Liberals are taking a big victory lap after the White House announced Thursday that it wouldn’t propose trimming future Social Security benefits as part of the 2015 budget. President Obama had repeatedly endorsed such a measure as part of a “grand bargain” to tame the nation’s growing debt, and he incorporated it into last year’s budget plan.
On the Senate floor on Monday, Elizabeth Warren delivered a speech arguing that Social Security should be expanded — not cut. In this, she joins a growing movement of Senate Democrats, including Tom Harkin, Mark Begich and Bernie Sanders. "Social Security is incredibly effective, it is incredibly popular, and the calls for strengthening it are growing louder every day," Warren said.
How progressive is the Social Security program? It's a surprisingly difficult question to answer.
There are obvious ways in which the insurance program was designed to be progressive, by redistributing (some) money from high earners to low earners.
But it also has some regressive features: Because retirement benefits are paid out in monthly installments rather than in lump sums, wealthier people who live longer tend get bigger benefits than, say, poor people with shorter lifespans. That's not necessarily a flaw — there are reasons the benefits are paid out monthly, as insurance against old age — but it does have certain side effects.
According to a big new announcement from the IRS and the Treasury Department, if you’re a legally married gay couple, the federal government will recognize your marriage — even if you live in a state where your marriage isn’t legal.
The statement, released by the Treasury Department Thursday, says that department and the IRS will use a “place of celebration” rule in recognizing same-sex unions (recognition that was illegal before the Supreme Court struck down part of the Defense of Marriage Act last month). That means that the U.S. government recognizes a marriage if the union was legally recognized in the place where it occurred, where it was celebrated. That’s true even if the married couple then lives in a state where gay marriage is illegal.
Last Wednesday, Sen. Elizabeth Warren (D-Mass.) grilled Treasury officials over something that affects a tiny number of their clients: The right to get their Social Security checks. Like actual paper ones.
"In July, you're going to issue another letter," Warren told Treasury's Fiscal Assistant Secretary Richard Gregg, "that's basically a letter threatening the last two percent. They've got to move over to electronic transfer, suggesting that they're breaking the law if they don't do that, and not making any indication in that letter that there are waivers available to people."
It hasn't been the best week for comprehensive immigration reform. David Drucker at the Washington Examiner reported that House Speaker John Boehner will not bring an immigration bill to the floor that doesn't have the support of most Republicans.That would rule out a path to passage in which a faction of the Republican House members break off from the party line to join the pro-immigrant Democrats. Add on a gaffe by an aide to Sen. Marco Rubio (R-Fla.), who said that American workers "just can't cut it" at some jobs, and the pro-reform side is having a rough go of things.
Friday's Medicare trustees' report got a lot of attention, as it showed that the program's trust fund will remain solvent for two additional years. But the trustees also released a report on Social Security, showing that that program's trust fund is set to last for another 20 years. But if nothing changes, in 2033, Social Security recipients will face an immediate, 23-percent cut in benefits.
One frequent knock on the official poverty rate is that it generally excluded income from some government programs like food stamps and the Earned Income Tax Credit, but included income from others, like Temporary Assistance for Needy Families (TANF) and Social Security. That means people who, if those benefits were treated as cash, wouldn't be counted as impoverished, still get counted as such.
One frequent progressive response to proposals like the Obama administration's to tie cost-of-living adjustments (COLAs) for Social Security to chained CPI, which rises less quickly and would make COLAs costless, is that he really ought to use CPI-E. That's an alternate, experimental inflation measure developed by the Bureau of Labor Statistics to track consumption among the elderly. If CPI-E were in effect today, it would result in $56 more a year in payments to some who retired in 2001 to maximum benefits:
Remember this graphic I posted yesterday?
Getting the numbers there drove me a little mad. Allow me to explain.
On paper, "how much does Obama cut Medicare by?" should be a simple question to ask. The government was going to spend amount X on Medicare, and instead under the Obama budget they spent Y. Subtract Y from X and you get the amount of the cut. It's just arithmetic.
To hear critics tell it, President Obama's plan to cut Social Security by adopting a new inflation measure is a major attack on the elderly. Rep. Greg Walden (R-Ore.), the head of the National Republican Congressional Committee, called it a "a shocking attack on seniors," while Sen. Elizabeth Warren (D-Mass.) sent an e-mail to supporters declaring, "'chained CPI' is just a fancy way to say 'cut benefits for seniors, the permanently disabled, and orphans.'"
