In his low-risk, low-gain State of the Union address, President Obama made sure to pay homage to the work done by the bipartisan deficit-reduction commission that he created, while also ensuring that he kept its specific recommendations safely at arm’s length.
That includes the panel’s recommendations on Social Security reform, which is too bad, because for the most part I think those suggestions were fair and effective.
The most important decision made by commission members regarding Social Security was to honor the integrity of the Social Security trust fund. They gave the program full credit for the hundreds of billions of dollars that have been divreted from the fund over the last quarter century to run the rest of government. In effect, we’ve been using a Social Security surtax on the working and middle class to finance tax cuts for the wealthy, and the time has come for that arrangement to end. The commission implicitly accepts that reality.
In fact, every time you hear someone warn that Social Security will go bankrupt in 2015 or 2016, they’re committing rhetorical bank robbery. They’re implying that the working people of America should be stripped of the billions of dollars they have contributed to the program out of their paychecks every week for decades now. The deficit commission, to its credit, rejects that notion.
With no changes, however, the current calculation is that the trust fund does run dry around 2037, which would force a 22 percent cut in benefits. But with small adjustments today on both the spending and revenue side, that can be avoided.
The commission accomplishes that goal in several ways:
– It reduces benefit growth for those in the top-earning brackets while protecting it for those at the lower end of the scale. In other words, it makes the program slightly more means tested.
– It protects the growing number of senior citizens who outlive their own personal financial resources by “bumping up” benefits by 5 percent for those 85 and older.
– It gradually pushes back the retirement age, eventually pushing it to 68 by 2050, and 69 in about 2075; the Early Eligibility Age (EEA) would increase to 63 and 64 in step. It would also implement a hardship exemption for those physically unable to work beyond age 62.
– Back in the early ’80s, Social Security taxes were levied on 90 percent of payroll dollars. As the earning power of those at the upper level has increased — meaning a growing portion of their paycheck became exempt from SSI — that percentage has decreased. Raising the cutoff level enough to make 90 percent of payroll dollars taxable again would increase revenue to the program.
– Bring state and local government employees hired after 2020 into the system.
– Change how the cost-of-living adjustment for Social Security benefits is calculated. That’s probably the most politically volatile of the commission’s recomendations. Most experts agree that the current COLA system raises benefits faster than the actual inflation experienced by seniors; most politicians agree that trying to change that system would nonetheless be suicide. But it has to be part of any effort to bring the program into fiscal balance.
The only part of the recommendations I question is the increase in retirement age. A documented increase in life expectancy does not necessarily translate into increased longevity in the workforce. Living longer, in other words, may not mean that you’re capable of working longer. In addition, most of the lifespan increase has accrued among those at the upper end of the economic scale. For those at the lower end of the scale — a group that includes most of those with physically demanding jobs — a delayed retirement can mean no retirement. The commission did make a good-faith effort to address that problem with its proposed hardship exemption, but I’m still not sold on the idea.
Politically, there’s no great push to deal with Social Security at the moment. The expectation is that SSI reform will be addressed later, as part of some grand budget deal. Maybe so. On the other hand, the fixes required to “save” Social Security are relatively minor and easy compared to those needed to address the overall budget crisis. And if Social Security does get rolled into some larger budget deal, the outcome could be considerably less favorable to senior citizens than the approach recommended by the deficit commission.
– Jay Bookman