Social Security Upgrades for Retirement's Realities

Robin: We gotta get going because we’ve got hard stops and we know Kathryn’s gonna talk a lot about social security.

Kathryn: I don’t really like the implication that just because it’s the social security episode, I won’t be able to keep it tight.

INTRO & ANNOUNCEMENTS

Kathryn: Hello and welcome to Optimist Economy. I’m Kathryn Anne Edwards, Economist.

Robin: And I’m Robin Rauzi, editor.

Kathryn: On this show, we believe the US economy can be better, and we talk about how to get there one problem and solution at a time.

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Kathryn: Today on Optimist Economy, I get to talk about social security. What a day. Okay, other stuff first, quickly — announcements. I received via text a GIF of a large mascot, I think from Japan, with a money cannon shooting money out into the air. She said, “Heard my first ad on Optimist.” We are running cross-promos with PRX, the new distributor that we are working with, and part of the PRX family is that we trade cross-promos with each other. So it’s not ads. When we tell you that we’re funded by sponsorships, these are part of our new distribution family. To which my friend promptly replied, “So, in-kind ads. Not even the good kind.”

Robin: Exactly.

Kathryn: She’s an economist. She got it. Robin, any announcements from you?

Robin: I did want to say that we got some of our first donations through the Optimist Economy website, including a spiritual sponsor level donation from Gina from Hudson, New York. Thanks, Gina. We appreciate it. And you too can be a donor at optimisteconomy.com.

Kathryn: And we love it when you go there because no one charges us fees when you donate directly on our own website.

RETCON

Kathryn: We start our show off with Retcon.

Robin: Retcon — for retroactive continuity.

Kathryn: You know, sometimes it’s filling in the gaps for when we said something wrong and just want to correct it. And other times it’s really about using this space to clarify, extend the conversation, respond, discuss. Our feedback from listeners matters so much. Feedback from people on Instagram and TikTok matters slightly less. However, the housing episode was not well received on social media, and we had some of our hardcore listeners tell us that they thought this one was more of a miss.

Robin: I did wake up that morning to an email with the subject line: “You’re wrong about housing.” Subtle. Thank you.

Kathryn: Yes. So first thing. I doubt there is a listener among you who does not live in a place that has some type of explicit anti-density building policy — that has a height limit, that has a staircase or elevator restriction, that has single-family zoning restrictions, that requires parking lots for every space — something that prevents dense housing from being developed. And for a lot of people, this is a very palpable restriction they’ve seen. You walk through your neighborhood and they’re like, “This tower doesn’t belong here.” That absolutely restricts the construction of dense housing.

But that does not mean —

Robin: Particularly in cities.

Kathryn: — that we have an overall supply shortage or that it restricts the construction of housing overall. Whether you’re not allowed to build a certain tower in a city doesn’t mean that that is missing from the housing supply on net. It’s just missing that tower, and it could show up elsewhere. And so I think it was very hard for people to digest: the supply is less of an issue than you think. The leap from “we don’t have the density people want” to “that is why housing is not affordable” — that’s the jump.

Robin: That’s the disconnect. Yeah.

Kathryn: Yeah. So I did not mean to imply that there are no restrictions or that those restrictions don’t matter. It’s just not clear that those restrictions have led to the increase in prices that people are upset with. So that was part one.

The other thing I wanted to bring up is that after we recorded the episode, the Federal Reserve Bank of San Francisco came out with a new research paper that basically said what I was trying to say, but they did it better and with evidence. And they were shorter — if you can imagine that. They said that the key driver of housing affordability was growth in the high-income population. So it wasn’t about the number of people in the city. It was the dispersion of income within a city, and they really related it back to demand.

One of the ways that they tried to explain this was by comparing population growth in cities like Houston versus population growth in cities like San Francisco. San Francisco is at or below average for population growth. Houston is way above average for population growth, but the income growth in Houston is below average and the income growth in San Francisco is above average. Their calculations were that the supply of both cities expanded, but that San Francisco is more unaffordable because a portion of the demand side is very rich people who have a lot to spend, and that bids up the price of housing.

Robin: So it’s not just how many people move to a place, it’s who those people are and how much money they’re bringing with them.

Kathryn: Yes. And one of the people who wrote back to me about this said, “You know, how can supply not matter? Did you even look at Austin?” I think Austin is in some ways the exact case I want to make for how to think about housing unaffordability.

The city of Austin, like a lot of cities in Texas, is a very fast-growing city. Between 2000 and 2022, it grew 3% in population per year. That’s pretty fast. Now, in two consecutive quarters in 2021, the index of sale prices in metro Austin — not what’s listed on Zillow, but what the price is when the house is actually sold — went up 12% and then 10%.

Robin: In a quarter?

