Creating a twenty-first-century social insurance system for today’s “juggler families.”
This is already the case in other industrial countries, which have structured their retirement systems to provide both a minimum-benefit guarantee (to keep the elderly out of poverty) and an earnings-related benefit. They also grant credit toward the earnings-related benefit for time spent away from the labor force caring for children. As a result, poverty rates are higher in the United States and more unevenly distributed than in most other industrialized countries. In addition, all European countries have provided family allowances to help support families raising children. More recently, in addition to granting parents the right to work part-time or flexibly and public provisions for early childhood education, they have adapted their systems to help juggler families with such programs as paid parental leaves for mothers and fathers.
But the United States has made few concessions to juggler families. To be sure, since 1993 the FMLA has provided job protection for employees of companies with 50 or more employees who take leave to care for a new child or an ill relative. President Clinton also expanded the Earned Income Tax Credit for low-income working parents and won new child care and after-school funding. In addition, Democrats worked with moderate Republicans to make the child tax credit refundable as part of the Bush tax cuts. But the United States offers no right to even refuse overtime–let alone work a flexible schedule–and only limited, means-tested child care assistance and a small, regressive child care tax credit.
Seventy years ago, the Roosevelt Administration designed its social insurance system to address the real needs of families at a critical time. But the national policies designed to meet the needs of breadwinner-homemaker families in the 1930s are woefully inadequate for contemporary households. America needs to take concerted action to update its policies for a new century and new families. This most definitely does not mean privatizing our existing social insurance system, as the Bush Administration proposed. Instead, we must fix the holes in the existing programs for retirement, unemployment, and disability insurance through which too many of today’s families fall. And we must put in place insurance against new risks that will help today’s families thrive in the century ahead.
But what would such reform look like?
First, the Social Security spousal benefit cries out for change. Because the Social Security family benefit is provided to spouses of workers, rather than outright to parents, it leaves out single heads of household who work, pay taxes, and raise children. These parents–mostly mothers–already sacrifice earnings to raise children, so they wind up with less in their own earned benefits. Yet they do not have the option of claiming a spousal benefit instead. In fact, they might even get less in benefits than someone who never works, doesn’t pay payroll taxes, and raises no children–but has a working spouse. Eugene Steuerle of the Urban Institute, one of the nation’s leading Social Security experts, estimates that a single head of household who works for $20,000 a year for 40 years and raises her children will get lifetime benefits of about $95,000 while paying taxes of $50,000, whereas a nonworking spouse who doesn’t raise children but happens to marry someone making $100,000 a year will receive about $250,000 in lifetime benefits and pay nothing in taxes.
The system even penalizes married juggler families–in effect, rewarding Ward and June at the expense of Roseanne and Dan (when there are far more of the latter than the former). Because spousal benefits are keyed to the income of the primary worker, Social Security values childrearing by higher-income families more than childrearing by lower-income families and rewards single-earner families with far more in benefits than dual-earner families that earn the same total income. Steuerle estimates that a couple with each spouse earning $15,000 annually will get lifetime benefits of about $177,000, whereas a couple with one spouse earning $30,000 but paying no more in taxes will get about $273,000–close to $100,000 more.
Social Security also denies spousal benefits to those who divorce within 10 years of tying the knot, and it forces couples who divorce after 10 years to split benefits inequitably; the lower-earning spouse receives only the incremental spousal benefit, worth one-half as much as the own-worker benefit that the higher-earning spouse receives. Given lower savings and a longer life expectancy, it is apparent why almost one-fifth of all women age 85 and over still have income below the poverty level.
To update this part of Social Security, we should convert the spousal benefit gradually (phasing in for people in the workforce today, not affecting those who have already retired) to a flat-rate parental benefit (thus unrelated to a spouse’s wages). In the case of divorce, the underlying Social Security benefit and the parental benefit should be shared jointly, which would also create a small disincentive for the primary earner to desert his spouse, as well as reduce the mother’s double jeopardy.
A second problem with today’s rules is that parents are penalized in retirement because Social Security benefits are calculated based on average earnings over the 35 largest-earning years of work. A worker who begins work at 25 and works 40 years to 65 incurs a penalty if he or she reduces earnings for more than five years. These rules apply equally to women and men, but since women with children take more time out of the workplace and pay a part-time penalty when they do work, they earn less over their lifetimes than even women without children. This has the effect of reducing Social Security benefits for mothers. Women received average monthly retirement benefits of $826 in December 2004, while men averaged $1,077. It’s no surprise that today 63 percent of female Social Security beneficiaries age 65 and older choose their spousal benefit–because it is higher than what their own earned benefits would have been.
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