Nancy Altman and Eric Kingson will be joining us at 7pm ET tonight for an emergency FDL member Town Hall on the looming threat to Social Security and Medicare.  Today they respond to the statement issued by Bob Greenstein of the CBPP in support of cuts to Social Security benefits.

Nancy Altman

Nancy Altman

This Friday, Bob Greenstein, the founder and President of the Center on Budget and Policy Priorities and someone we hold in high regard, issued an unfortunate statement. He explains why he supports a technical change in the Social Security/SSI COLA which, if enacted, would cut benefits for today’s and tomorrow’s beneficiaries. He acknowledges that the current COLA understates the impact of inflation on older American’s benefits. He doesn’t seem to think that the Gang of Six’s and President Obama’s proposed COLA cut really is a good way to index benefits, but he is willing to support the change if several things fall in place.

Specifically, Bob states:

Adoption of the chained CPI would raise some issues for elderly people, because a larger share of their consumption than of the average person’s consumption consists of out-of-pocket health care costs. Since health care costs rise faster than the overall inflation rate, the fact that older people have larger health care cost burdens modestly raises the level of inflation they experience. As a result, both the regular and the chained CPI somewhat understate inflation for the elderly population as a whole.

On the other hand, policymakers will agree to switch from use of the conventional CPI to the chained CPI only if they make this change government-wide — in benefit programs and the tax code alike. And doing so would produce substantial deficit reduction over time, and also would somewhat narrow Social Security’s long-term financing shortfall. We have long favored this policy change, provided that policymakers couple it with measures to soften the impact on the very old and people who have been disabled for an extended period of time (since the effects of moving to the chained CPI mount with the number of years that an individual receives benefits).

Eric Kingson

Eric Kingson

Like many of us who have examined the impact of the proposed chained CPI on older Americans, Bob does not accept the proposition that it provides a more accurate way of measuring the impact of inflation on older Americans who receive OASDI and/or SSI benefits (and probably not on persons with disabilities, either). In fact, his statement implies that the Bureau of Labor Statistics’ Experimental CPI for Americans 62 Years and Older” (CPI-E) provides a more accurate measure than either the chained CPI or the current measure, the CPI-W.

Even so, he is making a judgment that it is okay to compromise the idea that OASDI and SSI benefits should maintain their purchasing power no matter how long someone lives, in exchange for some revenues that help to reduce the long-term deficit. He is willing to make this trade even though two-thirds of the savings would come from the benefit, not the tax, side. (That one- third from taxes assumes that taxes are not lowered elsewhere to offset the increased revenue. Perhaps, most serious, the revenue raised disproportionately hits low and middle income taxpayers.

He also assumes that a “birthday bump” or some such change will be instituted to offset the impact on people who will see their benefits cut for many years, though none is included in the Gang of Six materials and none has been mentioned as part of the Obama-Boehner negotiations.

We respect CBPP, Bob and all associated with the Center. However, we think Bob and some other well-intentioned persons are making a serious miscalculation in their measured support for the chained CPI benefit cuts because:

First, Social Security policy (and a significant change in the program) should not be made in the context of deficit reduction discussions. As many pay lip-service to, even as they violate this fact, Social Security does not contribute to the federal deficit. Americans should not be stampeded into accepting any changes in this program in the context of last minute and bizarre deficit reduction negotiations by elites, many of whom seem to have forgotten their promises to the Americanpeople that they would not cut Social Security for anyone aged 55 or older.

Second, benefits are modest on average, just $14,000 a year for retirees. The cuts that are being proposed in the name of shared sacrifice, mean that 10 years hence, the typical retiree would receive about $600 less in that one year than under current law; 20 years hence, about $1000 less. Moreover, this change hits all beneficiaries – people with disabilities and their families, as well as children and spouses of workers who have died. For all beneficiaries, benefits average just $13,000.

Third, in supporting the “chained CPI,” CBPP, a deservedly-respected institution, is making it known that it is open to giving up a “piece” of Social Security, without getting anything in exchange for the program (e.g., restoration of the cap to cover 90% of earnings).

Fourth, in the current political environment, it is possible that we’ll end up with the chained CPI applying to benefits, but not to tax brackets as Bob considers critical.

And fifth while it is comforting to think we can get a change that ameliorates the pain of cutting benefits (e.g., the birthday bump that Bowles-Simpson proposed), there is no guarantee and, like the Bowles-Simpson Birthday bump proposal, an increase in benefits after twenty years of receiving benefits, it is likely that an offset would fall far short of undoing the damage for done to today’s and tomorrow’s beneficiaries. Those beneficiaries would experience annual erosion of their purchasing power for decades, only to be rewarded, if they should live into their eighties, to have a portion of those lost benefits returned.

Mert Bernstein, Walter D. Coles Professor Emeritus at Washington University and another respected expert, cautions that “The advocates of a strong Social Security program should not do anything that encourages the President’s propensity to make concessions as a way of showing that our side is willing to give up things of value to spur on the bargaining process. That is all the more the case when the reasoning in support of the chained COLA is so poor.”

Bernstein is right. Progressives need to send a strong message that a COLA cut is unacceptable, no matter what it is called and most especially when it is being used to show that Democrats are willing to give up their historic support for Social Security in exchange for getting Republican sign-on to a disastrous deficit-reduction deal.