Washington frets endlessly over the problems that Social Security and Medicare, both of which are projected to exhaust their trust funds in the coming decades, might cause the budget. But two new reports underscore the serious problems they might solve for the country.
Take Social Security. For years, pension experts have spoken of the "three-legged stool" of retirement savings: Social Security, employer pensions and private savings. In recent years, however, that stool has begun to wobble, and today, Social Security is basically the only leg holding it up.
Nowadays, whenever Social Security comes up in policy debates around Washington, the discussion often focuses on how best to cut benefits in order to shore up the program's finances.
But a big new report (pdf) from the New America Foundation suggests that the conventional wisdom is exactly backward. Congress should be looking at ways to expand Social Security, not shrink it — particularly at a time when traditional corporate pensions are disappearing, and 401(k)s have proved fairly risky.
Chana Jaffe-Walt's NPR article/segment on disability insurance has provoked considerable debate as to the program's health and how, if at all, it needs to be changed. So what reform proposals are on the table?
Put a mandate on it: Perhaps the most influential reform proposal comes from MIT economics chairman David Autor, whom Jaffe-Walt quoted in her piece, and the University of Maryland's Mark Duggan. Published jointly by the Center for American Progress and the Hamilton Project, the Autor/Duggan plan is adapted from a policy regime that's had good results in the Netherlands.
Under the plan, employers would be required to pay premiums for disability insurance for their workers. Up to half the cost of those premiums could be deducted from earnings. Employees become eligible after 90 days of employment, and the earliest they can get their first check is after 180 days of employment.
The coverage would kick in if an employee develops a disability that affects his or her work. The plans would cover vocational support to help employees do their jobs while disabled, and wage replacement of up to 60 percent of income to make up for lost productivity and, in some cases, reduced hours. The wage replacement would have to continue if the employee left the job.
The benefits would run out after 27 months, and after 18 months of collecting benefits, employees could apply for Social Security Disability Insurance payments. That's a much longer wait time than the current five-month SSDI waiting period. The idea is that this would give employers an incentive to accommodate disabled employees and give those employees a strong incentive to stay in the workforce by not reducing benefits if they keep working (as happens under SSDI). But the plan is also intended to leave SSDI in place for beneficiaries who really cannot work.
- Higher taxes for employers who produce disabled workers: A variant on the Autor/Duggan plan is offered by the San Francisco Fed's Mary Daly (also quoted by Jaffe-Walt) and Cornell's Richard Burkhauser in their book, "The Declining Work and Welfare of People with Disabilities." Daly and Burkhauser would give employers with low rates of disability insurance use a tax break, and increase taxes on employers who send a lot of workers onto disability.
Try a few approaches, expand what works: The Kennedy School's Jeffrey Liebman and the OMB's Jack Smalligan have proposed the creation of three demonstration projects to test possible reforms to the program. One would mimic either the Autor/Duggan plan or the Daly/Burkhauser plan. Another would attempt to prevent applications for insurance through the provision of wage subsidies and vocational aid to disabled workers tempted to leave the workforce The third would let states use disability funds and experiment with their own reforms through waivers (update: the post originally compared the plan to block grants; Liebman writes in to clarify that waivers are the more accurate point of comparison).
Liebman and Smalligan also want to grant the Social Security commissioner more flexibility in administering the program, with the hope that this could reduce costs and target the program more effectively.
Ease the phase-out: Another possible reform is a $2-for-$1 scheme, in which benefits are reduced by $1 for every $2 increase in a beneficiary's earnings. The idea is to reduce the severity of the program's phaseout, which means there would be less of a disincentive to work. Jaffe-Walt quoted one beneficiary who freaked out upon learning that earning money would reduce the size of her disability check, and so left the workforce. This change would be designed to target people like her.
As part of her PhD dissertation in economics at the University of Virginia, Ruwei Wang built a model of disability insurance and tested the effects of a $2-for-$1 reform. She found that it would reduce the number of people on DI by about 8 percent. Hugo Ben tez-Silva (SUNY-Stony Brook), Moshe Buchinsky (UCLA), and John Rust (University of Maryland) estimate that the policy would increase the share of disabled beneficiaries who eventually return to work from 9.5 percent to 48.9 percent.
