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Ten Reasons Why the Chained CPI Is Terrible Policy

1:21 pm in Uncategorized by Daniel Marans

Now that Christmas is over, President Obama and Speaker Boehner will soon resume talks to cut Social Security as part of a deal to avert the fiscal cliff. Here are ten reasons why the chained CPI–the Social Security cut they are considering–is terrible policy.

I spoke about this with David Shuster on last Saturday’s Take Action News. Check out the video of our discussion here. Then, subscribe to Take Action News TV on YouTube. It’s free.

1. Chained CPI is a significant benefit cut that compounds over time, hitting late old-age beneficiaries and the long-time disabled hardest. For a worker with average earnings retiring at age 65 in 2015, chained CPI would cut benefits $653 a year (3.7%) at age 75, $1,139 a year (6.5%) at age 85 and $1,611 a year (9.2%) at age 95.

2. Chained CPI hits current beneficiaries. Even Paul Ryan tried to hold people ages 55 and older harmless from his plan to privatize Medicare (and Social Security before that). Seriously. Check out page 52 of his 2013 budget, and every speech he ever gave on the topic. The theory is, if you’re gonna burn people, give them some time to adopt a Spartan lifestyle for several years so they can make up for the lost pension money in time for retirement.

3. Chained CPI cuts benefits for veterans. At least 771,000 veterans receive both Social Security and VA disability benefits. Under chained CPI, both would be cut. A fully disabled veteran claiming benefits at age 30 in 2012 would see a cut in VA benefits alone of $1,425 a year (4.3%) at age 45, $2,341 a year (7%) at age 55, and $3,231 a year (9.7%) at age 65.

4. Chained CPI cuts benefits for the indigent elderly and disabled on Supplemental Security Income (SSI). Do I need to add detail here? These are the poorest of the poor.

5. Chained CPI is less accurate for seniors and people with disabilities. Chained CPI assumes people can substitute cheaper products as prices go up, but this is not true of seniors and people with disabilities for whom health care makes up a larger share of expenses. In 2009, health care made up 12.9% of expenses for people 65 or older, but 5.3% of spending for people ages 25-64.

6. A more accurate CPI for Social Security is the CPI-E, not the chained CPI. The CPI-E, or experimental Consumer Price Index for the Elderly, weights health care and housing costs more heavily to simulate the basket of goods consumed by seniors. On average, it increased 0.2 percentage-points more annually than the current CPI.

7. Social Security benefits are already declining due to increases in the retirement age and Medicare premiums. After Medicare premiums, Social Security replaced 37 percent of the pre-retirement earnings of a typical worker retiring at 65 in 2010, and is projected to replace 32 percent of the same worker’s earnings in 2030.

8. Social Security does not contribute to the deficit. Social Security is self-funded, it is off budget, and it cannot borrow to pay benefits. Therefore it cannot contribute to the deficit. Just take President Reagan’s word for it. There is no good reason to include it in fiscal cliff negotiations. In fact, it has never been included in budget negotiations. The famous Reagan-O’Neill Social Security compromise of 1983? They did it through a Commission devoted solely to Social Security–not the general budget deficit.

9. Giving away a benefit cut for no additional Social Security revenue is foolish. Yes, Chained CPI generates additional income tax revenue (albeit in a regressive way). But it gives Social Security no new revenue. Even Simpson-Bowles tried to do that.

10. “Birthday bump” and other sweeteners are inadequate. The chained CPI’s apologists say they will hold the poor and people in late old age harmless through a “birthday bump” in the 20th year of benefits eligibility. As the graphs here and here show, however, this only offsets the benefit cut significantly if you live past 90, and even then doesn’t make up for the chained CPI.

The Reagan-O’Neill Myth of Bipartisan Social Security Reform

8:35 am in Uncategorized by Daniel Marans

As far as 80s trends go, the resurgent popularity of Ronald Reagan and Tip O’Neill rivals that of skinny jeans and Members Only jackets. But were Reagan and O’Neill really as chummy as some people would have us believe?

This post is based on an analysis I provided on the November 17 episode of Take Action News with David Shuster in the last 5 minutes of Hour 3. Podcast available here. Read the rest of this entry →

Social Security COLA Cut Will Drive African American Women Into Poverty

10:54 am in Uncategorized by Daniel Marans

Views expressed are those of the author, and do not reflect the views of Social Security Works or the Strengthen Social Security Campaign.

The chained CPI, a Social Security COLA cut on the table in deficit talks between the President and Republicans, could dramatically worsen poverty among unmarried senior African American women. As such, it violates the request of major progressive organizations in a letter to the White House and Congressional leaders to “make sure that deficit reduction is achieved in a way that does not increase poverty.

