President Obama's deficit commission released its preliminary proposals yesterday, which include changes to Social Security. While I can't applaud the commission's broader tax and spending proposals, Democrats should welcome the commission's Social Security options. The Social Security changes include:
1) an increase in the "tax max"--the amount of taxes subject to Social Security taxes;
2)a new, wage-indexed, special minimum benefit for lifelong low earners;
3)an additional minimum benefit for the oldest Social Security beneficiaries, to kick in later in retirement;
4)a slight reduction in the annual cost of living adjustment (COLA);
5)a slight reduction in the benefit formula that will only affect those with higher than average earnings; and
6)a very gradual increase in the full retirement age (FRA) from 67 to 69.
Of these, only the FRA change can be considered as "regressive", but it's by no means a radical proposal, and there are several minimum benefit sweetners to make sure the lowest lifetime earners aren't adversely affected.
But why agree even to these? Because it isn't going to get better. A poorer performing economy means the estimated exhaustion date for Social Security's Trust Fund, currently projected to be 2037, will in all likelihood, only continue to creep closer. And the longer a long term fix is put off, the worse the fixes will need to be. Besides this, we can't know what the political climate will be in six, ten or 18 years. Quite possibly, it could well be worse than today.
This Social Security package would restore long term solvency, go a long way towards protecting it from would-be privatizers, and enhance benefits for the lowest lifetime earners through two new provisions. It also includes a tax max increases, which progressives tend to support. The benefit formula reduction--which some Progressives erroneously liken to "means-testing"--is actually just an extension of the already existing progressive benefit structure. This criticism seems particularly odd coming from progressives who normally want the more well to do to bear the brunt of any Social Security fixes. Progressives can't clamor for higher payroll taxes or higher limits to the "tax max" while simultaneously criticizing benefit reductions that affect higher-than-average earners. In short, this is overall a pretty progressive package of changes to the program, which Progressives and Democrats should support.
7 comments:
Paul Krugman's best point (which I have yet to see addressed by any of the plan's boosters) is that life expectancy has not climbed nearly as much for low income earners as it has for the well to do, so it seems particularly unfair to penalize the poor by raising SS benefits eligibility age when shortfalls are largely a result of rich people living longer. In addition, the poor are more likely to be emplyed in physical labor than the wealthy, so this is a double whammy against them.
I'd only want to tie changes to the retirement age to income and/or something that distinguishes (a) Budget Panel members sitting in office chairs from (b) people performing physical activity, to put the matter with some snark.
I'd also wish for a full lifting of the cap on taxable income, but frankly, that can be done separately in exchange for a reduced overall rate, I hope.
I believe the commission has proposed an earlier retirement age (62 I think) for those who are physically incapable of continuing their work. In terms of Krugman's wider point, obviously improved healthcare access earlier in life should help to some degree. But let's face it, many low income americans have reduced life expectancy because either (A) they smoke, or (B) they are obese. I'm not sure either of these choices justifies an earlier retirement date.
I'm personally a bit more open to nudging up the retirement age than a lot of liberals, but the S-B plans' recommendations go well beyond this, and in my view are very risky and overly complicated.
The "slight reduction" in COLA strikes me as needlessly risky, since one of Social Security's best features is that it serves as insurance against a precipitous drop in living standards if one lives a very long time. A person who dies for or five years after retirement age might not notice a reduction in the COLA formula, but what about a person who makes it to 85? Or 95? Such lifespans are becoming increasingly common.
I also think changing the formula to set initial benefits higher for poorer retirees, and lower for their wealthier counterparts, should be resisted at all costs. Such a policy shift sounds reasonable in theory, but if you think Social Security is surprisingly vulnerable to right wing attacks now, just wait until folks with six figure incomes realize the program is getting significantly less generous for them. We nudge Social Security more in the direction of a redistributionist "welfare" program at our peril. One of the status quo's merits is its simplicity: a near universal, basic public pension that nearly everybody contributes to while they're working, and nearly everybody benefits from when they retire, with benefits tied to total contribution (ie., wealthier workers get larger checks, but pay more in payroll taxes while they're working). The system as constituted already is mildly progressive; it need not become more so at the cost of reduced political support.