Kathryn: In a quarter. Over the course of a year, home prices went up almost 40% on net. It was an absolutely incredible shock to Austin’s housing affordability. And it’s worth noting — this was the pandemic. People were moving to wherever they could move, and in Austin’s case they were moving from California.

Robin: Yeah. They were moving from California to the part of Texas that didn’t seem too Texas.

Kathryn: They called it “Texodus” — the California Texodus. So basically what happened in Austin is a microcosm for what is driving up home prices in a big way overall. Yes, Austin is a growing population. Yes, Austin probably hasn’t built enough housing. But what caused Austin to have a 10% spike in housing cost over the course of a three-month period is that a lot of people moved to Austin who had money to spend.

Robin: So this wasn’t actually just income — it was really equity. Housing equity that they brought with them.

Kathryn: Their willingness to pay and their ability to afford was just higher than what the city of Austin was used to. And there were a lot of them. And it’s worth noting that in 2021, Austin’s population growth was actually a pretty weak year — smaller population growth on net than the two years prior or the two years following. But the people who moved were so rich that they drove up Austin’s home prices so quickly.

Robin: Did they stay up?

Kathryn: No. They’re still way up from before the pandemic, but they did fall in some of the years following. And some people said, “Well, Austin started to aggressively build accessory dwelling units and change some of their zoning.” But I think — this idea that rich people cause houses to be unaffordable, that was what I was trying to stress. And part of me was like, why were people so mad that I was blaming rich people? Normally that plays really well. Like, “And here’s another thing rich people do.” But in Austin’s case, in a three-month period, prices go up 10%. In the next three months, prices go up 12%. That’s not because they lost housing stock. That’s not because they put in zoning restrictions. It is truly that the demand shock of people who were very wealthy coming in bid up the price of all housing. That is happening on some level in housing markets all over the country.

TERMS & CONDITIONS

Kathryn: One thing that a lot of listeners brought up is that we didn’t talk about what economists call vacancy chains — what humans call filtering. We merrily roll along into Terms and Conditions. The idea is that like, okay, all these super-rich people move to Austin, but “more is more” when it comes to supply. As long as you’re building something, you’re easing these price concerns. The idea of a vacancy chain is that with every new unit people move into, they leave one that’s more affordable behind.

Robin: I’m trying to … I’m picturing the people who never move because they’ve got a good deal on rent. Like people in rent-controlled apartments. But okay, go ahead.

Kathryn: We didn’t talk about it on the show because I thought it was a little dense to explain, so I decided to explain it in an even shorter format. The evidence on it is really weak. For it to be effective, you have to have really long vacancy chains — for a house to go for sale with a $4,000-a-month mortgage to hopscotch its way down to someone who could afford a thousand dollars a month, that’s a lot of vacancies that have to open up. People don’t move that frequently. There’s a cost to moving, and the vacancy chain isn’t long enough to make a difference.

And this is my final bit of Retcon: we did get a lot of negative reviews from the housing episode, but not from one particular group. The number of people who work in low- and affordable-housing in cities who reached out to me to say “thank you for this episode” was really touching and overwhelming. I had a number of messages saying, “I’ve worked in affordable housing in such-and-such city for 25 years, and filtering does not happen. We’ve built so much housing for rich people, and housing for poor people is only becoming less and less affordable.” And I appreciated that from their on-the-ground perspective, this view that “more is more” has not worked out. They reached out to say: more is not more.

We won’t have affordable housing for low-income people until the government does something. That was very nice to hear.

Robin: Yeah. We also got criticized for being dismissive — in tone more than in actual fact — about what we said. And I think a lot of that came down to the reference to “abundance bros” and “development bros.” I will personally, as the editor, try to be more careful with the dismissive bro talk.

Kathryn: The bro talk. I’m sorry.

Robin: No, it was both of us.

Kathryn: Well, it’s a very convenient answer that doesn’t involve addressing income inequality.

Robin: Which seems like a harder problem.

Kathryn: It is. So anyway, that is our Retcon on housing.

BREAK

CENTERPIECE: FUN WITH SOCIAL SECURITY

Kathryn: In our first season we did a social security episode — Social Security: Don’t miss about the program’s inherent strength, even as the economy has evolved. I mean, it’s 90 years old and you love it and you know it and you want it. That’s social security.

What we wanted to do — I say “we” with some air quotes here, this was all Robin. Robin, just nod and blink twice if you’re in danger.

What we wanted to do was talk about social security in a way that probably none of you have heard before, which is: how do we make the program better? We are so narrowly focused on social security’s solvency, despite the fact that we’ve had about a 40-year runway to figure it out. And every conversation about social security has to be: don’t cut, raise taxes, fund it. We don’t get to talk more about what we want this program to look like. It’s our program. We pay for it. It has not changed in any significant way since 1983. So there are lots of ways that the program could be modernized, updated, and changed to better fit retirement and economic security as we know it today. I’m going to pitch to Robin — if we can get to all of them — my top four policy changes.

