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Home Publications Blogs Beat the Press President Obama Calls for Cutting Social Security by 3 Percent, Raising Normal Retirement Age in Acceptance Speech

President Obama Calls for Cutting Social Security by 3 Percent, Raising Normal Retirement Age in Acceptance Speech

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Friday, 07 September 2012 05:15

The media and "fact checkers" seem to have missed it, but President Obama implicitly called for cutting Social Security by 3 percent and phasing in an increase in the normal retirement age to 69 when he again endorsed the deficit reduction plan put forward by Erskine Bowles and Alan Simpson, the co-chairs of his deficit commission.

The reduction in benefits is the result of their proposal to reduce the size of the annual cost of living adjustment by 0.3 percentage points by using a different price index. After 10 years this would imply a reduction in benefits of 3 percent, after 20 years the reduction would be 6 percent, and after 30 years the reduction would be 9 percent. If the average beneficiary lives long enough to collect benefits for 20 years, the average reduction in benefits would be approximately 3 percent.

Since Social Security is enormously important to retirees and near retirees, the media should have called attention to this part of President Obama's speech. It is likely that many of those listening did not realize that his deficit reduction plan called for these cuts.

Comments (16)Add Comment
...
written by mercurino, September 07, 2012 7:15
This is not true. Obama did not "endorse" Bowles-Simspon. He endorsed the general "framework" of the chairmen's plan. That leaves a lot of wiggle room for exactly what he'd ultimately sign if given the chance. A small but important distinction.
Core element
written by jayackroyd, September 07, 2012 7:29
There's wiggle room in B-S for Medicare cuts. But not for Social Security. The program is specified in detail, is a core element and is the element that Bowles, Simpson, the B-S twitter account and the mainstream media focus on. B-S is primarily about exchanging social security benefit cuts for a somewhat more progressive income tax structure.
Fudge
written by David, September 07, 2012 7:49
" ... eager to reach an agreement based on the principles of my bipartisan debt commission" is what he said. The SS issue had better not be one of those principles. But it's not clear from the speech. It depends on what "taking the responsible steps to strengthen it" means. A 3% cut in benefits is not responsible and not strengthening. But talk about not giving specifics ...
...
written by ComradeAnon, September 07, 2012 7:51
Wonder how he'd feel about FICA taxes on incomes above the current $110,100.
Not just COLA decrease in Bowles-Simpson, and Obama endorses principles, not details.
written by AndrewDover, September 07, 2012 7:57
The Simpson-Bowles draft report had 8 proposals on Social Security. Dean only mentioned one, the COLA decrease which was only third in importance.

45% Gradually phase in progressive changes to benefit formula by 2050

35% Gradually increase taxable maximum to 90% of covered earnings by 2050

26% Apply refined cost of living measure (chained-CPI) to COLA

21% Index retirement ages to life expectancy

8% Cover newly hired state and local workers after 2020

-16% Benefit boost to oldest old retirees, and lifetime low earners.

The lefthand number is the percentage of the 75 year SS shortfall that would be fixed by this measure.


http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/CoChair_Draft.pdf
See page 48.

What Obama said:
"Now, I'm still eager to reach an agreement based on the principles of my bipartisan debt commission."
Save Social Security
written by bakho, September 07, 2012 8:16
Bush tried to privatize SS and got his A** kicked. Obama will get the same treatment from the voters if he tries the same. We can put enough pressure on even the TeaParty Congressmen to make the understand the political risk.
...
written by skeptonomist, September 07, 2012 8:22
The debate about the impact of specific SS provisions in Bowles-Simpson is a red herring because polls make it clear that voters are willing to increase the payroll tax rate to maintain benefits at current levels. The COLA methodology is not something that has to be cast in stone now; after 10 years or so it should be evident which method is closest to accounting for actual cost changes to seniors (or should be if economists do their jobs and are not unduly influenced by politicians). There are lots of details that remain to be worked out, but almost all advance planning is a matter of timing the payout of the surplus in the Trust Fund; the rate of taxation and the SS benefits in, say 2060, after the last boomers have gone and the Trust Fund is back down to minimal level, is something that can be left up to voters and their representatives at that time. There is absolutely no crisis and no real need to be planning benefit and taxation levels 50 years in advance.
...
written by skeptonomist, September 07, 2012 8:29
In 2060, COLA will be completely unnecessary, if trends in birth and immigration rates remain constant (if there are no more baby booms and no more Greenspan adjustments). At that time, SS will be operating as initially set up; money will be taken from workers with the payroll tax and immediately paid out to retirees and disabled. The amount can be determined by consensus at that time - there is no need for us to determine it now.
Other options besides S-B
written by David, September 07, 2012 8:31
Bakho, he did commit to not handing it over to Wall Street.