- Longer waiting period: The CBO has considered a variety of cost-saving measures for the plan, ranging from adopting chained CPI to making people 62 or older ineligible. But probably the most likely to change enrollment is a plan to increase the waiting period before benefits from five months to 12 months. That would likely deter people tempted to game the system by increasing the cost of that, but it would also leave genuinely disabled people out to dry to some extent. It would also reduce the cost of the program by 6 percent in 2022.
My colleague Michael Fletcher reported this week on research showing that "even as the nation's life expectancy has marched steadily upward, reaching 78.5 years in 2009, a growing body of research shows that those gains are going mostly to those at the upper end of the income ladder."
He goes on to quote Maya Rockeymoore, president and chief executive of Global Policy Solutions, a public policy consultancy, who says, "people who are shorter-lived tend to make less, which means that if you raise the retirement age, low-income populations would be subsidizing the lives of higher-income people."
"So essentially, you are in favor of genocide of seniors," wrote one reader in response to my column on the best reason to worry about the deficit. "I was correct in my assessment of you."
The column, which you can read here, is about the way that the old anxieties about federal deficits crowing out private borrowing don't apply to our current economic situation. Rather, the more serious concern is that trends in government spending and taxation will "squeeze-out" important government programs and investments that are core to our economic future. Or, put more directly, that Social Security, Medicare and low taxes will end up squeezing out education, infrastructure and research.
Seventy-three years ago today, the first Social Security checks went out to beneficiaries. The anniversary comes at a difficult time for the program. It narrowly escaped a cut floated by the Obama administration in the fiscal cliff negotiations that would have reduced cost-of-living increases going forward. While it's not in danger anytime soon, it does have a 75-year funding shortfall, one which has even advocates like Nobel laureate economist Peter Diamond calling for its finances to be shored up.
Let's get something straight: "Chained-CPI" cuts Social Security benefits and increases taxes. That's why it's part of the negotiations. Full stop.
But you often wouldn't know it. The policy typically gets sold on extremely technocratic grounds. Here, for instance, is the case made by Erskine Bowles and Alan Simpson's Moment of Truth Project:
The fiscal cliff deal is finally taking shape, and from the looks of it, it's likely to include the adoption of "chained CPI" as the government's preferred measure of inflation. As I explained last week, that measure mainly matters for taxes — where the income cutoffs for various brackets are indexed for inflation — and Social Security, in which benefits are raised annually to keep pace with inflation. Adopting chained CPI would, in effect, cut Social Security benefits and raise taxes.
Here is a sentence you won't hear politicians or policy wonks saying in the next few weeks: "We should pay Social Security beneficiaries less in the future and push a lot of people into higher tax brackets." Here is a sentence you almost certainly will hear: "Let's adopt chained CPI."
Welcome to the dark art of obscurantist deficit reduction. Of course, the only ways to cut the deficit are by increasing tax revenue (either through higher rates, fewer deductions, or faster growth) or cutting spending. But both of those methods are unpopular. So, to get any support for their plans, politicians who insist on cutting the deficit have to find ways to cut spending or raise taxes that don't look like they're doing just that. Perhaps the most popular option along these lines is adopting "chained CPI."
Over the last few days, I've reported that raising the age for Medicare eligibility is very much on the table in the fiscal cliff talks. That has led some to believe that I support the idea as part of a deal. I don't.
I'll be clear: Raising the Medicare eligibility age makes no sense. It cuts federal health-care spending but raises national health spending, which is what really matters. It doesn't modernize the system or bend the cost curve. It doesn't connect to any coherent theory of health reform, like increasing Medicare's bargaining power, increasing competition in Medicare, ending fee-for-service medicine, or learning which treatments work and which don't. I'm not opposed to cutting Medicare -- quite the opposite, actually -- but this is a particularly brain-dead way to do it.
If you're the CEO of Goldman Sachs if you have a job that you love, a job that makes you so much money you can literally build a Scrooge McDuck room where you can swim through a pile of gold coins wearing only a topcoat then you should perhaps think twice before saying this:
You can look at the history of these things, and Social Security wasn't devised to be a system that supported you for a 30-year retirement after a 25-year career. So there will be things that, you know, the retirement age has to be changed. Maybe some of the benefits have to be affected, maybe some of the inflation adjustments have to be revised. But in general, entitlements have to be slowed down and contained.