Robin: Can I ask a question first? We have this solvency problem coming that you’ve said we’re going to have to deal with. Are we in this window of time where between now and 2033, a lot of decisions are going to get made about what the future of social security looks like for the next 40 years?

Kathryn: Yes. I think this is our window. When we address the solvency, that is our chance to make any programmatic changes we want to make. It’s kind of like how Earth and Mars aren’t always well positioned for exploration, and if you wanted to have a mission to Mars, you’d have to wait for their orbits to be more closely aligned. Social security is like that right now — Earth and Mars are coming into alignment. This is our time.

And I think there’s a good reason for that too. It’s not just congressional inaction. People like to know what is going to happen with social security and have a long lead time. It’s not a program that we necessarily want to change the basic structure of every couple of years, because then people wouldn’t be able to plan around it. You want to have long periods of gestation for a program that affects a lot of older people so they have time to know how it will work.

Robin: Well, some of us are saving for retirement now and want to know what to expect. Okay.

Kathryn: Okay. Fun with social security. Round one.

POLICY 1: SPOUSAL CAREGIVING BENEFIT

Kathryn: This one we can call the Spousal Caregiving Benefit.

When you claim social security, you are automatically eligible for both your own social security benefit — which is based on your highest 35 years of earnings — and the spousal benefit, which is half your spouse’s or ex-spouse’s earnings history if you were married at least 10 years. So if I never worked but was married and was a stay-at-home wife and I applied for social security, I probably have some earnings history but not much. My husband has a benefit, and so I will get whatever is higher — my work history benefit or half of what he got.

Robin: So basically, as the non-working spouse, you get one and a half as a couple?

Kathryn: Yes. If you get divorced but you’ve been married 10 years and a day, you are still eligible for the spousal benefit. Even if you’re no longer married.

Robin: This explains some things.

Kathryn: Yes, the 10-year mark is really important for a marriage in terms of social security. But the problem is that this happens mainly to women — not entirely to women, but mainly. If you are the lower-earning spouse and you have kids, you quit your job, you stay at home with the kids, and then your husband leaves you and you have to go back to work because you’re now a single mom — you typically end up in the worst of both worlds. You stayed out of the labor market long enough that you didn’t contribute for a long time, and you do end up working, but your own work history and earnings is insufficient and you end up on the spousal benefit anyway.

The spousal benefit is designed with the assumption that it’s two people living together. It’s not designed for divorced people. I think we should design it around divorced people.

Robin: I think that might be the name. The issue here is divorce.

Kathryn: Well, the issue is divorce, but it’s also that you can stay married and go back to work. Like, I have kids under five and I stayed home until they went to kindergarten, but then I wanted to go back to work, but then I still am not earning enough for social security to give me my own benefit. So I’m going to pay into social security for 20 years, but I still end up on the spousal benefit.

Robin: Is that a problem? It sounds to me like a disincentive to work.

Kathryn: Yeah, it certainly can be. And a lot of women know that if they aren’t working, they aren’t contributing to their own retirement. It’s almost like you have insurance through the spousal benefit should you not earn enough — but that’s not really the same thing as the social security benefit reflecting what you contributed, because you’re going to contribute a lot that ends up not being part of your calculation.

Robin: I don’t understand — if the spousal benefit is higher, why is that a problem?

Kathryn: Okay. Two guys earn the same amount of money, and they’re both married to stay-at-home wives. One couple stays married the entire time. The other couple gets divorced and she goes back to work — she works for the last 20 years of her prime working life before she retires. Even though she’s worked for 20 years, her social security benefit based on her earnings history is lower than her benefit based on half of her spouse’s history. So these two women end up with the exact same benefit, even though one of them worked for 20 years and one of them never worked at all.

Robin: Okay.

Kathryn: That is the problem. So here’s my idea. Social security is currently a 35-year lookback over two benefit types — the 35-year calculation for spousal benefits and the 35-year calculation for your individual work history.

I think that social security should replace the 35-year lookback with a system where each year uses whatever is higher.

Robin: For the newly divorced spouse. So she gets credit for half of what her ex-husband earned for those years, then whatever she actually earned for the additional years?

Kathryn: Mm-hmm. She would get a higher benefit. The woman who left work and then went back to work would end up with a higher benefit in the long run because she’d have 10 years of half his earnings and then 20 years of her own earnings.

I think the spin for this is that it could be considered the “divorced benefit” or a calculation to favor divorced people. But I think the better way to look at it is as a caregiving credit. And it doesn’t have to be specifically about kids — it doesn’t have to be that I stayed home to take care of parents. I don’t need to tell social security why I was home. It would just translate to a caregiver credit. I was married, I wasn’t working — this is my caregiving credit.

