The President’s Social Security Plan is a Really, Really Bad Idea

My Monday column and the worst idea the president’s had in a long time:

Late last week, President Obama successfully incited new levels of fury from most of the same liberals who are generally infuriated with him in the first place by floating the truly stupid idea of linking Social Security cost-of-living-adjustments (COLAs) to something called “chained CPI” (chained consumer price index). And, frankly, he didn’t win any points with me either.

Briefly put, Social Security benefits are routinely hiked by a few percentage points each year based on inflation. Lately, those bumps have been scarce and more than a little weak, but adjustments based on chained CPI would be even weaker because the government would presume that as retail prices increase with inflation seniors will substitute lower-cost items. In other words, the government currently calculates benefits based on inflation, but with chained CPI, the government would calculate benefits based on an assumed consumer reaction to inflation (buying cheaper stuff). Consequently, Social Security benefits would be reduced to follow this assumption.

Yeah, it sucks. And the president, while attempting to play the role of the grown-up in the room and apparently taking responsible steps toward deficit reduction and Social Security salvation, is only managing to wrap his entire presidency around the big political third rail. It’s not as huge as George W. Bush’s second term embrace of Social Security tinkering, but it’s a bad move.

Not only is the idea a punitive one for seniors, but the president is also fueling a series of inside-DC myths. [continue reading here]

This entry was posted in President Obama, Social Security, The Daily Banter and tagged , , . Bookmark the permalink.
  • Camel54

    Yeah, it sucks. The problem is where some of these numbers seem obscure to many, they are immediate to folks like me. “…pay full benefits till 2033…” sounds so far away, but that’s just a few years before I retire (which I’m sure I won’t be able to anyway so what the hell) so I don’t think that should be said as any sort of defense of making no changes. Also, when talking about raising the payroll tax because it won’t change how the President is perceived, that missed the entire point that it will negatively affect many of us. I don’t particularly care about how the President is perceived. Right now, on the fulcrum of surviving and not surviving where my family is, another few percent out of my check is a problem. I think the President is in a shitty situation with a congress that won’t do anything and the economy is slipping again and he’s trying to get something going. I guess anyway, what the hell do I know. It seems like he’s trying to do something… anything to stabilize things. I agree with you this appears to be the wrong move, but I don’t think the right move is so cut and dry.

    Good column as usual, though. Thanks.

  • i_a_c

    A few things:

    1) Not a fan of Chained CPI. Nope. Reducing benefit increases for the most vulnerable is a non-starter for me.

    2) I don’t know if this was your implication, but paying 75-80% of
    benefits in 20 years is not better than Chained CPI. Doing a little
    math, Chained CPI would represent an 11%ish cut over 20 years compared
    to a 20-25% cut if SS is unable to pay full benefits. Doesn’t make it
    good, but that alternative is worse if it comes to pass.

    3) No, I don’t think it will pass, at least not on its own. Dems won’t walk off that plank without significant concessions on taxes. If reports are right, the proposal will include protections for the not-as-well-to-do (400% of the poverty line I think?) as well as the very elderly. I realize that would be sort of “means testing” and that’s not very palatable to liberals either but it could make a bitter pill go down easier, especially with concessions on taxes.

    With the Republican House I don’t think they will break their tax purity, especially after the significant tax hikes that were recently enacted, so I don’t think anything will end up happening, but who knows? With the political heat turned up I don’t know if enough Democrats will join Republicans to pass the thing either. I hope there’s some medium term political calculus (like setting up congressional Democrats as the defenders of Social Security), but “Obama wants to cut SS” doesn’t seem like a political winner to me. Dunno. It’s something to keep watching.

    • drsquid

      I did do the math. In the 20th year, chained CPI represents about a 5.5% shortfall from where we would be without it. Assuming $1000/mo in year 1, it’s $1705 vs. $1809 in year 20. But in year 21, it’s $1710 vs. $1395.

      And that 21st year just so happens to be when I retire. So I get to starve so Boomers can enjoy that one caramel macchiato per month.

      This isn’t 2005. The GOP created a problem for everyone. According to the trustees who we cited in 2005 to prove there wasn’t a problem, the T-bills that the SSA buys with the surplus run out in 2033, after which the SSA can only pay out 75% of promised benefits.

      So when someone says we absolutely cannot change SS in any way, I hear, “We boomers are getting everything we can get, and screw you losers born in the wrong year.”

      • i_a_c

        You’re right, it is indeed 5.5%. I did this while drinking this coffee after waking up and forgot to divide by 1.8 (which, times 1000, is about your 1809). Sorry for the idiotic mistake. I’m guessing you took the rate of inflation as 3%, took 1.03^20 and compared that to 1.027^20? Something like that?

        • drsquid

          That is eggzactly what I did.