Social Security is not in danger of becoming insolvent any time soon. According to the program's actuaries, without any changes, Social Security will be able to pay out full benefits until 2033. And there's reason to doubt that problems will arise even 21 years from now. As Jared Bernstein noted when the latest projections came out, the expected date when the Social Security trust fund will be exhausted has varied wildly over the past few decades.
In an interview with Dylan Matthews, Nobel laureate economist and Social Security expert Peter Diamond unloads on those who think the simplest and fairest way to “fix” Social Security is to raise the retirement age, which would particularly hurt seniors who retire early at age 62.
What do we know about the people who retire at 62? On average, they have a shorter life expectancy and lower earnings than people retiring at later ages. If anyone stood up and said, ‘Instead of doing uniform across the board cuts, let’s make them a little worse for people who have shorter life expectancies and lower earnings,’ they’d be laughed at.
Weekend interview: Peter Diamond on Social Security, privatization proposals and the grand bargain he’d like to see
Peter Diamond is an Institute professor emeritus of economics at the Massachusetts Institute of Technology, where he taught from 1966 to 2011. In 2010, he was nominated to be a governor of the Federal Reserve, but withdrew his nomination after he drew Republican opposition in the Senate. He shared the 2010 Nobel prize in economics with Dale Mortensen and Christopher Pissarides for their work on “search costs” in labor markets — or the frictions that arise when employers need to find new workers,and vice versa.
At the vice-presidential debate Thursday, Rep. Paul Ryan was asked about the time when, back in 2005, he pushed to partially privatize Social Security. Here’s how Ryan replied: “What we said then, and what I’ve always agreed, is let younger Americans have a voluntary choice of making their money work faster for them within the Social Security system.” Ryan was quick to add that Mitt Romney isn’t proposing anything like this now.
As Brad notes above, Rep. Paul Ryan backed away from his past support for Social Security privatization in the debate Thursday night. But he expressed support for other changes to the program made in his most recent budget. “The kinds of changes we’re talking about for younger people like myself don’t increase the benefits for wealthy people as fast as everybody else,” he explained. “Slowly raise the retirement age over time. It wouldn’t get to the age of 70 until the year 2103 according to the actuaries.”
If you’ve heard of Paul Ryan, you’ve heard of Paul Ryan’s budget. But Ryan has been in the House of Representatives for 14 years and has proposed many, many other bills. Looking through the Library of Congress’s records, I counted 71 bills or amendments that Ryan has sponsored 71 bills or amendments and 971 bills that he has co-sponsored. That’s a lot of legislation, and some of it is pretty interesting. As Ezra noted, Ryan sponsored a Social Security privatization scheme that went so far the George W. Bush administration rejected it. So let’s dig a little deeper in the Ryan archives.
To the extent that voters know anything about Paul Ryan — and the humbling truth for those of us inside the Beltway, where Ryan is a household name, is that most of them don’t — they probably know him as an ardent deficit hawk who is unusually fearless when it comes to cutting government spending.
Both impressions speak to a central misconception about Ryan’s policy interests: He is not primarily interested in reducing the deficit or cutting federal spending. He has voted to increase deficits and expand government spending too many times for that to be the case. Rather, the common thread throughout his career is his desire to remake the basic architecture of the the federal government.
Third Way has generously responded to my critique of its report alleging that spending on Social Security, Medicare and Medicaid is crowding out spending on investments like education, research and development, and infrastructure. Given what good deals some of those investments are, this would be a serious problem indeed. But while it’s clear that health care spending, including Medicare and Medicaid, is growing at an alarming rate that threatens other priorities, I don’t think the evidence supports the view that Social Security is doing the same.
A new paper (pdf) from Jessica Perez, Gabe Horwitz, and David Kendall of Third Way alleges that increased spending in Social Security, Medicare, and Medicaid is crowding out spending on investments like education, research and development, and infrastructure. The evidence presented amounts to the fact that investment spending as a percentage of GDP has decreased over the past 50 years, while spending on social insurance programs has gone up.
One of the questions on Wonkblog’s Quora.com thread came from John Demarchi, who asked, “Is Social Security a ‘Ponzi Scheme’? If it isn’t, why isn’t it? If it is, how do we fix it?” I’ve been meaning to address this talking point for some time, so thanks, John, for giving me the opportunity.
So, Ponzi schemes. The best way to understand this question is to think about what the word “Ponzi scheme”actually refers to.