And I think if you give a caregiving credit to married women who are not working, it would give a lot of political impetus to creating an overall caregiving credit. If you are taking care of someone and not working, social security has a very easy way to calculate what your benefit would have been. Most people who care are married, I think, which is why this works.

Robin: Yeah, I was going to say — there are obviously people who are married but not caregiving, or not working, but most caregivers are married.

Kathryn: Most caregivers are married because we don’t have paid family leave. Someone has to be paying the bills. I think if we had a universal system of paid family leave — which would be a great thing to add in this reform — you could also come up with a credit for people who are doing short-term caregiving. With short-term caregiving, the difference is that most caregiving covered by paid family leave is assumed to be really short, like one to six months. Whereas someone who’s staying home to take care of kids or manage a long-term illness is going to be gone for years.

Robin: By being caretakers, essentially.

Kathryn: Yeah. So it sounds like maybe I should lead with the caretaking part. But getting there on the policy side means working back from divorce and then working forward from caregiving. This would increase benefits for women.

Robin: Divorced women have like the worst retirement situation.

Kathryn: The highest poverty rates in retirement are for divorced women. In part because their social security benefit is low and they’re not living with someone.

Robin: How much of a difference would this make?

Kathryn: I have no idea. Most of what we know about what a social security benefit would do comes from the Office of the Actuary, which will score a proposal if a member of Congress or someone important enough submits it. I’m not quite there yet. But I was seated next to the former chief actuary at a social security event, and I did try to very quickly run all of these ideas by him. He said this one would be very easy.

Robin: Easy to calculate.

Kathryn: Yeah. So that’s one. Our listeners will come up with a clever way to put it together. Okay, number two.

POLICY 2: PARTIAL OR TEMPORARY CLAIMING

Kathryn: This one is partial or temporary claiming.

Robin: Like short-term social security?

Kathryn: It’s almost like emergency social security.

Robin: Emergency social security. Okay.

Kathryn: I don’t know if I actually like that, but it might be a great way to get across what I mean even if I don’t love the name.

So the way that social security works is it’s a one-and-done decision. As soon as you claim, you’ve claimed forever. There’s no going back.

Robin: Right.

Kathryn: Some cases of disability — if you work, you can get off of disability. But it’s not really structured or designed for success in that. For the most part, you claim social security, you’re on social security. It’s a one-time decision.

Robin: This is sort of what they say about whether to claim early, whether to claim at your full retirement age, whether to delay — you get one shot, you’ve got to make your decision.

Kathryn: Yep. And you can claim social security once you turn 62. The full retirement age is 67. If you claim before you turn 67, you have a penalty on your benefit for each month that you’re early, and that is a permanent penalty — you will have lower benefits for the rest of your life. If you wait past 67 through 70, you get a bump. If you wait until 70, it can be as much as a 25% higher benefit permanently for the rest of your life.

The penalty and the bonus between ages 62 and 70 are meant to be actuarially fair given life expectancy. So if the life expectancy is that once you turn 65 you’re expected to live until 80, they’ve designed it so that if you claim at 62 versus you claim at 70, you would get the same total amount of money by the time you turn 80.

Robin: So the idea is you’re supposed to live till you’re 82. You retire at 62, you get a set amount of money. If you retire at 70, you get the same amount of money, just in bigger monthly payments.

Kathryn: Yes. There are lots of problems with that, which I’ll get to in the next policy. But for this one, I think the big problem is that one in five people who claim social security will claim it early and still be working. Basically, they’re 62, they’re not earning enough money, they really need cash, and so they claim social security — at an incredible penalty — simply because they need the money in that moment.

Robin: And is that a passing moment or is that just kind of their situation?

Kathryn: It doesn’t matter. I mean, a lot of them can’t retire yet because they haven’t saved enough, or they need money for something, but they’re three years away from getting Medicare. And no matter when you claim social security, you get Medicare at 65.

Robin: I’ve never understood that.

Kathryn: Yeah, there’s a lot that goes wrong in the design of this program between 62 and 70. Given that Medicare is 65, you have this big, long claiming window.

I think one thing that would free up social security is to have a kind of temporary or partial benefit claiming, where I can say — it’s just a matter of applying life expectancy — okay, social security, I want to claim like a portion of my benefit as early as 55 or 60, knowing that it could reduce my benefit later. But you could imagine that social security, in order to prevent you from being poor in retirement based on decisions you made when you were 50, holds in reserve like 60% of your benefit. But if you need to claim up to 40% of your benefit early while you’re still working, you can continue to contribute to social security but take that temporary or partial benefit as cash.

Robin: Okay. Why would I want to do that? What circumstances are you envisioning?

