06/08/2012 05:34 pm ET Updated Aug 08, 2012

An Open Letter to Maya MacGuineas: Don't Whitewash the Bowles-Simpson Plan's Social Security Cuts

Dear Maya MacGuineas, President of the Committee for a Responsible Federal Budget,

I read your recent blog post, "The Facts on Social Security Reform and Intergenerational Equity," with great interest. In it, you attempt to rebut the young Social Security experts' argument in our letter to Senator Alan Simpson that the Bowles-Simpson plan would harm Social Security for young people. Unfortunately, the piece misrepresents the facts about the Bowles-Simpson plan and does not provide an accurate picture of the scale of its benefit cuts for young people.

First, your post argues that benefits would grow faster than inflation under the Bowles-Simpson plan. This point, while technically true, is irrelevant. Social Security benefits are intended to help people maintain the standard of living they enjoyed in their working years when they reach old-age, or in the event of a severe disability or death. That is why retirement policy analysts most often look at Social Security's replacement rate -- the percent of a person's pre-retirement earnings it replaces -- when assessing the adequacy of its benefits. The Bowles-Simpson plan would reduce Social Security's replacement rate for the average worker claiming benefits at age 65 in 2080 from 36 percent to 28 percent, according to an analysis by the Economic Policy Institute.

In addition, the Committee for a Responsible Federal Budget (CRFB) blog post moves the goalposts to make the Bowles-Simpson plan's benefit cuts seem smaller. Rather than compare benefits under the Bowles-Simpson plan to currently scheduled benefits, you compare them to "payable benefits" -- what the program would be able to pay if Congress did nothing to address the shortfall. It is absurd to use such an unlikely occurrence as a baseline scenario. Social Security has faced far more imminent financial shortfalls in the past and Congress has never once failed to act before it was too late. Recently, in response to a critique by Andrew Fieldhouse of the Economic Policy Institute, CRFB updated the post to include a column for scheduled benefits. But the blog post still does not compare benefits under the Bowles-Simpson plan with those benefits.

Further, by comparing initial benefits at age 68 under the Bowles-Simpson plan with initial benefits at age 67 under current law, your post hides the across-the-board benefit cuts that would result from increasing the full retirement age, a roughly 6-7 percent cut for each year the retirement age is raised. While workers might choose to work longer if the full retirement age increased, they would still be getting significantly less than if they retired at that same age under current law, because Social Security provides greater benefits on a sliding scale from ages 62 to 70. As this chart from Social Security Works shows, a two-year increase in the full retirement age is an across-the-board benefit cut of about 13% at whatever age one chooses to claim benefits.

Even if you do not accept the Social Security Administration's comparison of how different plans would affect workers at age 65, an accurate comparison of the Bowles-Simpson plan with either currently scheduled benefits or payable benefits would look at workers retiring at the same age. When benefits are compared at the same ages, the Bowles-Simpson plan does not compare as favorably to doing nothing. The Bowles-Simpson plan cuts benefits significantly more than if the shortfall were to take effect for the top one-quarter of earners, and is nearly as severe for the 31 percent of retirees with average lifetime earnings. (See table 1B1 in the Chief Actuary of Social Security's estimates of the Bowles-Simpson plan.) This has the added effect of eroding the link between benefits and earnings, over time transforming Social Security from wage insurance into more of a welfare-style program.

You cite the Bowles-Simpson plan's modest revenue increases as evidence that the plan is "balanced." In fact, the Bowles-Simpson plan consists of two-thirds benefit cuts and one-third revenue or spending increases. To be sure, the plan does raise revenue -- primarily by lifting the cap on earnings subject to the payroll tax up so that it covers 90 percent of the country's earnings. But this merely fixes a fluke of income inequality in which earnings above the cap have grown disproportionately in the past thirty years. Getting the cap to cover 90 percent of earnings is a bare minimum step agreed on by all sides -- not a major revenue increase that distinguishes the Bowles-Simpson plan as "balanced."

We appreciate your recognition that the Bowles-Simpson plan is not the "only approach to fixing Social Security." But if we are to have an honest debate about the future of Social Security, we should not hide the impact that the Bowles-Simpson plan -- or any other plan -- would have on young people. Your blog post, "The Facts on Social Security Reform and Intergenerational Equity," does not meet this standard. It conceals the Bowles-Simpson plan's benefit cuts. That is why we are requesting that you publish our letter prominently on your website as a correction, or at a minimum, as a rebuttal and that you distribute it via your listserv, so those who saw your original post may get a more complete picture.

Finally, we continue to maintain that any plan to "fix" Social Security should reflect the economic reality facing young Americans, rather than just make Social Security solvent for solvency's sake. In light of the decline of traditional pensions, the volatility of the stock and housing markets, and the increasing accumulation of student debt, Social Security is more critical for young people than ever. That is why we support across-the-board benefit increases. We would like to know: What solutions do you propose for the coming retirement income crisis besides a plan that would exacerbate this crisis by cutting Social Security benefits, the last stable source of retirement income? We still look forward to having a public discussion with Senator Simpson, but absent that opportunity, we invite one of the Committee for a Responsible Federal Budget's young experts to debate Social Security and how best to address the retirement crisis with one of us in a public setting.


Daniel Marans
Policy Director, Social Security Works & the Strengthen Social Security Campaign