According to the National Women’s Law Center’s analysis of Current Population Survey data, in their report on how the chained CPI would affect women, the median annual Social Security benefit for a 65-year-old single African American woman is $10,680. (By contrast, the median benefit for all single senior women is $13,200.)

That puts the median benefit for African American woman seniors just above the 2010 poverty line for individual seniors, which is an obscenely low $10,458.

Which brings us to the chained CPI (consumer price index), an obscure change to the COLA formula that would cut benefits more with each passing year. If the chained CPI were adopted, by age 70—after just five years of collecting Social Security benefits—the median benefit for African American single women seniors would dip below the poverty line, and continue on a downward spiral as those women age, cutting nearly $1,000 by the time they reach age 95.

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Click here for a jpg of the graph above.
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In Social Security Cuts, Look for the Chained CPI

7:18 am in Uncategorized by Daniel Marans

chains

chains by Sidereal, on Flickr


Although specifics have yet to officially emerge, there is little doubt that among the Social Security benefit cuts the President is proposing will be a reduction in Social Security’s annual cost-of-living adjustment (COLA) through an obscure change in the COLA formula known as the chained CPI.

Update for those who haven’t seen it: The Washington Post reported last night that President Obama is “proposing significant reductions in Medicare spending and for the first time is offering to tackle the rising cost of Social Security,” in a meeting with top House and Senate leaders this morning. Apparently those cuts to Social Security and Medicare would be part of a $4 trillion debt reduction package—a larger deal than the $2 trillion one that had been talked about until this point.

There are a number of reasons why the Social Security cuts are sure to include the chained CPI. Chief among them is that it has been known for weeks now to be “on the table” in debt-ceiling negotiations. Here is Sen. Dick Durbin (D-IL) on June 29 in Tax Analysts:

“It’s a possibility, but no decision’s been made,” Senate Democratic Whip Richard J. Durbin of Illinois said of [the chained CPI’s] inclusion in the deficit reduction package being negotiated in conjunction with raising the debt ceiling.

Days earlier, on Dow Jones Newswire, Republican Majority Leader Eric Cantor (R-VA), refused to call the chained CPI a tax increase—though its effect on the tax code would be to increase revenue—effectively admitting that it was a policy Republicans could live with.

Asked whether the proposal would be interpreted as a tax increase and therefore a non-starter for Republicans, Cantor said it could be seen as both impacting tax rates and benefits paid out by the federal government.

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Why AARP’s Support for Social Security Cuts Matters

7:21 am in Uncategorized by Daniel Marans

(image: Dean Mougianis)

People are basically divided into two camps on the news that AARP has endorsed Social Security cuts. One thinks it’s a big deal, the other not so much. I’ve spent some time over the course of the Netroots Nation convention in Minneapolis explaining to the latter camp why it is in fact a big deal.

Much of the divergence of opinion hinges on what one makes of AARP’s attempts at damage control. After AARP’s policy director, John Rother, told the Wall Street Journal on Friday that they were open to cutting Social Security benefits, AARP issued a clarification supposedly “denying” that this was true. Or at least that’s how most people interpreted it. “Oh, don’t worry, that was a gaffe. AARP has clarified for the record that it’s not true.”

A closer look at AARP’s damage control statement, entitled “AARP Has Not Changed Its Position on Social Security,” reveals it to be a non-denial. The press release basically said that Rother’s remarks were non-news because they have favored a “balanced” Social Security reform package—ie one that includes cuts—for years. They use the language of many groups advocating cuts, emphasizing that “changes” won’t affect current beneficiaries. “It has also been a long held position that any changes would be phased in slowly, over time, and would not affect any current or near term beneficiaries,” AARP CEO A. Barry Rand, said in the press release.

In a follow-up interview, AARP director of legislative policy said, “Our policy for decades has always been that we basically support a package that would include revenue enhancements and benefit adjustments to get Social Security to long-term solvency. That has been our policy stated over and over again for, I mean, literally it has to be two decades, now.”

While some people were surprised to hear that AARP has supported cuts for decades, most of us knew that they have long relished the opportunity to be the inside dealmaker. AARP has also drawn scrutiny for its conflict of interest in taking certain political positions. When AARP came out in support of the 2003 Medicare Modernization Act, many criticized the organization for endorsing a bill that forced millions to pay more for drugs, and subsidized private plans—of which AARP was a provider. The allegations were investigated by the House of Representatives’ Ways and Means Committee.

That’s why AARP’s damage control did little to dampen the significance of Rother’s leak to the Wall Street Journal. It wasn’t the content of Rother’s remarks to the Wall Street Journal that had progressives up in arms. It was, as Roger Hickey has pointed out, the timing.