Kathryn: You got fired. You don’t earn much money. You have medical bills. You’re low-earning, you don’t have savings, you want to work longer.

Part of the problem with the one-and-done decision is that Americans don’t retire like that. To the degree that they did, they haven’t retired like that in 50 years.

Robin: What do you mean “like that”?

Kathryn: You know the idea that I go to work on a Friday, that’s my last full day, and on Monday I am fully retired and never work again? That full-time-to-fully-retired one-decision transition is a severe minority of retirement experiences. Most people phase down work over a multi-year period. Sometimes they take on more work, sometimes they pull back. This happens at both the high end and the low end of the wage distribution. And a lot of people backtrack — they’ll retire and then decide they don’t like it and go back to work.

Robin: But they’ve already claimed social security.

Kathryn: Exactly. So the retirement decision is fairly messy, and we have really good data that it’s very messy. It’s messy for couples, it’s messy for individuals. People retire and change their mind, they go part-time and change their mind. It’s a very flexible decision that can take six years to play out.

I think there’s a way that social security can come up with an actuarially fair way to have a partial benefit claim — where you claim a portion of your benefit early and keep the rest for later — or a temporary claiming, where you can claim the full benefit for a period of time and then turn it off. I would imagine most people wouldn’t do it, but you could definitely design an early benefit claiming system.

Robin: Would this work like — I’m working full time, I’m 65 but not 67, I could take a partial benefit for the first couple of years and then go on full retirement at 70?

Kathryn: Yeah. All you would really need to do is structure the work penalty for social security around partial claiming.

Robin: Wait — what’s the work penalty for social security?

Kathryn: Social security has two work penalties once you hit 62. If you’re under the retirement age, claim social security with a benefit penalty, and you work, they will reduce your benefit — I think it’s dollar for two dollars above an earnings cap. Social security, at least as it’s structured now, does not want you to be working and claiming.

Robin: What’s the cap?

Kathryn: It’s around $25,000 this year.

Robin: Oh, that’s really low.

Kathryn: It’s really low. And in your retirement year — age 67 — it’s like $60,000. And then after that, there’s not one.

Robin: The penalty just goes away after 67?

Kathryn: Right. So in addition to having a benefit penalty to claiming between ages 62 and 67, there’s also a penalty to working while claiming before 67. But we know that a lot of people do it anyway.

I mean, if we know people are going to do it and we’re just saving money by skimming off people who were poor or needed money when they hit 62 — that’s a bad way for social security to be solvent.

Robin: Yeah. That seems like a mess.

Kathryn: You’ve got to deal with the work penalty, you’ve got to deal with the benefit calculation. If I claim half my benefit or 30% of my benefit but keep working and continue to contribute to social security, what is my highest 35 years of earnings? Does it stop after I partially claimed? There’s a ton of ways you can do it, but I think you absolutely could design it so it serves its intended purpose — insurance against economic insecurity.

Robin: Yeah. I’d love for you to get that figured out. Lots of ideas here.

Kathryn: I’ve wanted to work on this, but you really need to see earnings and benefits behavior off of a large sample of people. You basically need to be inside the Social Security Administration’s data in order to do it well and also understand actuarial fairness. But I think you totally could do it. I think it would be really popular because retirement doesn’t go —

Robin: Like you say, we’re not all working on farms or as lumberjacks. We can work later, but that doesn’t mean life doesn’t intervene.

Kathryn: Oh yeah. That feeds into my next policy. But I think social security is a good program that’s meant to keep people from being economically insecure, and it shouldn’t have solvency bonus points because it’s pretty cheap to skim off people who are in a bad place at 62.

So that’s number two.

POLICY 3: VARIABLE RETIREMENT AGE

Kathryn: The third one: I don’t think we should have one retirement age.

Robin: Currently it’s 67.

Kathryn: Currently 67. It makes no sense. In 1983, it was increased from 65 to 67, and raising it again is a perennial Republican proposal — although in the Novo-populist Trump era, that’s now off the table.

Robin: Yeah. So instead of an age, it would be how many years you’ve worked?

Kathryn: Yes. When you work — virtually all employment in the U.S. is covered by social security and you pay taxes into it, even when you’re self-employed. No matter how many years you work, you’re eligible for social security if you have 10 years of earnings.

Robin: You’re eligible to receive benefits if you’ve done at least 10 years of work.

Kathryn: Mm-hmm. Your benefit itself is based on your highest 35 years of earnings whenever they occur. There can be gaps between them — it could be the first five years and the last 30 years with a 10-year gap in between. It doesn’t matter. They’ll order every earnings quarter from highest to lowest and cut it off at 35 years, and that’s what’s used to calculate your benefit.

So: I have a PhD. After undergrad, I got another five years of school — actually, most people in a PhD finish in six or seven. That means I have 10 years fewer in the labor market compared to people who started working at 18. We have the same retirement age. That is not right.

