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There’s No Bump Up From The Chained CPI If You Are Already Dead

8:29 am in Uncategorized by TomThumb

In my last post about the chained CPI an expert described how 9.4 million retired low-income workers will not be protected from the corrosive slow-motion cuts of the chained CPI. Half of those affected retired workers will receive a Social Security benefit of less than 1275.03 per month. (The chained cpi will not affect low income retirees on SSI, who will not be tapped twice for being old and poor.) But 9.4 million low-income retirees will get zapped by the chained cpi. And so will those who are ‘unprotected.’

 I. There’s no bump-up payment for you if you are dead

The Obama surrogates’ answer is somewhere between,  the ‘cuts are not so bad,’  to ‘look we protect everyone with a birthday bump at 76′.  The Bump does not protect the 28% of retired workers* whose benefits are cut through the chained cpi and who do not live long enough to collect a small, insignificant Bump payment at age 76.  Even those who survive beyond age 76 will not regain what they have lost through the cumulative effects of the chained cpi. Low income people don’t live as long as their affluent peers. A person cannot enjoy a Bump Up payment at age 76, if they do not live long enough to cash the check. Thanks to Dean Baker for this catch. Here is a part of his statement on this,

“Just to drive home this point, I checked our friendly mortality tables this morning [http://www.cdc.gov/nchs/data/dvs/MortFinal2007_Worktable23r.pdf]

and found that we can expect more than 28 percent of the people who hit age 62 to be dead before they reach age 76, the first year

when the bump up can alleviate any of the cuts. The percentage of people who are dead before 76 will be higher for men than

women and much higher for poor people and especially African Americans. For these people the bump up does them no good whatsoever.”

In total, the average retired worker will lose 2% of their income due to the Social Security cuts. Compare that to the fraction of a per cent in income which the top earners will have to pay in taxes due to the fiscal cliff changes in revenue for those earning of 500,000 dollars a year.

The more this continues to percolate, the more I am convinced that the chained cpi is just another stealthy tax for being old and poor. The elites are harvesting our Social Security fund to use our money for their own greedy purposes. If it was not a cut they would not be talking about having to “protect the vulnerable” to sell it to the politicians. No matter how many experts like Orszag and Sperling they throw at it, the chained cpi still stinks. No matter how much the deficit drama queens like Bowles and Simpson wail about the debt, the public knows that Social Security does not contribute to the Federal deficit. This is theft of earnings and earned benefits, pure and simple.

*citing Dean Baker’s description of life expectancy figures.

II. My bias is that I am fighting for all who would be hurt

The situation is one where those who are going to receive almost nothing in benefits (200-300 dollars a month) and those who are going to get almost something in benefits (1000 to 1200 a month) are going to be hurt by these cuts.  Our low-income earners, shorter-lived minorites, women, the disadvantaged, the long-term older-unemployed and our unlucky ones. However, the truth is that every group will have its ox gored by the chained cpi. Why? First, it is a cut. Second, it opens the door to more cuts, to means testing healthcare and to other devious cuts to the social insurance programs. No one escapes unharmed. The CBPP chart below shows three benefit types (low,average, & high wage earners): note that all of the lines point downward until age 76. The chart only accounts for one year’s worth of benefits.

(Note how using the measure of only one year’s benefits makes the amount cut appear less significant.) To figure out the loss in benefits over the cost of a long retirement, I refer you to the Director of Social Security Works and his estimate. About 15K due to the chained cpi.

 

Protecting The Vulnerable From the Chained CPI.

11:49 am in Uncategorized by TomThumb

I. 9.4 million low-income Social Security recipients will not be protected from the chained cpi.

There is probably a special level in Hell for Liberal Enablers who offer false reassurance that ‘vulnerable groups’ will be protected from the benefit-eroding consequences of the chained cpi. The idea that the most vulnerable elderly, the disabled and Vets must receive shielding and protection from the cutting effects of the chained cpi, proves that it is destructive and not a ‘mere technical adjustment’.