      • i_a_c

        Just to add, I must have used 3.5% inflation in my pre-caffeinated calculations because it comes to $1990 versus $1878, which means I must have forgotten to divide by 2. Still comes out to 5.5%. Again, my bad, and I shouldn’t do math before my third cup of coffee.

      • gescove

        I’ve got news… some current retirees are already starving or on the brink. Keep in mind the Greenspan commission already changed COLA, raised the retirement age, and began taxing benefits in 1983. It would be nice if we stopped playing the Wall Street/Republican games of victim blaming (safety net hammock retirees) and divide & conquer (boomers v. younger workers). There are other ways to address the problem of SS solvency twenty years out. Raising the cap on income subject to Social Security taxes comes immediately to mind. There are other ways to address long-term debt than pretending that Social Security drives it. A focus on job growth, fair taxation of investment income (e.g., hedge fund carried interest), and an end to corporate welfare might be good starting points. Boomers, along with everyone else, lost jobs, income, and wealth (home equity, 401Ks) in the recession. But unlike younger workers, they have a lot less time left in their working careers to play catch up. Many boomers are also sandwiched between care for their aging parents and helping their children in a tough economy. The slow recovery and wage stagnation aren’t helping. So, damn straight boomers are hoping to preserve what little is left of the frayed lifeline that SS offers. Is that tantamount to a middle-finger salute to everyone else? Really?

    • missliberties

      Just askin’. Isn’t there a line at which the chained CPI does not affect, as in so many percentage points of poverty. So the wealthy would be affected, but not those in dire poverty.

      • i_a_c

        From everything I’ve been reading it’s 400% of the poverty line, which is in my 3rd bullet point, which would make it just a bit more palatable, but it’s still a little bit dicey politically to make SS more of a welfare program than it is.

        • missliberties

          It isn’t a welfare program. It’s an earned benefits program first off.

          Secondly the 400% of the poverty line is a good strong number, and in essence cuts benefits for the wealthy and keeps them the same for the poor. It does seem fair that the wealthy shouldn’t get a cost of living increase since they are well, wealthy.

          • i_a_c

            Yeah, I shouldn’t fall into the trap of Republican talking points. I’m sort of compelled by both arguments, that “means testing” SS/Medicare makes it help low incomes disproportionately, giving it a bigger political target than it would otherwise; on the other hand, the SS proposal doesn’t radically change the program’s structure which could shield it politically. Plus, putting a floor on benefits might be a silver lining for liberals.

            Still don’t love it because of both the political implications and because I don’t love the 5.5% cut. But if reports are true and it protects the very poor and we get some tax stuff in exchange then maybe I could swallow it as part of an overall package, like chasing down tequila with something refreshing. But again, I doubt it will even pass. I don’t know of any politically feasible alternatives except for doing nothing. Not sure that’s right, either.

          • missliberties

            I can swallow it. Don’t hate me , but I actually think it is kind of a good idea, because in truth we need more revenue for the trust fund and this saves revenue by giving less to the wealthy.

            It is kind of an underhanded way of hitting the wealthy.

            The question is ….. can it pass.

          • i_a_c

            Nah, I don’t hate you, I am seeing certain silver linings, but for a household of 1, 400% of the poverty line is just south of $45,000/year, which isn’t a ton, and works out to a SS benefit of $1659/mo, or $19905/yr. Then (assuming this is correct) someone receiving a benefit north of that amount would see their benefit lowered by up to $1986/year compared to the status quo at year 20.

            On a per year basis, and the average annual reduction in benefits over 20 years is 4.2% of the initial value. That’s $840/year for an individual initially on $20k SS benefit. I make a little north of $20k/yr at the moment and I’m trying to imagine losing $840. I think it’s doable–I’d have to cut out some luxuries–but of course I don’t want to do that.

            Maybe there will end up being more details than just speculating like we’re doing, but it seems like it’s hitting too low of incomes at too high a rate for me to get behind entirely.

    • http://www.twitter.com/bobcesca_go Bob Cesca

      >>>2) I don’t know if this was your implication, but paying 75-80% of
      benefits in 20 years is not better than Chained CPI. Doing a little
      math, Chained CPI would represent an 115.5%ish cut over 20 years compared
      to a 20-25% cut if SS is unable to pay full benefits. Doesn’t make it
      good, but that alternative is worse if it comes to pass.

      This is the consequence of doing nothing for 20 years — a course of events that won’t happen. Obviously something has to be done, but cutting benefits isn’t a viable solution.

      • i_a_c

        From the column:

        Furthermore, once 2033 rolls around, Social Security will be capable of paying 75 to 80 percent of total benefits in 2033 money, which, accounting for inflation, is more than Social Security recipients receive today.

        The last part is what was confusing to me, because 75-80% of benefits is considerably less than the amount paid out under Chained CPI or the current COLA, which are different measures of inflation. Pick one or the other–the benefit is intended to be the same in real dollars today as in 2033. The 75-80% cut in 2033 cannot possibly be more than the 2013 benefit in real dollars.