If AARP was so intent on keeping Social Security out of deficit discussions, then why signal their willingness to make a deal now, in the midst of the debt-ceiling negotiations, when reform would undoubtedly have to be part of a deficit deal—or at least be made in the context of Washington’s deficit hysteria? Whether it was AARP or Rother acting alone, the effect of declaring openness to Social Security to cuts was to give their politically powerful imprimatur to Washington to put Social Security back on the table.

And the political fallout is already beginning to take effect. No sooner had AARP made its announcement then leading Wall Street-funded groups used the political headwinds to call on Congress to act on a “balanced” Social Security reform deal. First it was the centrist Democratic group Third Way, which, chaired by Wall Street executives, has come under fire in the past for conflating Social Security with the deficit, and recommending massive Social Security cuts. Then it was the Peterson-funded Moment of Truth Project, co-chaired by Fiscal Commission co-chair Alan Simpson, whose disparaging remarks and severe recommendations about Social Security have earned him criticism from all sides.

That those influential groups are making political hay of AARP’s revelation is just the first sign that AARP has helped open the floodgates to Social Security cuts.

Unfortunately, it is hard to believe that this was a naive mistake and not a deliberate chess move. AARP has a habit of inserting itself into the debate at crucial junctures. Rother did virtually the same thing, in the same newspaper, back in August when the Fiscal Commission was developing its recommendations, which included cuts to Social Security that made the 1983 reforms look paltry by comparison.

Many progressive groups have turned their attention to defending Medicare and Medicaid as the terms of raising the debt-ceiling come to a head. Since the Ryan budget omitted recommending direct changes to Social Security, it has receded as a major focus of the left’s energy.

In truth, threats to Social Security—be it an extension of the payroll tax cut, or the chained CPI COLA reduction—while less public, have always remained on the table.

Now that AARP’s support for cuts has brought Social Security back to the fore of the deficit reduction talks in a more public way, progressives should adjust their focus accordingly.

Disclaimer: The views expressed in this article are those of the author, and in no way reflect the views of Social Security Works or the Strengthen Social Security Campaign.

Sounding the Alarms on Another Social Security Tax Cut

10:37 am in Uncategorized by Daniel Marans

Cleaver

Cleaver by Mark Coggins, on Flickr

The White House is considering adopting a temporary Social Security tax cut on employers to stimulate the economy as part of the debt ceiling negotiations with the Republicans, according to a Bloomberg News article.

If the Administration so much as puts another Social Security tax cut on the table, they will be throwing Social Security under the bus for uncertain—indeed, unlikely—economic gain.

It seems like déjà vu. Wasn’t it just last year that progressives had to talk themselves blue in the face explaining the harm that a temporary payroll tax cut would do?

In case you hadn’t heard, the Obama Administration already enacted a one-year 2 percent payroll tax cut on the employee side as part of the tax cut deal with Republicans in December 2010. The revenue that Social Security would have gotten from the missing 2 percent of taxable payroll is being replaced by a one-time transfer of $105.2 billion from the general fund. (Click here for more on how Social Security is funded.)

At the time, the payroll tax cut was criticized by progressives for endangering Social Security’s finances and undermining the program’s political underpinnings. A critique made by Nancy J. Altman, a nationally renowned Social Security expert and co-chair of the Strengthen Social Security Campaign, still offers the best explanation for why a payroll tax cut is disastrous. Her arguments remain just as true of a payroll tax cut for employers. Here it is in a nutshell (though Nancy’s full critique is a must-read):

  • Gradually defunds Social Security.

    The payroll tax cut will almost undoubtedly outlast its one-year expiration date. As the debate over the Bush tax cuts illustrates, taxes are easy to cut, but hard to restore, whatever the expectations are when enacted. Maintaining the reduced payroll tax rate would require the general fund to continue to transfer a growing amount of revenue to the Social Security Trust Fund amid mounting pressure to cut spending from the general budget. Social Security would have to compete with all other domestic spending programs for its share of a rapidly diminishing pie. The result would be both a real financial crisis for Social Security, and a crisis of public confidence in the program’s integrity.

The Importance Of Being Alan: A Response To Alan Simpson’s Conservative Defenders

12:02 pm in Uncategorized by Daniel Marans

Simpson Bowles - Caricature

Simpson Bowles - Caricature by DonkeyHotey, on Flickr"

 

Try as they might, conservatives cannot rescue Fiscal Commission Co-Chair Alan Simpson from self-marginalization. But while Simpson’s revealing gaffes remain a welcome political gift for opponents of Social Security and Medicare cuts, his staying power in elite policymaking circles only attests to the sad and distorted state of our nation’s fiscal debate—and the powerlessness of mainstream America within that discussion. That Simpson was probably the most prominent Republican President Obama could find to chair the Commission, is just the latest sign of how Democrats have had to define “moderate” down to slightly-left-of-nutjob.