Robin: You think the person who started at 18 should be able to retire sooner?

Kathryn: Mm-hmm. Right now everybody has the same retirement age — 67. You can start at 62 for early claiming, you can push until 70. But the person who graduated high school and went to work has 10 years of earnings on me as we hit age 60. If we both work the same number of years — let’s say she works until 62 because she started at 18 — I’m still working at 70, and I get a bonus for being older even though I haven’t necessarily worked longer than her.

Robin: The same number of years?

Kathryn: Yeah. She could have had two more years of earnings on me. I get a bonus for working fewer years than her simply because I was older. And because I have more education, I likely have a much cushier job and made more money.

Robin: So if you graduated from college at 22 and work 40 years, you could retire at 62 and get your full benefit — not a penalized benefit?

Kathryn: Yeah. People who didn’t go to college would be eligible around age 60. People who went to college would be eligible around age 64. People with a professional degree around 67. Doctorates around 70. You’ve basically staggered retirement ages by the years spent in school.

There are so many problems with this as I’m proposing it.

Robin: As you’re saying it.

Kathryn: As I’m saying it. Number one: it’s old-age insurance. The whole idea behind social security is that you would get old, not be able to work, and not have enough money. This is basically taking the program and turning it into a full-blown retirement program, which goes against what the fundamental philosophy of the program was.

The second problem is immigrants. They don’t work 40 years because they came here later. Some countries have reciprocity arrangements between retirement systems. But for a lot of immigrants, they are not recognized for their social security contributions unless those contributions were made as a green card holder or citizen. So if you have worked in this country for 50 years but you’ve only been a citizen for 10, you have a very small social security benefit no matter how much you’ve contributed.

And then there’s also: if someone becomes unemployed, they now have to work longer on the back end.

Robin: I’m glad you anticipated all the problems before I had to. That’s also bad.

Kathryn: The other way to do it is rather than a hard 40 work years, it could be a working life — once you have like two years of consistent earnings, it’s that plus 40 or 45. It doesn’t have to be 160 quarters of earnings without a gap.

What this is trying to get at is the fundamental inequality in earnings, in job quality, in the physicality of work, and in income across the United States.

Robin: It certainly does seem like the more income you have — which can get you through that gap between 62 and 70 — the better off you are. And you probably have a much longer life expectancy, because we know that people who are better off live longer.

Kathryn: Yes. And the life expectancy spread that matters most for social security is conditional age-65 life expectancy — given that you live to 65, how much longer are you going to live? The spread between men and women is about three years. So women, even at age 65, have a life expectancy about three years longer than men’s. And then the spread between lowest-income and highest-income by gender is around four years. That means a high-earning woman would have a life expectancy seven to eight years higher than a low-earning man.

And that’s just looking at men and women together — not by race.

Robin: Right.

Kathryn: So the idea of moving the retirement age around is a way to account for the fact that we have improvements in life expectancy, but also fundamental differences in it. I really hate the raise-the-retirement-age policy. I think it’s just a benefit cut that people want to pass with some logic attached to it. And if you really cared about life expectancy, you would tell Black men they can claim at 55 and white women like me that they don’t get to claim until 80. If you truly only cared about retirement age reflecting life expectancy, you’d need nine or ten different retirement ages, because they’re not the same.

America in 1930 — fewer than 5% of workers had any type of retirement savings like a pension. And men over age 65: 75 to 80% of them were still working, even though the life expectancy was around 61. So you had the majority of men working past life expectancy. Their retirement plan was to die on the job. Before social security, you either died a poor dependent of people willing to take care of you in a poorhouse, or you died on the job.

You hear people talk about life expectancy increasing in terms of social security as if it’s a bad thing. “Oh, people are living longer — we’ve got to do something about social security.” And I’m like, hey y’all — this might have been what the whole program was meant to do. That we get to live past working independently. Social security has purchased that for us. That should be the North Star of the program. We should be very happy that people are living longer, and social security should get credit for how much it has absolutely altered what the last 20 years of people’s lives look like in the U.S.

All of these things I want to do are just about making that better — doing that job better. We do not work to service social security. Social security services us.

Robin: I think you’re making a really important point — we keep looking at how can we shave benefits, as opposed to looking at the program and saying, how does it meet the needs of who and where we are now?

Kathryn: There’s a quote by William Gibson: “The future is already here — it’s just not evenly distributed.” You can see that in life expectancy. Someone like me — educated, high-earning white woman — I’m expected to live longer than almost any other race-by-gender-and-education group in the United States. A white woman with a PhD is going to have the longest life expectancy. That means I get to live in a future that others don’t get to live in yet, because I’ve benefited somehow that others haven’t.

