Social Security "reform" advocates like former Senator Alan Simpson claim they will shield young people from future tax burdens. Simultaneously they assure seniors that they would be exempt from benefit reductions. If that were true, only benefits to those below age 55 or 57 or 60 (Simpson uses all three) would be cut. But then, the rules of the game under which most people have been working and contributing for decades would change. The budget hawks are whispering bogus sweet nothings.
The most touted "reforms" would: reduce benefits outright, raise retirement age (also lowering benefits) and trim COLA (ditto). In other words, "reform" would protect against future tax increases by reducing most participants' benefits. Once people realize that, the promised exemption for seniors will most likely evaporate. So far, the media, diverted by Senator Simpson's cornpone expostulations, do not report these underlying realities. Senator Simpson is not a Tea Party loudmouth; he's President Obama's pick to co-chair the new Committee on Fiscal Responsibility. Co-chair Erskine Bowles' assurance to a banker's convention that "We'll mess with Social Security", drew sparse media attention. Corn pone or boring prose, their plans will hurt - everyone.
Recently on 60 Minutes, Senator Simpson described Social Security recipients as "people who live in gated communities and drive their Lexus to" dine out. In the real world, after the meltdown of stock market, pension plans, 401(k) s, IRAs, and home value, program beneficiaries, including over 3 million children, will depend more heavily than ever on Social Security's modest benefits. This year retiree benefits average $1,168 a month (many get less); $13,016 a year is not Lexusland, its penny pinching territory. On average, women earn less, draw lower benefits and less frequently receive pensions than men, making their Social Security benefits especially crucial.
Raising normal retirement age would reduce benefits for those retiring thereafter. No one can justify moving the goal posts that way for millions who have already contributed to the program for decades.
The "reformers" argue that because we live longer, we should work longer. That ignores people worked out by hard jobs. And the "reformers" offer no measures to assure available jobs, nor measures to curb the inducement for employers to minimize employing older people because their health insurance costs more. Indeed, many employers seeking to reduce costs offer early retirement inducements to employees, often spiced with warnings that, if too few "voluntarily" elect retirement, layoffs will ensue. While some "experts" favor raising retirement age, the prospects of job loss and lifetime benefit reductions chill most everyone else.
Some urge reducing COLA, claiming that it overstates inflation. In reality, the current formula catches up to past prices, not current ones, and so chronically trails rising prices. And, its formula averages medical care costs, thereby understating the higher health care costs of older people.
Federal Reserve chairman Ben Bernanke explained the budget hawks' focus on Social Security "because, to quote bank robber Willy Sutton, that's where the money is." "The money" is already over $2.4 trillion of reserves, accumulated from payroll taxes and interest the U.S. Treasury owes for borrowing from Social Security to pay other government expenditures. The deficit causing so much alarm stems largely from the Bush Administration's borrow-and-spend policies, the financial meltdown resulting from the burst real estate bubble, the stimulus measures they made necessary, the Bush tax cuts, two major foreign wars and long-term tax breaks that go mainly to the wealthy. In contrast, Social Security pays its way, causing not one dime of deficit.
Many believe that Social Security is unsustainable because, with Baby Boomers retiring, the beneficiary population will grow faster than the working population, resulting, they fear, in too few young people to support them. This oversimplification simply ignores that increasing the employee and employer FICA tax rate by one percentage of payroll each would generate 75-year actuarial balance. Living standards would rise because, same projections show, incomes will rise more than those modest contribution increases. That outcome results from improving productivity - the greater output of goods and services by each person working, generating more to share.
We don't hear that message or the deficit-reducing potential of Candidate Obama's popular proposal to raise the cap on income subject to the payroll tax. Rather the "reformers" and media warn that without benefit cuts and/or higher retirement age we face national bankruptcy, that we must cut benefits to persuade foreign investors to buy U.S. Treasury bonds. In reality, foreign investors are flocking to buy Treasury issues, the ones so often derided by "reformers" as worthless iou's, despite the hawks' cries of "wolf."
Cutting Social Security beneficiary purchasing power by tens of billions would damage most of us, including the legions of merchants beneficiaries patronize. Those businesses employ countless others, whose wages go to purchase the goods and services of yet other employers. The famed Samuelson and Nordhaus describe this "multiplier effect," as "an endless chain of secondary consumption respending."
Cutting Social Security benefits is bad for beneficiaries, bad for business, bad for the economy.
Merton C. Bernstein is a Walter D. Coles Professor of Law Emeritus at Washington University in St. Louis and a founding member of the National Academy of Social Insurance.
Joan Brodshaug Bernstein is a retired Attorney and she co-authored with Merton C. Bernstein, Social Security: the System that Works, Basic Books, 1988, paperback 1989, numerous articles on Social Security, Medicare and universal health insurance, and edited Merton C. Bernstein's The Future of Private Pensions, Free Press, 1964 that received the Elizur Wright Award from the American Risk and Insurance Association.
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The numbers don't lie.
Of course, Republicans and deficit hawks (which compose the Committee on Fiscal Responsibility) are interested in benefit changes rather than financial tweaks because they never met a working person they wouldn't rather see poorer. That is the real reason behind Alan Simpson's "cornpone expostulations" on changing Social Security, as you so accurately describe them because Social Security adds nothing to the deficit.
And no, tweaking the contribution rate to keep Social Security solvent is not changing the rules, it's exactly what we've been doing since almost day #1. Dismantling and privatizing the program - those are game-changers we can do without. Keeping the program alive with minor adjustments is what we should expect from this Administration.
Why not? The rules were "you pay 2% of your income in Social Security taxes, you get Social Security benefits at age 65". Now the rules are "you pay 12.4% of your income in Social Security taxes, you get Social Security benefits at age 67". Increase the tax rate is definitely a change in the rules. I don't know how it could possibly be interpreted differently.
"it's exactly what we've been doing since almost day #1."
Just because we've been doing it since day 1 doesn't mean it's not changing the rules. That's a false dichotomy.
The rules of the game have been changing since Social Security started - that's part of the problem. The Social Security tax rate has been increased 520% since the program's inception. The tax base has been increased 135% (over inflation) since inception. The full retirement age has been pushed back from 65 to 67. It seems awfully hypocritical to complain about potential future changes to the rules when that's been the status quo for years.
This oversimplification simply ignores that increasing the employee and employer FICA tax rate by one percentage of payroll each would generate 75-year actuarial balance.
Isn't that changing the rules of the game?
They started gradually raising the full retirement age to 67 in 1983. It is 66 now. The higher the full retirement age is, the more you lose if you retire sooner than full retirement age, so they really should not raise the full retirement age to 70. I am not convinced that we are living that much longer.
We adjusted in 1983 for the 2 years we would live longer.
Raise taxes on those who are making millions in order to repay Social Security as it is needed. The rich have enjoyed tax cuts for years at Social Security's expense.
The bonds that the government owes Social Security are as legal as any bonds in our 401k. They need to prepare to pay them. It isn't like they have to pay them all at once, just the shortage each year.
No! Really?
Why not just keep the same benefits? Wait! because they will not be paid due to bankruptcy. Indeed, unless SS benefits are cut (by raising the retirement age, or any other means) the system will INEVITABLY go bankrupt. It is only a matter of time.