9.4 million low-income Social Security recipients won’t be protected from the chained cpi and will continue to live on reduced benefits, below or near the Federal poverty line.  They did not qualify to be called a ‘vulnerable group’. Here’s Nancy Altman’s testimony from April 18th on this issue:

“In addition, the benefit cut in the form of the chained CPI creates a substantial burden on the poorest in

society. For that reason, the Administration budget proposes to exempt means-tested programs from the

switch to the chained CPI, but this still leaves many poor and near poor unprotected. The Supplemental

Security Income program (“SSI”) is a program for the aged, blind, and disabled who have extremely

limited income and assets. If an individual receives Social Security, because he or she worked a

sufficient number of quarters to qualify, the SSI benefit is reduced dollar for dollar after disregarding the

first $20. There are 2.8 million people who receive income from both Social Security and SSI – the socalled

dual eligibles – so part of their income will still be subject to the benefit cut. Moreover, because

the SSI income and asset limits are so meager, there are 9.4 million poor or near poor who receive only

Social Security, and so would be subject to the cut imposed by the chained CPI.4″—N. Altman, Co-Director of Social Security Works.

I wrote to the actuaries at Social Security and asked what the median benefit is for retired workers. The median is the halfway point under which 50% of all retired workers’ benefits lie. Above the median is where the other 50% of the beneficiaries lie and receive higher benefits.

Snapshot Soc Sec stats

They kindly wrote back and sent me a chart. The median monthly benefit is $1275.03.   The average benefit is 1265.00 per month, meaning an average yearly benefit of around 15,180. That is not a lot of money to live on, especially if your benefit was one of the low monthly benefit amounts.

I asked how the income groups clump together among Social Security beneficiaries and if there is a scatter graph of all beneficiaries. What I found was a breakdown of beneficiaries by benefit amounts. This chart is for December, 2012.  I cannot reproduce the graph here, but I can pull out some generalities for all ages and retired workers of both sexes:

Retired workers receiving 100-199 per month numbered, 39,889. 200-299 a month, 317,943,; 300-399 a month, 640,520; 400-499 a month, 712,898; 500-599 a month, 1,208,363; 600-699 a month, 1,919,175; 700-799 a month, 2,389,353; 800-899 a month, 2,439,243; 900-999 a month, 2,240,767; 1000-1099 a month, 2,191,373; 1100-1199 a month, 2,287,391; and finally reaching the median benefit zone, 1200-1299 a month, 2,419,385………

Low income retirees get hammered.

Let’s pretend that nine million of those below the median are exempted by virtue of being in a protected group a la Sperling-Obama. That leaves around nine million unprotected and living between almost nothing at 100 to 199 per month and almost something at 1200 to 1299 per month.

The problem I see is that many people who are receiving benefits below the median are vulnerable to impoverishment through the chained cpi since their benefit level is very low to begin with.

Women receive significantly lower benefit amounts.

Another area of concern is the difference between the sexes on two different charts. The largest number of female beneficiaries (you can see this by looking at the millions category) starts in the lower benefits ranges, when compared to the men’s chart. Men’s number jump to millions of beneficiaries in the monthly benefit of 1200-1299. Women’s numbers jump to the millions in the 600-699 monthly benefit. Imagine getting cut by the chained cpi when your benefit started at 600-699 d0llars a month. Slave wages. Slave benefits. The AARP has a nice post about the detrimental impact of the chained cpi on women.

The chart reflects economic classes in our society.

The income/benefits of the lower-middle and middle class clump together at between 500-2100 a month, above a low-benefit  group of lower beneficiaries. Fewer people receive the top benefit amounts as they taper from 2100 to 2900 or more. A good scatter graph would illustrate the clumping of different groups within the larger group of  36.7 million retired worker beneficiaries.

II.  The Social Security portion of Retirement incomes is Crucial To The Three Lowest  Income Quintiles.

In a related article about the importance of Social Security in the New York Times, I found a National Academy of Social Insurance chart of Retirement Incomes  by Income Quintiles: (The related article is titled: Budget Negotiating Chip Has Big Downside For Old and Poor.)

Nasi chart-SS% of each income quintile

Updated: The three lowest quintiles demonstrate the large portion of personal income represented by retirement income from Social Security benefits. Any cuts to benefits appear to harm these first three groups more than the top two income quintiles. The chart includes people who are still working (see the grey area for Earnings) and does not describe how many individuals are in each quintile. An expert has written that if earnings are omitted, dependence upon Social Security is high even amongst high income quintiles. Thank you for that correction. Again, a scatter graph of benefit amounts is needed to answer the question of where the beneficiaries are clumped together.

Please note the slideshow of data by techgeek15 linked in his/her comment. The difference between male and female benefits’ patterns is stunning.

 

 

The Circle of The Vulnerable Is Wider Than They Think

9:23 am in Uncategorized by TomThumb

This is a reapplication of an earlier piece. You can skip to the Update:The Poor Would Be Forgotten, below if you wish.

