Argument for Higher Social Security Benefits Shows Shifting Politics - Concern Over Income Inequality, Baby Boomer Finances Changes the Discussion

Gerald Seib writes in The Wall Street Journal:

Elizabeth Warren is telling us something important: The politics surrounding Social Security are shifting.

The freshman senator from Massachusetts is turning at least a decade's worth of policy debate on its head by arguing that it is time not to trim Social Security benefits slightly to prevent the program from slipping into insolvency, but rather to do the opposite. She says it is time to increase the benefits the program pays out.

In fact, Ms. Warren isn't alone in making that argument. Fellow Democratic Sens. Tom Harkin of Iowa and Mark Begich of Alaska have been saying essentially the same thing. It's just that Ms. Warren, as the new rock star of a resurgent Democratic left, has given the argument a big boost of rocket fuel.

Don't hold your breath waiting for that benefit increase, however. That option remains a minority view, and the pushback against it has begun.

Indeed, a few days ago, the Committee for a Responsible Federal Budget, a nonpartisan organization whose leadership is chock-a-block full of mainstream budget thinkers, issued a long retort saying the argument for increasing benefits is "imprudent and irresponsible." The push, the committee said, ignores signs of trouble ahead for Social Security's finances that actually could force mandatory cuts in benefits down the road.

The real significance of the Warren-led argument is that it signals an important longer-term change in the political forces behind the debate on Social Security, and perhaps other entitlements as well. The rising focus on income inequality, reduced concern about federal deficits, the effect of the recession on baby-boomer finances and the aging of the Republican Party all are subtly shifting the ground beneath the discussion.

"There's something new that's out there," says Ross Eisenbrey, vice president of the liberal Economic Policy Institute.

Ms. Warren gave voice to this new phase when she took to the Senate floor recently with a speech calling head-on for higher Social Security benefits. "Seniors have worked their entire lives and have paid into the system, but right now, more people than ever are on the edge of financial disaster once they retire—and the numbers continue to get worse," she said. "That is why we should be talking about expanding Social Security benefits—not cutting them."

As that reference to retirees on the "edge of financial disaster" indicates, one force driving the argument is the fact that a lot of baby boomers saw their retirement cushions deflated by the financial shock of 2007 and 2008. Research by the Employee Benefit Research Institute shows that the share of workers saving for retirement has declined to 57% now from 64% in 2008—and that the share of workers who have more than $25,000 set aside has declined over the same period to 43% from 51%.

That slide in retirement preparation coincides with a resurgence of concern—to some extent in both parties—about income inequalities in the American economy. The argument that the wealthy have done fine in recovering from the financial shock while others have struggled helps ease the way for benefit-increase proponents to push for a boost in payroll taxes on upper-income Americans to finance higher Social Security benefits.

The relentless march of demographic change also may be shifting the terms of debate. For a while now, the large cadre of baby boomers approaching retirement was seen as a force for reining in Social Security's costs, because of these constituents' interest in ensuring that the program is solvent when they reach their golden years. Now that those boomers are in fact hitting the golden years, it's only natural that their view of benefits would change.

That is particularly true because the Republican Party, where sentiment has always been stronger for tough medicine on Social Security, is becoming grayer. In Wall Street Journal polling this year, 19% of Republicans are aged 65 and older, compared with 15% of Democrats.

Now, some budget-watchers worry these trends are creating a false sense of security about Social Security's condition.

The amount of money the government sends out in Social Security benefits now outstrips the amount of tax revenue brought into the program, and the gap will grow steadily wider in coming years. The Congressional Budget Office estimates that the money left in the Social Security trust fund will be exhausted in 2033.

So higher benefits would require higher payroll taxes. But the Committee for a Responsible Federal Budget argues that while modest tax increases may help preserve current benefits, raising them enough to finance higher benefits would be a politically and economically dicey proposition—and have the questionable effect of diverting resources toward the old from the young.

Expanding benefits under current conditions "makes no sense at all," says Maya MacGuineas, the committee's president.

And therein lies a whole new Social Security debate.