Nevadans who unfolded the Las Vegas Sun to read the following critique of the Obama administration’s position on Social Security should be excused for any bafflement they may experience:
“His failure to lead on entitlements has put the future of Social Security at risk,” said Williams, the Romney spokesman. “Mitt Romney is committed to ensuring that Social Security is there for future generations and he has a comprehensive plan to save Social Security with commonsense reforms.”
First off, “the future of Social Security is NOT at risk.” Bankruptcy and insolvency are harsh words to apply to an actuarial situation describing a plan which with no adjustments at all would still be capable of providing 75% of the current benefits to future retirees. The hyperbole is best left on the speech-writer’s desks. It is possible that at some point the program might tap into the Trust Funds, its revenue being insufficient to sustain current benefit levels — but this is NOT insolvency, in fact it is the opposite, an indication that the Trust Funds provide a cushion for expenditures as contemplated by the administrators of the program.
Secondly, if this is what passes for a “comprehensive plan” it appears to have some broad gaps:
First, for future generations of seniors, Mitt believes that the retirement age should be slowly increased to account for increases in longevity. Second, for future generations of seniors, Mitt believes that benefits should continue to grow but that the growth rate should be lower for those with higher incomes. [Romney]
Again, the Romney-Ryan ticket is long on rhetoric and very short on specifics. We should take a very specific look at the increases in longevity former Governor Romney is talking about. The Social Security Administration’s study is clear on the point that longevity is related to income level:
“Table 4 provides a more detailed look at projected life expectancies from ages 60–90 and the projected differences between the top and bottom of the earnings distribution. For example, at age 60 and birth year 1912 only 1.2 more years of expected life separated the bottom half of the earnings distribution from the top half; by birth year 1941, that difference had increased to 5.8 years. Additionally, by reading across the rows for those projected to survive to age 60, one can see that over the 29 birth cohorts examined, the bottom half of the distribution is projected to gain 1.9 years of life (19.6 years minus 17.7 years), while the top half of the distribution is projected to gain 6.5 years of life (25.4 years minus 18.9 years).” (emphasis added)
If the bottom half of the income distribution can expect to gain 1.9 years of longevity, and the top half of the income distribution is expected to gain 6.5 years — then will Governor Romney adjust the increase in age eligibility based on the top half or the bottom half? In short the “common sense” plan offered by the Romney campaign doesn’t specify which level of longevity will be the base, nor does the statement offer any clues about what the term “gradual” might mean. There is more analysis here, and from the EPI.
Third, as with many Romney-esque statements, the vagueness hints at but doesn’t specify the remedy to be applied to any perceived problem, and the notion of “slowing the growth of benefits” is no exception. It can be plausibly argued that this notion involves means testing. [SSW] We need to look at who receives Social Security benefits:
“More than 90 percent of all benefits go to individuals who have incomes of less than $50,000 a year from sources other than Social Security. Only 2 percent of benefits go to individuals with non-Social Security incomes over $100,000. Limiting or eliminating benefits for any of the relatively small number of people with earnings over $100,000 would do little to help the overall solvency of the program, but would greatly harm it.” [SSW]
There’s a chart from CBPP illustrating this point:
The CBPP explains why this would not achieve any significant savings for the Social Security Administration:
“… a new analysis by the Center for Economic and Policy Research (CEPR) confirms that means-testing would yield very little in savings … unless we took benefits away not only from rich retirees, but also from many who are solidly middle-class. The reason, as the CEPR analysis shows, is that there aren’t enough rich retirees — and they don’t collect enough in Social Security — to make much of a difference. Only 2 percent of Social Security benefits go to retirees with other (non-Social Security) income of $100,000 or more each year. (See chart.) Only about 10 percent of benefits go to people with outside income of $40,000 or more a year — a figure that most of us would regard as middle class.”
Baker and Rho’s analysis from the Center for Economic and Policy Research provides more detail, (pdf) and concludes that the increased administrative costs of means testing would seriously restrict any savings to be had from means testing schemes.
What we appear to have here is yet another example of broad strokes of focus group tested rhetoric for which “we haven’t run the numbers.” When the numbers ARE run, the longevity/eligibility issue grows thornier, and the means testing proposal becomes less significant.
The Great Conflation
No speaker of any political stripe should be allowed to put the terms Social Security and national debt (or deficit) in the same sentence. Even under the Worst Case Scenario the Trust Funds will NOT add to the federal deficit:
“The Social Security trust fund is projected to grow to a peak of about $4.2 trillion by 2024. At that point, Social Security will begin tapping its trust fund to help pay promised benefits. The trust fund itself is projected to run out around 2037. If Congress does not act to shore up Social Security’s finances before the trust fund runs out, then benefits would have to be cut by an estimated 22% because payroll taxes would be lower than benefit outlays, and Social Security would not be allowed to make up the shortfall by borrowing. As a result, Social Security cannot and would not add to the federal deficit when its trust fund is exhausted.” [EPI] (emphasis added)
What is the most obvious solution to the worst case scenario? Simply raising the cap on earnings to which the payroll taxes apply. And, this is the one solution which former Governor Romney categorically resists, “I will not raise taxes.” [SSW] Currently, payroll taxes are capped at about $106,800 and any income above that level is not subject to Social Security payroll taxes. A person could earn, say, $20 million during a year, but only the first $106,800 is subject to payroll taxes for Social Security.
References and reading: “Romney’s proposals dangerous for American Families,” Strengthen Social Security. “Social Security and the Federal Deficit: No cause and effect,” Economic Policy Institute. “Live Long and Prosper,” Krugman, New York Times. “Trends in Mortality Differentials and Life Expectancy for Male Social Security–Covered Workers, by Average Relative Earnings,” Social Security Administration. Links to resources from the National Committee to Preserve Social Security and Medicare.