We are all inside that circle. If they had thought through the implications of what they planned to do with the Chained-CPI-Social Security cuts and cuts to medical care, they would have realized that everyone is affected in the end. In the final analysis we are all connected (from StrengthenSocialSecurity):

 ”Some policymakers are considering accepting a grand bargain that includes the chained CPI for Social Security. This is no minor technical change – it is a benefit cut that compounds to become very large over time. The chained CPI would cut the annual benefit of the average earner (someone making $43,518) by $658 at age 75, $1,147 at age 85, and $1,622 at age 95.1 The cumulative cut for that individual would be $4,631 – more than three months of benefits – by age 75; $13,910 – nearly a year of benefits – by age 85; and $28,004 – more than a year and a half of benefits – by age 95.2 “

Policymakers (Gene Sperling) promise to exclude “vulnerable groups”. Three groups are most vulnerable: Veterans. The Poor. The Eldest Elderly. In 2011, Social Security paid almost half of its benefits to these groups.

 $58.3 billion to people who are poor or near-poor (excluding those aged 85 and older);15

 $131 billion to those who are aged 85 or above (including veterans);16 and

 $176.4 billion to veterans and their families17 (net of the above two groups).18

This means that if a chained CPI is put into place which leaves out those groups, it can only affect a 50% smaller group. What is the point of making these cuts?

There are two other groups identified in the piece which have not been identified as vulnerable but which are vulnerable. The disabled and those over 55.  Include those two groups and you have completely removed the purpose of making cuts through a chained CPI. There’s no one left. You can read the fact sheet HERE.

UPDATE: The Poor Would Be Forgotten

Now that the President has submitted the 2014 budget the details of the proposed chained cpi (Obama version) are taking shape. People who become 76 will receive a bump payment to compensate for the lost income due to the cuts in benefits which result from long-term exposure to a reduced COLA via the chained cpi. The disabled would be protected. Vets means-tested pensions would be protected too. The poor would be forgotten.

Since so few people are protected from the new chained cpi we can start to see how regressive this policy is. There are many people who do not receive SSI who are dependent upon Social Security and who are poor or near poor, who will be affected.

Minorities and women, who are underpaid as workers, and receive lower benefits will be punished under this scheme. Persons of color whose life expectancies are shorter than their white, affluent peers will take the losses on behalf of this policy. Women in particular will be harmed because they live longer on fewer benefits.

A Tax Just For Being Poor

There are no protections for the poor or near poor here. This policy amplifies income inequality at the end of life. Just because every writer cites the median Social Security income as something just above the poverty line, does not prevent a rational person from knowing that 50%, or those below that line,  are living in poverty or damn close by. Who gets hurt?

Those caregivers in our society, who have volunteered to care for children and aging parents and who have fewer years of earnings are poorly compensated by Social Security and Spousal benefits.  Minorities who earned less and receive less Social Security and live fewer years get no mercy under the new chained cpi. Those low-income earners whose final Social Security benefits don’t add up to much and who have few savings are not protected.

Where’s the forward thinking? What consequences will there be? Is there no one who can ask,  ”How will the chained cpi negatively impact society’s most vulnerable citizens?”, and,  ”At a time when rich Americans pay so few taxes, why won’t those receiving Social Security perceive this as a ‘broken promise’ and as a further tax on their meagre incomes?” A tax just for being poor. In the words of Dean Baker, “In this context, it is unfortunate that President Obama has proposed a budget that has substantial cuts to Social Security. The vast majority of seniors are already struggling. The proposed cuts would be a reduction in their income of more than 2 percent. By contrast, his tax increase last fall cut the after-tax income of the typical wealthy household by less than 0.6 percent.”

Chart of the impact of Obama's cuts on incomeWhat’s the point?

Is this policy meant to save money? Social Security does not even contribute to the deficit.  Is this policy meant to strengthen Social Security? If so, why not scrap the cap on FICA and make the Social Security program whole by insisting that affluent workers pay FICA on their income greater than the cap at 113K?

What’s the point?

Or, is this policy in place just to please President Obama’s fiscal friends, Mr. Orszag, Mr. Peterson (Mr.FixTheDebt), Ms. Rivlin, and all of their sock-puppet think tanks like CRFB and their phoney-baloney commissions, like Simpson-Bowles?

Which Side Are Your Senators on in Obama’s Social Security Cuts?

9:07 am in Uncategorized by TomThumb

You might want to call your Senator or email your Senator when you are done reading this, so here is the LINK for that.

Obama’s budget will be released April 10th. That means you have four days to turn up the heat in the Senate against his legislating a chained CPI for Social Security, and cuts to Medicare. The Chained cpi will cut Social Security benefits at .3%; 3% in ten years; 6% in twenty years; and 9% in thirty years. Everyone will get the cut.