Social security’s primary focus should always be on the people who had something bad happen, not on the people who succeeded. It’s an insurance program. It’s not meant to reward people who managed to avert disaster or risk.

Robin: Yeah.

Kathryn: It’s knowing that disaster or risk could happen to you. I don’t have all the answers yet, but I think we should move the conversation toward making social security work better for us — away from this point of view that we are all just worker bots in service of payroll tax contributions.

POLICY 4: 1099 ISSUER TAX

Kathryn: Last one. This one is just for the home crowd — because all of us, all of production, Sofi, Andy, Robin, Kathryn — we are all self-employed and we pay both sides of the self-employment tax. 6.2% for the employee, 6.2% for the employer, comes to 12.4% total.

Robin: Because we are the employer and the employee.

Kathryn: Right. I think that for people who are trying to start their own business — some people want to break out on their own — the idea of being protected by social security and contributing to it even when you’re out on your own is good. But I think a lot of people in a similar situation to us had a lot less agency when they were there. They would like to be an employee, but they can’t because the company they work for doesn’t treat them like one. They’re gig workers. They’re contractors.

And I think that some companies use contractors judiciously, and some use them exploitatively.

Robin: Absolutely.

Kathryn: We have tried through court cases and regulations to make companies like Uber pay their drivers like employees, and they have put all of the money they have into destroying those efforts.

Robin: Oh yeah.

Kathryn: So what you can’t regulate, you tax. I think we should have a 1099-issuer tax.

If you are contracted by a firm and they’re going to pay you $25,000 worth of work, they will issue you a 1099-NEC — nonemployee compensation — at tax season. That’s what they issue to non-employees who worked for them. Wage and salary workers get a W-2. Contractors get a 1099.

I think that companies that issue 1099s need to pay a tax per 1099 they issue. And I imagine this would be graduated — so the first 1099 is taxed at one rate, but maybe the ten-thousandth is taxed at a higher rate. The company ends up contributing to social security for anyone it employs — W-2 or otherwise. If you rely on 1099 contractors as a way to get around paying benefits and payroll taxes, you would end up with a social security tax bill anyway.

Robin: Hmm. That’s actually your labor policy. That’s your workforce policy. Would this mean that the person getting a 1099 wouldn’t have to pay both sides of the equation?

Kathryn: Yes. And I actually think it’s better for social security that they don’t. When I’m a self-employed person, I have revenue and I have expenses. Let’s say I bring in $50,000 but I spend $20,000 on expenses — I only pay taxes on $30,000. And research into the earnings of self-employed workers has found that they do everything they can to lower their taxable income in order to have a lower tax burden.

Robin: People deduct their home office, their computers, their cell phones, their printer cables, whatever.

Kathryn: Everything. Because you’re going to pay roughly 40% off the top between the social security tax, Medicare, and federal income tax. The thought is: if there were a lower tax penalty on self-employed people, they would probably more honestly report their income and contribute more on the employee side to social security. Because right now they end up under-contributing to social security for their wage record even as they’re over-contributing, because they’re paying both sides. So they end up with lower social security in the long run.

Robin: That’s what I missed earlier.

Kathryn: Okay. So first things first: we are taxing Uber.

Robin: I’m all for that. Any company that screws with the election system in California should just pay a tax.

Kathryn: Any company that relies on contractors is going to start contributing to social security. It doesn’t have to be tied to those contractors’ wages. I think it’s more effective as a per-contractor tax that goes into social security.

Robin: Can it be like a ratio of employees to contractors?

Kathryn: Yeah, I think you could do it a couple of ways — a number of contractors you have, and then the number of contractors relative to employees. So if we’re taxing people who use independent contractors, we tax them heavily if they use a lot — as a way to further incentivize having W-2 employees as opposed to contractors.

Where regulation won’t work, a tax may.

Robin: Mm-hmm.

Kathryn: Now, that would mean I think you would not need independent contractors to pay both the employer and employee sides. But I think there’s an argument that it would reduce contributions from those people. It might, though it might also increase their earnings. They’re now incentivized to reduce their tax bill as much as humanly possible, and they only claim their income net of expenses.

The issue is: they’ll pay 12.4% on whatever that income net of expenses is, but they only get the wage credit one time. So they’ll pay two taxes but get one wage credit.

Robin: That’s what I missed.

Kathryn: So if I earned $100,000 net of expenses, $12,400 is going to social security. I will still only get a $100,000 credit. Using $100,000 because it’s an easy number. The thought was that if instead of making self-employed people pay a 12.4% tax on their earnings, we made it a 6.2% tax, they would be more likely to report higher earnings. The incentive to reduce their taxable income would be lower, and so they would contribute more to social security on their portion — and that would help them in the long run. One of the biggest problems that independent contractors and self-employed people have is that in order to reduce their tax burden in any given year, they end up under-contributing to social security.

