by Michael Maiello

This week, President Obama will boldly propose to lower the retirement age to 63 and to increase Social Security benefit payments by 10% across the board while also indexing future payments to a measure of inflation that includes health care costs, which tend to rise faster than other parts of the economy.  Though denounced by critics as an irresponsible socialist, Obama’s proposals make sense and are the best way forward for the United States.

The fact is that private savings vehicles will not be able to generate enough wealth to see most Americans through a multi-decade retirement, particularly in the absence of a private pension system.  The 401(k) plan, named for the section of the tax code that allows workers to invest for retirement with pretax dollars, has failed.  Under the pressures of globalization, American workers simply don’t make enough money to save enough for retirement and the equity and bond markets have failed to deliver reliable returns.

The 401(k) and related accounts like the 403(b) or the traditional IRA, were never intended as a total retirement solution.  These accounts were meant to supplement private pension plans and Social Security.  They were intended to give the average worker a chance to invest in the company that employed them, or in the broader markets, on a tax advantaged basis.  They were simply one piece of a much farther reaching retirement safety net, one that no longer exists in a non-unionized private economy.

When the economy cannot provide for its people, the government must step in.  That’s what Obama is doing.  Far from being irresponsible, Obama has proposed to make Social Security solvent forever by applying Social Security taxes to incomes above the current cap of $113,000 for wages and by taxing unearned investment income.  In 2012, fewer than 6% of Americans even made enough money to worry about the Social Security tax cap.

Still, these wealthier Americans will also get larger benefits later on.  Though the amount of benefit a retiree receives per dollar paid in does drop at higher income levels, they will still be able to collect larger retirement benefits than they otherwise would have.  So, while some will whine about a tax increase, it’s important to keep in mind that this is hardly an expropriation of wealth.

Lowering the age at which Americans can retire with full benefits might also make room for younger workers in the labor market and by freeing people from potentially dangerous jobs, it might improve the overall health of the retired population.

Further, it will mark the fist time in a long time that the government will manage to expand benefits and services to its citizens.  This could, in a way, lighten the national mood which has been sullied by a seemingly dysfunctional government and fierce global competition.  While the effects of psychology and confidence on the economy is often overstated to the point that it slips into magical thinking, a better national mood certainly can’t hurt.

Politically, this should also aid Obama’s party in the 2014 elections.  If John Boehner and the House Republicans refuse to raise a completely modest tax on the country’s highest earners to insure retirement security for the rest of the country, his party will have to answer for that at the polls.

Should he find himself succumbing to the urge to blink, Obama should remind himself that even Tea Party Republicans like Social Security, so long as they’re getting the checks.

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