Chart of SSI under CPI plans
Compared to the rich the average SS beneficiary would take a 2% cut in income from the chained cpi, whereas the persons earning $500,000 would take around .6%, (proportionately less than a third of the cut to the SS beneficiary’s income) cut in income in the recent tax hike. In a graph from CEPR, Dean Baker demonstrates the comparison:

Chained CPI and Obama Tax increases
Here are two articles to read about this: The NYTimes. In addition to the chained cpi,….

“Mr. Obama’s proposed spending reductions include about $400 billion from health programs and $200 billion from other areas, including farm subsidies, federal employee retirement programs, the Postal Service and the unemployment compensation system.”

The Washington Post:

“The budget proposal slices $200 billion from already tight defense and domestic budgets. It would cut $400 billion from Medicare and other health programs by negotiating better prescription drug prices and asking wealthy seniors to pay more, among other policies. It would also generate $200 billion in savings by scaling back farm subsidies and federal retiree programs, among other proposals.

The proposal to change the formula to calculate Social Security payments, also originally part of the offer to Boehner, would generate $130 billion in savings and $100 billion in revenue, a result of the impact of the formula change on other government programs.”

Bloomberg:

“This would be paid for by raising taxes on cigarettes and other tobacco products, according to the White House. The amount of the new taxes wasn’t specified.

The budget will call for raising about $9 billion over a decade by prohibiting individuals from accumulating more than $3 million in Individual Retirement Accounts and other tax- retirement instruments. A $3 million limit would be about equal to an annuity of as much as $205,000 a year, according to the White House.”

Which side are your Senators On? Call them or write them and ask! Obama won’t run again in 2016, but many Senators will run for election again. Their silence now would be an indictment of their promises to protect social insurance programs from cuts. Let them know where you stand.

Old image of a street ruckus

Let’s raise the roof! And make some noise!

Congress critters too. 

Arts of Magnification, Minimization, And Intimidation

7:25 pm in Uncategorized by TomThumb

Intimidation (“How Dare You Demand Special Consideration!”)

Seems like the enemies of Social Security and Medicare will pull out every trick they know to achieve their goal.  Today an otherwise astute economist told a reporter that disabled Vets had to take a cut in their benefits just “like everyone else”, in a scold, as if they were asking for special consideration. They said that they had already made sacrifices for their country and gave the answer that it is unfair to change the terms of the contract after you have already finished your side of the deal. She was firm, and insisted that there would be no carve outs for special groups. Did she miss the Gene Sperling memo?

A few weeks ago White House economist, Gene Sperling, was all over Reddit promising that the chained cpi would have special protective carve outs for the vulnerable: For Vets and disabled folks, and for the very elderly who would experience the deepest cuts from their Social Security benefits. (Then it turned out that every group is vulnerable because all are going to be hurt by cuts under the chained CPI.) Broken promises?

Minimization

In an non-fact based Op-Ed in the NYTimes, Rattner claimed that a 1,ooo dollar benefit would hardly be hurt at all by the chained cpi. His graph showed the increasing impact of the chained cpi cut over a ten year period. So what’s the problem? The graph did not show how the cuts would  aggregate to 3% of benefits at ten years, 6% at twenty years and 9% at thirty years. And, the Social Security benefit cut needed to be multiplied by 12 to present the total of the cuts per year, and then compounded, over a specific period. That is what is wrong. And account for inflation through COLA. He made the numbers look small by only looking at a small looking number. The real impact of the chained cpi is larger. More like this:


Chart of SSI under CPI

Magnification (Exaggeration)

In the same non-fact based Op-Ed in the NYTimes, Rattner claimed that unfunded liabilities owed by this generation extended to “almost 60″ Trillion dollars.  He alleged that cumulative debts including the current deficit and future Social Security and Medicare unpaid for benefits meant that cuts had to be made: “now! now! now!” His numbers reflect the multiplication of a coefficient representing a guessed-at, actuarial gap in future projected revenues and benefit payments, over the almost infinite horizon of 75 years. No wonder his graph shot skyward at a 45 degree angle. He wrote as if there were no future revenues, production gains, wage increases, and maybe even a scrapped FICA cap so people like him can pay their fair share of taxes. Social Security would be perfecto if deadbeats earning more than 113K per year had to contribute their fair share to the Trust fund.

Medicare will require price controls to bring healthcare costs down, but beneficiaries of Medicare are not the problem, high prices are.

