’s rich and poor has widened. To be sure, some of the most widely cited income series overstate the extent of widening and understate the improvement in income received by middle- and low-income families. Nonetheless, the most reliable statistics show that families at the top have enjoyed faster income gains than the gains enjoyed by families in the middle and at the bottom. Income disparities have gone up fastest among working-age people who depend on wages to pay their families’ bills. Retirees have been better protected against the income and wealth losses that have hurt the living standards of less educated workers. The recent finding that life expectancy among low-income Americans has failed to improve is a compelling reason to believe the trend toward wider inequality is having profound impacts on the distribution of well-being in addition to its direct effect on family income.

Over the past century, we have become accustomed to seeing successive generations live longer than the generations that preceded them. This is not true every year, of course, nor is it always clear why the improvements in life expectancy have occurred. Still, it is reasonable to think that long-run improvements in average life spans have been linked to improvements in our income. With more money, we can afford more costly medical care, healthier diets, and better public health. Even Americans at the bottom of the income ladder have participated in these gains, as public health measures and broader access to health insurance permit them to benefit from improvements in knowledge. For the past three decades, however, improvements in average life spans at the bottom of the income distribution have been negligible. This finding suggests it is not just income that has grown starkly more unequal.

Editor's note: This piece originally appeared in Real Clear Markets.

Rumor has it that an economist started hitting the gym after finishing two milestone research papers, in expectation of a Nobel Prize, which is only rewarded to a living person. Almost no one denies that greater expectations translate into healthier behaviors, while the converse rarely enters the health policy discussion: expectations of a less-than-desirable future may lead to unhealthy behaviors, including smoking, excessive drinking, sedentary lifestyles, and drug abuse. The health issues of the deprived may have a deeper root in economics.

Professor Zhu Xi from Shanghai Jiao Tong University and I found evidence of this in our working paper “Affordable Care Encourages Healthy Living: Theory and Evidence from China's New Cooperative Medical Scheme”. Standard economic theory predicts that providing medical insurance encourages unhealthy behavior by mitigating economic consequences. We developed a novel theoretical framework in which the opposite is possible because insurance makes longevity more affordable and thus desirable.

We test the theory utilizing a unique experiment of China introducing the New Cooperative Medical Scheme, unique in its long-term credibility necessary for their proposed channel. This scheme reduces cigarette use by around 9% and bolsters subjective perception of the importance of physical exercise and healthy diet. These effects depend significantly on the number of children and the local culture of elderly care. We can rule out alternative explanations of these robust results. The empirical evidence affirms a causal link between concerns about negative bequest and unhealthy behavior, and how to break it.

Breaking the causal link would not be an easy task, because bringing a brighter future to the deprived would not be. But this does not revoke the necessity of considering this “expectation” mechanism in designing health policies. For example, it is trendy to study how smokers may substitute other tobacco products for cigarettes and the ensuing health consequences. According to our analytical framework, the substitution could be broader, that is, a person expecting a miserable future would consciously or unconsciously resort to other means of shortening life. Case and Deaton, in their sensational paper, pinned down drug and alcohol poisonings, suicide, and chronic liver diseases and cirrhosis as the causes of the rising mortality in midlife among white Americans. The war against tobacco use may be complicated by this potential substitution.

In general, recognizing the source of a problem is the first step in solving it. The association between income and life expectancy in the United States is well identified by a Brookings study by Bosworth and Burke and a paper by Chetty et al. The hypothesis that poverty may rationally trigger unhealthy behaviors and thus shorter life expectancy is under-explored.

Our research suggests that constructing a social safety net – by subsidizing health or old-age insurance, for example – brightens the future and thus promotes healthy living. Libertarians who believe in “from each as they choose, to each as they are chosen” may frown upon the idea of expanding the government for the sake of saving people from their own poor choices. As usual, an argument could be made that the positive externality outweighs the cost. In this case, a better social safety net can make a person more forward-looking and thus more beneficial to the society.

Discovering hidden incentives and mechanisms is one of the primal tasks of economists. Our research suggests, surprisingly, that both the Center of Disease Control and Prevention and the Department of the Treasury are important players in promoting healthy living. Let them be.

No. We should exempt workers earning the lowest wages.

Social Security faces a serious funding problem. The program takes in too little money to pay all that has been promised to future beneficiaries. Government forecasters predict Social Security’s reserve fund will be depleted between 2030 and 2034. There are two basic ways we can eliminate the funding gap: cut benefits or increase contributions. A common proposal is to increase the age at which workers can claim full retirement benefits. For people nearing retirement today, the full retirement age is 66. As a result of a 1983 law, that age will rise to 67 for workers born after 1959.

When policymakers urge us to raise the retirement age, they are proposing to increase the full retirement age beyond 67, possibly to 70, for workers now in their 30s or 40s. This saves money, but it also cuts monthly retirement benefits by the same percentage for every worker, unless workers delay claiming benefits. The policy might seem fair if workers in future generations could all expect to share in gains in life expectancy. However, new research shows that gains in life expectancy have been very unequal, with the biggest improvements among workers who earn top incomes. Life expectancy gains for workers with the lowest incomes have been small or negligible.

If the full retirement age were raised, future retirees with high lifetime earnings can expect to receive some compensation when their monthly benefits are cut. Because they can expect to live longer than today’s retirees, they will receive benefits for a longer span of years after 65. For low-wage workers, there is no compensation. Since they are not living longer, their lifetime benefits will fall by the same proportion as their monthly benefits. Thus, “raising the retirement age” is a policy that cuts the lifetime benefits of future low-wage workers by a bigger percentage than it does of future high-wage workers.

The fact that low-wage workers have seen small or negligible gains in life expectancy signals that their health when they are past 60 is no better than that of low-wage workers born 20 or 30 years ago. This suggests their capacity to work past 60 is no better than it was for past generations. A sensible policy for cutting future benefits should therefore preserve current benefit levels for workers who have contributed to Social Security for many years but have earned low wages.

Editor's note: This piece originally appeared in CQ Researcher.