Robin: This is the fight between my tax guy and my retirement guy. Every year.

Kathryn: Yes. So those are my four. Let me see if I can come up with a clever name for them on the backend: the Caregiver Calculation, the Partial Benefit, the Smart Retirement Age, and the “Uber, We’re Taxing You” — that last one I’m still workshopping.

Robin: All right. That has been fun.

Kathryn: I’m glad. And for our next hour —

Robin: Why are you laughing?

Kathryn: Okay. We’ll take a quick break and when we come back — there’s a 50-50 chance I’m still talking about social security.

EXECUTIVE ORDERS

Robin: We’re back with executive orders. You want to go first?

Kathryn: You go ahead.

Robin: All right. I have recently been on a tear ordering things I’ve been putting off, which means I get an email about once an hour asking me to review a product. I don’t need to review every product. I don’t need to review cat food. I don’t need to review coffee filters. I don’t need to provide a workforce performance review for every online interaction I’ve had. The entire world is operating on a five-star system and I am out. I am done.

Kathryn: Robin’s out.

Robin: Robin’s out.

Kathryn: I like that order. I don’t like reviewing stuff. Okay, my executive order is that the Olympics needs to have a children’s broadcast.

Robin: Oh. Yeah.

Kathryn: I’m not going to lie — as a many-generation Texan, I don’t know why the blades on speed skaters’ skates look like that. I don’t know how they don’t cut themselves. They were asking so many questions, and I was like, “It’s... top right, maybe?” I was so unsure. So now we need a kids’ broadcast of the Olympics. If NBC won’t do it, PBS will do an amazing job. Just have it be a truly special place for children, because you really do learn so much about the world. We were watching the opening ceremony and there were just a few comments — the opening ceremony had some commentary issues. One of the comments was “I’m getting an Italian vibe from this” — in Milan, mind you — with no mention of any of the music playing, or why Mariah Carey was there, or who was on stage. And then Shaun White did the Parade of Nations commentary where for every country he basically talked about a place he had gone in that country. It was like his live travel blog. At one point my kindergartner looked over and said, “What is he talking about?”

Robin: The hat’s living its best life.

Kathryn: Yeah. We need 6-year-old hosts. We need like a physics classroom where seventh graders explain the physics of various things — like why speed skaters’ skates are shaped like that. There’s so much education and information to glean from curious children watching the most incredible athletes on Earth, and the current broadcast is either way over their heads or is just drivable. So that’s my executive order: Kid Olympics. Kids on screen, kids doing interviews.

Robin: Kids interviewing Olympians. Can you imagine?

Kathryn: Every question is, “Are you cold?”

Robin: How cold are you?

SPIRITUAL SPONSORS

Kathryn: Okay. We do not have a commercial sponsor for the show. As we explained earlier, we have in-kind promotional roles from PRX, who we are very proud to be part of. Funding for the show comes from you. You give us money. That’s why we’re able to do this. We don’t really have it from anywhere else. So for the love of God, give us money. We have a website: optimisteconomy.com.

Robin: Meanwhile, emotionally, we’re being supported by other things. We call those things spiritual sponsors.

Kathryn: Yes — things that get us through the week, through production, through the day. Robin, who is your spiritual sponsor?

Robin: My spiritual sponsor was going out to lunch. I work at home and I stopped going out to lunch when we moved back to Los Angeles. My wife and I went out to lunch on a Wednesday and it was delightful. I should make a point to do this every once in a while.

Kathryn: My spiritual sponsor this week goes out to a very lovely listener who not only bought the Optimist Economy hat, but took it on a 10-day cruise through the Caribbean and took a photo of the hat at every stop on her journey. That hat saw sharks.

Robin: Is this someone you’re related to?

Kathryn: This is someone I’m related to. But the hat — it was at a bar, the hat with friends, the hat on the cruise, the hat getting sun. It was like Flat Stanley. It was like the garden gnome from Amélie. Just all the places that the hat got to go, and I would get updates. My spiritual sponsor is the journey of the one particular Optimist Economy hat that made its way through the Caribbean, making friends and spreading economic optimism.

Robin: Perfect.

Kathryn: Sofi LaLonde edits the Optimist Economy podcast and Andy Robinson of Video Consulting creates our online videos that you can see on TikTok, Instagram, YouTube, and LinkedIn — where we occasionally connect with people but almost always get trashed by other people, spreading our optimist message one video at a time, one episode at a time. We could not do the show without them.

Robin: Yep. Thanks, guys. If you’re interested in chatting with other economic optimists, we have a chat on Substack. And of course, thank you to everyone who donates to keep our editor and our video producer paid. You too can contribute at whatever level is comfortable for you at optimisteconomy.com.