By:William J. Arnone, Peter Barnes, and Renée M. Landers, Griffin T. Murphy, Research Assistant
Published: March, 2019
As the nation’s only organization dedicated to social insurance and related programs, the National Academy of Social Insurance recognizes that the United States is experiencing major economic, social, and demographic shifts. These changes have confronted families and individuals with risks that were largely unforeseen when our nation’s core social insurance programs were created. Some of these include large debt burdens for a sizable portion of the U.S. population, and the transformation of the traditional worker-employer relationship. At the same time, the extent of economic inequality has reached record levels.
Consistent with its mission – to advance solutions to challenges facing the nation by increasing public understanding of how social insurance contributes to economic security – the Academy is exploring the potential for some form of assured income to contribute to the economic security of individuals, families, communities, and the nation as a whole.
This paper examines the concept of assured income from an economic security framework, without promoting it as an alternative to other approaches, or as a mechanism to subsume or replace other social assistance programs. It also lays the groundwork for a potential Academy Study Panel on Economic Security, which will analyze in more depth the capacity for assured income and related policies to address growing inequality in the United States.
The Academy’s analysis examines assured income as a new form of economic security in contrast to contributory social insurance programs and means-tested social assistance programs. The latter two forms were included in the Social Security Act of 1935 and amendments. Conceptually, assured income may be viewed as a stabilizing base, while insured income partially protects wage earners against loss of wages and social assistance prevents some from falling below a defined standard of living.
The policy-related goals of this paper are to explore ways in which some level of assured income offers an achievable solution to basic economic insecurity not now addressed by either the nation’s current social insurance or social assistance programs. It identifies issues of benefit types and levels, groups of potential recipients, costs of various approaches, funding, and administration.
The Social Insurance Infrastructure in the United States
The initial response to the economic challenge of the Great Depression included the creation of Social Security and the Unemployment Insurance system. A second generation of programs came into being in 1965 with the creation of the Medicare and Medicaid programs, which added opportunity for health care for elderly and low-income populations to the income supports provided through Social Security, Unemployment Insurance, and Workers’ Compensation. Any examination of providing an assured income needs to take into consideration the role of the existing social insurance programs and how an assured income program might augment these programs, because of income needs and economic risks that these specific programs do not adequately address.
Many of the social insurance programs which address the risks attendant with the need for family leave, retirement, unemployment, injury, and illness rely on traditional employment relationships to determine eligibility and, in some cases, benefits. An assured income program might be a useful component of efforts to restructure existing social insurance programs to address changes in the nature of work and mitigate the way in which these changes contribute to income inequality.
The Concept of Assured Income
In 1934, President Franklin D. Roosevelt appointed a cabinet-level Committee on Economic Security to develop a comprehensive program of universal economic security. Under the leadership of Labor Secretary Frances Perkins, the Committee defined universal economic security as “the assurance of an adequate income” to every person at every stage of life. It determined that such assurance might be achieved through a constellation of programs tailored to different risks and age groups.
Fast-forward to 2019. The need for economic security continues, but the roots of insecurity are different. During the twentieth century, economic insecurity arose mostly from unemployment, illness, and old age. Today, old age insecurity has been greatly reduced, unemployment is low, and health insurance is available to about ninety percent of Americans. Yet financial insecurity remains widespread. Its primary causes are the now seemingly chronic phenomena of insufficient labor income and its instability.
The purpose of insured income is to insure against loss of income due to definable risks – unemployment, disability, illness, death, and old age. By contrast, the purpose of assured income is to supplement low and fluctuating labor income throughout life. The knowledge that assured income will always be there, in good times and bad, might help individuals and families plan and stabilize their lives better than is now possible.
How Might a Level of Assured Income Be Incorporated Into the Social Security System?
A level of assured income might be incorporated into existing programs through a variety of mechanisms. The Social Security Act and its amendments established Supplemental Security Income (SSI) as a social assistance program and Social Security as a social insurance program. Current eligibility for the former is strictly limited and means tested, while the latter requires that benefits be related to wages and contributions.
While many have concluded that SSI failed to meet its initial objectives, its history and results offer relevant insights into the significant challenges involved in delivering some level of assured income to intended recipients.
Although the basic benefit structure of Social Security’s Primary Insurance Amount (PIA) is based on wages earned over a lifetime of work, the program does provide a minimum benefit, known as the Special Minimum PIA (enacted in the Social Security Amendments of 1972), for workers with very low career earnings. Another minimum benefit, the Social Security Minimum Benefit, was enacted in 1939, but stopped accepting new beneficiaries in 1982, and served a similar function as the Special Minimum PIA.
The purpose and structure of both minimum benefits might provide the basis for Social Security itself to include some form of assured income for more individuals. Policymakers will need to determine key benefit features, such as eligibility requirements and the benefit amount.
How Assured Income Might be Financed, Structured and Administered
The use of trust funds is a key feature of social insurance. Currently there are such funds for Old-Age and Survivors Insurance, Disability Insurance, Medicare Hospital Insurance, and Supplemental Medical Insurance.
An assured income program might establish a similar trust fund, with two possible differences: the new fund might be authorized to invest in securities other than Treasury bonds, and potential additional revenue sources may be considered. If the trust fund does not authorize investments in securities other than Treasury bonds, it will rely on direct distribution of revenue as social insurance funds generally do. If, however, investment is authorized, the trust fund might distribute revenue from investments, as pension funds and sovereign wealth funds do.
The Social Security Administration might integrate the management of assured income with administration of current programs, using its existing data base, computer systems, and local offices.
Two possible sources of funds for financing an assured income can readily be identified: a single, large, and heretofore untapped revenue source; or a combination of smaller sources. More in-depth examination of the concept might identify other sources.
Historically, insured income has been funded by a single source: contributions divided equally between employees and employers. Another large and heretofore untapped revenue source that might be used for assured income, however, is a national sales or value-added tax (VAT).
Combinations of other potential revenue sources that might have a more progressive impact may also be considered. These fall into two buckets: taxing unearned income and using the revenue generated by common wealth.
This concept paper lays the groundwork for a further in-depth assessment of the value of an assured income vehicle. A more comprehensive study would evaluate an assured income program in relation to other types of income support, such as child care credits, the Earned Income Tax Credit, Temporary Assistance to Needy Families, and Unemployment Insurance. One potential platform for such an in-depth assessment might be an Academy Study Panel on Economic Security. The Academy, through an interdisciplinary Study Panel, may seek to compare the three modalities of social insurance, social assistance, and assured income as interrelated instruments to address economic inequality.