AndrewDover, rather than implementing any of the S-B cost cutting (45% savings by cutting benefits via formula) why not add a progressive contribution increase from wage gains, scaled up to 5%? That (or some variation) would work too, especially if the income cap increases in step with real dollars.
...
written by skeptonomist, September 07, 2012 8:36
It should probably also be kept in mind that most specific budgetary problems with SS vanish if it is allowed to go into the red, as the overall US government balance sheet is. There is no economic reason for not allowing this, or for keeping the budgets separate. How do other countries handle this?
...
written by AndrewDover, September 07, 2012 9:42
David,
Yes, it makes sense to me to increase SS contributions too.

It was amusing to listen to Ryan call Bowles-Simpson an "urgent report", and not mentioned that he helped prevent it from happening.

http://www.nytimes.com/interac...vote.html
...
written by David, September 07, 2012 10:07
I hope what Obama was saying is "I'll address debt fears seriously and responsibly but I won't allow cuts to benefits from SS or Medi-care/aid" But I want to hear that. But like skeptonomist said, let's just wait it out, the 'problem' solves itself. Would we even get to Japan's current debt/GDP levels?
We Need A Pre-Election Pledge To Strengthen SS, Medicare And Medicaid From President Obama
written by Jeffrey Stewart, September 07, 2012 10:59
It's not in any way "balance" or "shared sacrifice" to reduce the deficit by making the rich pay higher income taxes while making it more difficult for the working class and the poor to afford necessaries of life by cutting Medicare, Medicaid and Social Security.

The additional income taxed away from the higher income people probably would have been saved anyway. It certainly isn't necessary for paying rent, buying food, clothes, medicine or gasoline. The huge problem is that cuts in Medicare, Medicaid and Social Security will make life more insecure for the most vulnerable and least powerful of society's members.

It's challenging understanding how any Democrat worth the name would repeatedly advocate these policies. Why would you, Mr. Obama?

The spectacle of people, Democrats(!), cheering President Obama when he's telling them he's determined to cut social, medical and retirement programs that primarily benefit society's most vulnerable members is really hard to take.
skepto is close...
written by pete, September 07, 2012 11:13
"red" is a silly construct..all ss payments are funded by general revenues. the "bonds" are u.s. treasury liabilities, i.e., general taxes...its really a 3 card monte construct, masterfully done by Roosevelt to pretend that it was an investment plan, not socialism, to get the republicans on board in the 30s.

Payments should be made, possibly based on lifetime earnings. Fine. Financing should be with efficient taxation. The flat income tax, as some are suggesting, i.e., raising the flat tax from 12.5% and extending it to more incomes, is clearly efficient. But it seems there are other social needs which could be addressed with taxes, like Robert Franks suggestion of a $3 or more tax on gasoline.

This is the way public economics works in the absence of zany politics. Tax efficiently, and make transfers like SS etc. efficiently. No need to conflate the taxes and the payouts.
...
written by John Yard, September 07, 2012 1:47
"...but President Obama implicitly called for cutting Social Security by 3 percent and phasing in an increase in the normal retirement age to 69 ...."

is precisely why his presidency is in trouble. On one hand the administration strains every nerve to support financial assets,
while the downsizing of the working class and middle class proceeds apace. The administration 'centerism' consists of support for his ememies, while failing his constituencies.
Easy for him to say
written by ljm, September 07, 2012 11:12
Obama will retire from his job as president with a very nice retirement, which he'll get long before he's 65, let along 69. With the exception of Jimmy Carter, perhaps, none of our current ex-presidents need the money. They are all rich. They also haven't done jobs that require physical labor. It's easy for him to say what people who work hard physically should wait for their social security and that they should receive less, when they haven't got much to begin with for retirement.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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