Charles Blahous, a conservative Social Security expert, and public trustee of the Social Security trust funds, tries to undo the damage done to the Fiscal Commission’s credibility by Ryan Grim’s conversation with Fiscal Commission Co-Chair Alan Simpson. While some of the points he makes are valid, all fail to restore confidence in Simpson as a prominent voice on Social Security policy, or the fairness of the process by which the Fiscal Commission developed its recommendations.

Here’s the rundown. Grim found Simpson cursing out AARP, calling Social Security a “Ponzi scheme,” and claiming that life expectancy was 63 when Social Security was created at an event hosted by the Investment Company Institute, a financial industry trade group.

Grim caught up with Simpson and challenged him on the life expectancy statistics. It turns out, Grim noted, that according to the Social Security Trustees, life expectancy if you reached age 65 was 79.7 years for women and 77.7 years from men. Overall life expectancy was lower because of high infant and childhood mortality rates that medical advances have since been largely eliminated. Contrary to Simpson’s implied argument that Social Security was intended to cover very few people, the life expectancy statistics at age 65 confirmed that it served a very real segment of the population.

Simpson responded with confident disbelief, saying, “Just because a guy gets to be 65, he’s gonna live to be 77? Hell, that’s my genre. That’s not true.”

Chuck Blahous defends Simpson, claiming that Simpson was clearly confusing life expectancy at any age with life expectancy at age 65. In any event, Blahous argues, Simpson’s point stands that overall increases in life expectancy have made Social Security’s finances unsustainable. Simpson’s statement does not discredit the Bowles-Simpson [Fiscal Commission] recommendations, because the “Commission” used SSA’s estimates of both kinds of life expectancy, regardless of what Simpson said. Finally, the ongoing 1983 increase in the normal retirement age from 65 to 67, Blahous says, does not account for the full increases in life expectancy

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Orrin Hatch Smears Social Security At Senate Finance Hearing

12:15 pm in Uncategorized by Daniel Marans

Senator Orin Hatch

Senator Orin Hatch by Leadership Conference on Civil and Human Rights, on Flickr

This week was chock full of GOP Senators ignoring or actively distorting the truth about Social Security. Senator Orrin Hatch (R-UT), ranking member on the Senate Finance Committee, made his own disingenuous contribution to the volumes of conservative misinformation about the program at a Committee hearing on Tuesday.

Welcome to the club, Senator Hatch. Last Friday, former Senator and Fiscal Commission Co-Chair Alan Simpson (R-WY) called Social Security a “Ponzi scheme” and wished away inconvenient facts about life expectancy. Ezra Klein and Jonathan Chait have already covered that issue top-to-bottom. But Hatch’s less colorful distortions have been absent from the media. In his opening statement at Tuesday’s hearing, “Perspectives on Deficit Reduction: Social Security,” Hatch parroted the frequently deployed–and frequently discredited–canard that the Social Security trust fund is “just a bunch of IOUs.”

For many years, the Social Security Trust Fund ran surpluses. Under the unified budget, those surpluses masked the size of the deficits the federal government was running. By law, the trust fund is made whole by the issuance of Treasury IOUs to the trust fund to reflect the surpluses and interest. In the late 1990s, under a Republican Congress and Democratic President, that trend reversed briefly, but returned back to normal under Congresses and Presidents of both parties. … To be sure, those IOUs sitting in the Parkersburg, West Virginia offices of the Treasury’s Bureau of Public Debt are claims against the federal government. They’ve got to be paid. How will they be paid if the trust fund comes to rely on them?

Hatch’s remarks are confusing. On the one hand, he concedes that the trust fund’s treasury bonds are “claims against the federal government” that have “got to be paid,” but then he refuses to call them United States Treasury bonds, opting instead for the belittling “Treasury IOUs” and “IOUs.” (A cursory look at the Social Security Administration web site clears up any doubt about the status of the trust fund bonds. “By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government.”)

If Hatch seriously only considers United States Treasury bonds “IOUs,” then he was casting aspersions on the full faith and credit of the United States government, and the ability of our government to honor any of its debts. He might as well have been speaking at a hearing on a trade agreement with China, referring to the bonds the United States owes its largest trading partner as IOUS. Somehow I think Hatch would be reluctant to say it in that context. The American business community would be none too pleased. No, it is more likely that Hatch was cynically using the term “IOUs” to undermine confidence that Social Security will “be there” for coming generations, and perpetuate the common misunderstanding that the trust fund have been “raided” by the government.
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