As for the supposed ability of workers with physically arduous jobs to enjoy an earlier retirement date, I say again, it's risky to start slicing and dicing up workers into multiple eligibility categories. Moreover, who gets to determine what level of physical strain merits early retirement, and what doesn't? It sounds very complicated. I'd much rather we simply come up with a different program -- ideally on a largely-self funding basis (ie., a government sponsored, voluntary, long-range individual savings/wage replacement system with government match) to deal with people who find they need to exit the workforce early (or accept much less remunerative employment), either because of health issues or because of economic obsolesce/permanent layoff. (We have SS Disability as is, but I'm given to understand it needs to be radically overhauled as it's both antiquated and wasteful).
So, to sum, my advice is: keep it simple. Raise the payroll tax threshold to keep the program solvent, and, if we really must harvest some savings for overall budgetary purposes, gently raise the retirement age by a year or two for people with plenty of time to plan.
Social Security at worst needs minor adjustments. Simpson-Bowles is a radical departure.
Jasper_in_Boston
I'm personally a bit more open to nudging up the retirement age than a lot of liberals, but the S-B plans' recommendations go well beyond this, and in my view are very risky and overly complicated.
The "slight reduction" in COLA strikes me as needlessly risky, since one of Social Security's best features is that it serves as insurance against a precipitous drop in living standards if one lives a very long time. A person who dies for or five years after retirement age might not notice a reduction in the COLA formula, but what about a person who makes it to 85? Or 95? Such lifespans are becoming increasingly common.
I also think changing the formula to set initial benefits higher for poorer retirees, and lower for their wealthier counterparts, should be resisted at all costs. Such a policy shift sounds reasonable in theory, but if you think Social Security is surprisingly vulnerable to right wing attacks now, just wait until folks with six figure incomes realize the program has become significantly less generous for them. We nudge Social Security more in the direction of a redistributionist "welfare" program at our peril. One of the status quo's merits is its simplicity: a near universal, basic public pension that nearly everybody contributes to while they're working, and nearly everybody benefits from when they retire, with benefits tied to total contribution (ie., wealthier workers get larger checks, but pay more in payroll taxes while they're working). The system as constituted already is mildly progressive; it need not become more so at the cost of reduced political support.
As for the supposed ability of workers with physically arduous jobs to enjoy an earlier retirement date, I say again, it's risky to start slicing and dicing up workers into multiple eligibility categories. Moreover, who gets to determine what level of physical strain merits early retirement, and what doesn't? It sounds very complicated. I'd much rather we simply come up with a different program -- ideally on a largely-self funding basis (ie., a government sponsored, voluntary, long-range individual savings/wage replacement system with government match) to deal with people who find they need to exit the workforce early (or accept much less remunerative employment), either because of health issues or because of economic obsolesce/permanent layoff. (We have SS Disability as is, but I'm given to understand it needs to be radically overhauled as it's both antiquated and wasteful).
So, to sum, my advice is: keep it simple. Raise the payroll tax threshold to keep the program solvent, and, if we really must harvest some savings for overall budgetary purposes, gently raise the retirement age by a year or two for people with plenty of time to plan.
Social Security at worst needs minor adjustments. Simpson-Bowles is a radical departure.
Jasper_in_Boston
Unfortunately, logic has no home in politics. Wealthier folks, just as they can stand to give up more of their income in taxes, can stand to get less in Social Security. It really is not a critical part of retirement financing to the top 10% of Americans.
However, as Jasper noted, the fact that everyone gets paid is critical to the political support of the system. Case in point: Medicare is to be protected from government intervention (ha!), but Medicaid is a bloated, overly generous program for Welfare Queens and Drug Dealers and Useless Lazy Bums of all stripes.
If Social Security becomes tiered, it will be abolished within a decade, mark my words. The insidiousness of this approach is that it is logical. But politically it is the death knell for the program.
guess what, you can't "take the deal" now that comes do in 2037. whatever "deal" you make now will mean the same thing that "saving social security" in the 80s meant now -- fuck all.
Post a Comment