COURSEY: Playing chicken with Social Security
Published: Monday, April 15, 2013 at 2:19 p.m.
Last Modified: Monday, April 15, 2013 at 2:19 p.m.
President Barack Obama isn't making many friends with the proposal in his budget to reduce Social Security benefit increases by tying them to what's now popularly known as the “chained CPI.”
Some Democrats excoriate the president for being the first leader of their party to ever propose a cut in Social Security benefits, because the chained consumer price index will generally result in smaller annual cost-of-living adjustments. Republicans haven't been any nicer, with Rep. Greg Walden, R-Ore., calling it a “shocking assault on seniors,” and Rep. Paul Ryan of Wisconsin dismissing the proposal as merely “clarifying a statistic.”
The president says he's trying to meet the Republicans half-way on their budget demands, and some observers suggest he's engaging them in a game of political “chicken” in which House Speaker John Boehner and his crew will back off before making Social Security cuts that will alienate voters from the AARP set.
Either way – whether it's a good-faith negotiation or a political game – it's a bad idea.
Why? Because reducing Social Security benefits, even by a small amount, puts the burden of so-called “entitlement reform” on the backs of those least able to bear it. Social Security represents the largest chunk of income for most older people who receive it, and even small cuts have big impacts for those living on tight budgets.
Meanwhile, there's a much fairer way of ensuring the viability of the Social Security program well into the future – a way that President Obama said he supported in the past. (Of course, in the past he also said he opposed the chained CPI.)
While the chained CPI is projected to reduce Social Security outlays by $130 billion over 10 years, thereby extending the viability of the program, an alternative is available that would ensure the program stays financially healthy for the next 75 years.
And all it requires is spreading the burden more fairly.
Right now, Social Security is paid for with a payroll tax on income up to a maximum of about $110,000. Any earnings higher than that are not subject to the tax.
That means if you earn $110,000 and your neighbor earns $220,000, you pay twice as much into the program as a percentage of your income as does your high-paid neighbor. If your neighbor earns more than $1 million, you pay a percentage of your income about 10 times higher than he does.
Eliminating or raising the cap, or changing it in any of a variety of ways suggested by budget wonks, could do much more to preserve Social Security and reverse budget deficits than cutting benefits.
Doing so, of course, would represent a dreaded “tax increase” that would be no more politically palatable than reducing benefits. But it would certainly meet the fairness test. If Americans need to contribute more to Social Security to keep it viable, shouldn't that burden be put on those who are more able to afford it than on those who actually will feel the pain of seeing their monthly checks reduced by $5 or $10? (And, if you are lucky enough to wonder how anyone could feel pain by having $10 less in his or her pocket, you fit into the former category.)
The president has pledged not to raise taxes on people earning less than $250,000 a year. In response, legislation has been proposed to create a "doughnut hole" in the payroll tax, with income between $110,000 and $250,000 remaining untouched by the Social Security tax but everything above that subjected to it.
Obama has supported such a plan in the past, telling an AARP forum last fall, “"You know, I do think that looking at changing the cap is an important aspect of putting Social Security on a more stable footing."
But the proposed budget he sent to Congress instead relies on cutting benefits to low-income elderly recipients. You might wonder, as I do, how that plan squares with this statement on the White House web site:
“The President is committed to protecting and strengthening Social Security – and securing the basic compact that hard work should be rewarded with dignity at retirement or in case of disability or early death. That's why he has called on Congress to work on a bipartisan basis to preserve Social Security as a reliable source of income for American seniors and as a program that provides robust benefits to survivors and workers who develop disabilities. He believes that no current beneficiaries should see their basic benefits reduced and he will not accept an approach that slashes benefits for future generations.”
Chris Coursey's blog offers a community commentary and forum, from issues of the day to the ingredients of life in Sonoma County.
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