This is a graph of medical spending on retirees. Not bad. Most of the rise is due to “other factors.” And recent spending is down:

Read the rest of this entry →

Two Myths.

7:14 pm in Uncategorized by TomThumb

We spend too much on the elderly.

Below find a graphic demonstration of poverty among seniors in different countries in addition to a side-by-side comparison of amounts spent on seniors in different countries within the OECD. (courtesy of IPS).

Snapshot- 65 living in Poverty

The U.S. is closest to Mexico on the elder poverty level scale. (We spend a whopping 6% compared to 12% in France and 10.7% in Germany.)  Given that so many seniors live in and near to poverty, should we really consider cutting their Social Security benefits with a chained CPI?

The “extra cost” of the retiring elderly is the reason medical costs will“bankrupt” us.

Below find a graphic demonstration of the minimal influence of more people retiring when compared to the influence of increases in the other costs and prices of medical care. (From the President’s Economic Plan.)

Medical spending on Retirees

The green line represents the impact of the aging population.  The orange band represents population growth. The blue area represents the “other reasons” for the cost of healthcare. The trend is toward lower expenditures in recent history, but since year 2000, it looks like the blue area has increased by 200+billion dollars. Could that increase just be CEOs’ salaries, shareholder dividends and excessive profit?

Below find a graph showing the expected growth in Medicare spending with two possible trajectories:

Projected Medicare Spending

If Medicare spending follows the ‘red’ bottom line, instead of following the blue line with its automatic link to GDP growth, the situation does not appear to be a ‘crisis’.

Obama is talking about more means-testing for Medicare. Medicare is already means-tested. Should we start means-testing folks at a lower, small family, poverty-line income  level?  The Obama plan talks about increasing cost-sharing from patients. Why? How cheap can you get?

The President’s Economic Report (Chapter 5) does not mention instituting price controls (so that the MRI which only costs 99.00 to operate does not cost the patient 995.00). Medical price controls would be a better place to start rather than cutting Social Security and asking people to pay more for Medicare insurance and medical services.

 

Notes for an imaginary margin:  A friend reports that on a recent visit his small city hospital was empty, “like a tomb”….  My local hospital doctor told me that they had ‘a great year’.  Really? ….. An uninsured man who injured himself while fixing his car went to the discount store and bought antibiotic cream and gauze and sterile tape. It is 600.00 flat to show up at the local ER and to request crisis care. ……In a nearby city, an auto repair garage is charging 108.00 an hour for mechanic work: its repair bays are empty and its parking lot is empty, and the guys are sitting around like crows on a wire….. I know many unemployed people including my own person. There are many my age who are sheltering and supporting their adult children…….. I don’t have any graphs for the realities in my imaginary margin. There is a yawning, seemingly insurmountable, big gap between my world and the Beltway mythologies. End of parallel reality statement.

Not New and Certainly Not Improved: Bowles-Simpson: V. 2.0

11:47 am in Uncategorized by TomThumb

The corporate austerians released their ‘new’ Bowles-Simpson recommendations today. They claim that they are building upon their original plan, not replacing it. They framed their recommendations as the last two steps in a four step process. For Social Security followers, Step Three includes the chained CPI. And Step Four includes all of the previous cuts to Social Security which they recommended in their first plan.  Raising the retirement age starting in 2022 slowly to 69, cutting benefits through re-indexing and flattening  all future benefits for our recipients in 2050. Our children’s benefits would look like this:

Bowles-Simpson Plan

Bowles-Simpson Plan

The corporate austerians go for installing the chained cpi first. Why? It could be that they still think that most Americans do not realize that the chained cpi is a cut which keeps on cutting:

Bowles-Simpson Plan

Bowles-Simpson Plan

Note the changes to Medicare and Medicaid in Step Three.  “reducing provider payments….reforming cost-sharing…increasing premiums….adjusting benefits to account for population aging….”

The language is a vague euphemism for cuts; code words to their rich buddies that the uploading of wealth will not be threatened with significant new taxes. No pesky new scrap-the-FICA cap income taxes which might be used to pay for under-funded social insurance programs.

Or in their own words: “The problem is real and the solutions are painful, and there is no easy way out.”  It is very, very painful for them to think of being responsible Americans and painful for them to think of paying their fair share of the cost of living in a decent society. But all of their solutions ask low income folks, approximately half of all Americans, to shoulder all of the burden of keeping tax rates super low for corporations and rich people.  There is a simple, equitable, and fair way out but they do not want to hear about paying their fair share.