  • trgahan

    The ghosts of the 2010 midterms elections continue to haunt us. This would not even be a thing if the great Tea Party freak out had not been so electorally successful. I continue to be amazed at success of the GOP in both containing President Obama and forcing the continuation of Bush-era domestic policy goals (ie. the privatizing the social safety net and the freeing the corporations/wealthy individuals from social responsibility/obligations) in the name of “fiscal responsibility.”

    The President has been able to outmaneuver the GOP at every corner, but he can’t seem to change the conversation. Especially not with half the county believing the 47% BS and media continually feeding us the idea that the “only problem” American faces is our debt as related to social programs.

  • D_C_Wilson

    This is what happens when you have a president who is eager to compromise so as to appease the constant demand for “bipartisanship” (ie, giving the republicans whatever they want in exchange for nothing) and a GOP that won’t compromise even on the shape of the negotiation table.

    This could actually work to our advantage, though. With Boner rejecting the proposal without even considering it, progressives can highlight this to show how the GOP is more vested in perpetuating crises than solving them. We need to hit this hard in the media in order to win the court of public opinion in time for the 2014 mid terms.

  • deacrick

    I think the President is counting on the GOP’s inability to say yes.
    He knows it’ll never come to a vote and then he can use it as a cudgel in 2014 and strengthen Social Security once the Dems have the house again.

    • http://www.politicalruminations.com/ nicole

      Perhaps, but it’s a very dangerous cliff to walk out on.

  • missliberties

    Center for American Progress, a progressive policy think tank has perscriped chained CPI as a way for reducing costs.

    I believe that the line is drawn at 400% poverty level, after which the chained CPI goes into effect, so basically it is giving less to those who don’t need it. IE: millionaires would get less. the Poorest among us would not be affected.

    I could be wrong but that is how I understand it for now, so it is not as god-awful as folks might think.

    Isn’t Chained CPI better than getting only 75% of benefits?

    • gescove

      A huge right wing victory if it happens. Social Security becomes welfare rather than an earned benefit. The next up for attack: welfare.

      • i_a_c

        Ehhhh, it’ll become more of a welfare program than it already is, but let’s make one thing clear: it’s already a program that helps lower incomes dressed in political curtains, as the return on investment decreases with increasing income (until you hit the cap). The rate of increase of SS benefit decreases with income. What I understand from this proposal is that there would be a minimum benefit set, and the benefit would increase with income at a decreasing rate, and increase with time at a slower rate than it currently does. That’s really not a massive change that will make it that much more vulnerable politically. There’s some risk there, and obviously I don’t trust Republican motives so I’m skeptical, but the devil’s in the details I guess. I’m not particularly convinced either way on this aspect.

      • missliberties

        I disagree. It makes the system more fair.

  • Christopher Foxx

    In other words, the government currently calculates benefits based on inflation, but with chained CPI, the government would calculate benefits based on an assumed consumer reaction to inflation (buying cheaper stuff).

    Social Security benefits go to seniors.
    Seniors spend much of their money on health care.
    Health care typically doesn’t have cheaper choices available. And,
    Health care costs have been rising faster than the inflation rate for ages.

    So tying COLA to Chained CPI is a truly stupid idea that directly and painfully obviously hurts folks.

  • MrDHalen

    After watching the “Offshore Banking” story die last week at the hands of stories about who the President called attractive and the death of a famed movie critic, I’ve been in a perpetual state of double face palm.

    Possibly 8 to 32 trillion dollars stored in offshore accounts and we aren’t launching any massive congressional investigations or presidential task forces to inspect the claims. I’m not as angry at our nations politicians as I am with our national populace. I fight every urge to declare “We deserve what we get!” at everyone around me.

    We are at our most productive as a species on this planet as ever and yet the masses can’t remember one of histories most common themes, the rich, powerful, and privileged will always work to extract as much wealth from the masses until constrained by those masses. There is no financial crisis in America or most of the industrialized world. The masses are just not hurting enough at the hands of powerful to revolt and constrain their unchecked greed. I’m all for capitalism, but that’s not what this is anymore.

    I don’t agree with the President’s or anyone’s plan to cut anything from our safety net programs, because they all start from a false reality. You want to chain something, chain the top incomes to bottom incomes through percentages.

    • http://www.politicalruminations.com/ nicole

      Well fucking said, Dan.

    • missliberties

      Except that will NEVER happen in today’s world of tea party insanity.

      • MrDHalen

        There are trillions of reasons sitting in offshore accounts for why we can’t have nice things. The Tea Party is not one of them.

  • muselet

    Paul Krugman says Barack Obama is trying to win over the Serious People. Steve Benen agrees.

    I suspect Obama understands he’s never going to convince the Rs to compromise. I also suspect he’s never going to convince the Serious People it’s the Rs’ fault.

    I miss sane Republicans.

    –alopecia