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Home Publications Blogs Beat the Press President Obama Proposes a Bigger Hit to Seniors Than to the Rich

President Obama Proposes a Bigger Hit to Seniors Than to the Rich

Friday, 05 April 2013 04:25

It might have been worth making this point in an article on President Obama's budget proposal that tells readers of his plan to cut Social Security by reducing the annual cost of living adjustment. It would have been worth putting this proposal in some context, since many readers may not understand its consequences.

President Obama's proposal would reduce benefits by 0.3 percent for each year after a worker retires. After ten years benefits would be cut by 3.0 percent, after twenty years 6.0 percent, and after 30 years 9.0 percent. Over a twenty year retirement, the average cut would be 3.0 percent.

This cut would be a bigger hit to the typical retiree's income than President Obama's tax increases at the end of 2012 were to the typical person affected. A couple earning $500,000 a year would pay an additional 4.6 percentage points on income above $450,000. This would amount to $2,300 a year (4.6 percent of $50,000). That is less than 0.5 percent of their pre-tax income and around a 0.6 percent reduction in their after-tax income.

By comparison, Social Security is about 70 percent of the income of a typical retiree. Since President Obama's proposal would lead to a 3 percent cut in Social Security benefits, it would reduce the income of the typical retiree by more than 2.0 percent, more than three times the size of the hit from the tax increase to the wealthy.


Source: Author's Calculations.

Comments (16)Add Comment
Really disappointed
written by Chris Engel, April 05, 2013 7:15
This is his "starting point" to counter Ryan's insane House budget?

That means the compromises from this new plan will only get closer to Ryan's crazy Randian utopia.

Can't believe the starting point is Chained CPI...good bye bargaining chip.
written by David, April 05, 2013 7:15
Maybe Obama doesn't understand the consequences either, or maybe he's sacrificing seniors to kill the GOP in 10-20 years from now.
written by Last Mover, April 05, 2013 7:37
Classic Chinese slow torture of a thousand cuts by Obama. No one will notice at first, then it will be too late when the true level of bleeding is discovered.
Obama is the WORST Dem. President in our history.
written by bailey, April 05, 2013 8:41
And, Bill Clinton set the bar incredibly high! So, what have "Progressive" sites been covering lately? Hillary, of course.
This is why Dean Baker has been and is among the very BEST on the Web. He is fiercely independent, he believes what he says and he says what he believes. Most importantly, he supports what he says with verifiable data! If the principal role of the macro-Economist is to predict the prospects for our Economic future and explain our Economic past in ways that make sense, there's none better than DB. (Excuse the rant, but every once in a while someone's got to say it.)
written by skeptonomist, April 05, 2013 9:36
A "Grand Bargain" is not a constitutional amendment, so any agreement reached need not affect actual SS benefits beyond the current Congressional term. The level of benefits and taxation in 2050, say, can be set at that time - what Congress does now can be reversed at any time.

What is most important is that the money in the Trust Fund be paid out to those, mostly boomers, who paid into it with their taxes. If they die without getting their share, they will have been cheated. Claiming that exhaustion of the Trust Fund will "bankrupt" SS (or the nation) is a major swindle. So the handling of the Trust Fund in any agreement is something that could have important implications for the future. A major change in policy on this could be much harder to reverse than the level of taxes and benefits.
written by AlanInAz, April 05, 2013 11:14
I think the hit on future retirees is even larger than Dean shows. Benefits will be subject to several years of lower inflation indexing before retirees reach retirement age. I don't think Dean included this reduction in his calculation.
written by TK421, April 05, 2013 11:25
President Obama is not a good guy.
Did anyone really believe Obama?
written by Frank Pitz, April 05, 2013 11:27
The corporatist-capitalist faction (of which Obama is a member/participant) has been seeking to destroy social security for decades. The foolish really believed Obama when he said "no social security cuts..." and now the chickens come home to roost. The corporatist-capitalist bloodsuckers have finally realized their dream, it is not quite complete yet, privatization is the next plum to be captured - that will come when the next 'crisis' occurs. Cutting old folks benefits is the same as murder for those many thousands whose only subsistence is social security, but blood on the hands of the corporatist is nothing new, they are so practiced at it that is means nothing.
Is it time to roll out the guillotine yet?
What, Exactly What?
written by Jeffrey Stewart, April 05, 2013 12:00
What about President Obama's economic policies is in any way in the Democratic tradition of FDR and LBJ? There's no longer a major political party that's even nominally for the working class. His proposal must be fought and stopped!
written by Troy, April 05, 2013 1:28
What is most important is that the money in the Trust Fund be paid out to those, mostly boomers, who paid into it with their taxes. If they die without getting their share, they will have been cheated

QFT. The Greenspan Deal of 1986 or whenever resulted in a FICA surplus 1990-2010

The baby boom was aged 26-44 in 1990, while Gen X was aged 7 to 25.

So it is indeed true that the boomers got squarely hit with the Greenspan scheme, and the gov't need to pay down the current FICA surplus + accrued interest ($2.6T) via higher taxation on incomes above or outside the FICA regime.

There is ~$2T sitting on this table so of course thieves want to steal it.

As I say on Angry Bear, like taking candy from a baby, really, since nobody understands what that $2.6T is or where it came from.
Yes again
written by Troy, April 05, 2013 1:34
Benefits will be subject to several years of lower inflation indexing before retirees reach retirement age

Indeed. Since I'm still 20 years away, Obama just offered to cut my benefits 6%.

The stupid thing is that I'm OK with higher FICA contributions.

What people don't understand is that all payroll taxes come out of housing rents and home prices, since we use our disposable incomes to bid up the price of housing.


Wages up 6X since 1970, rents up 6X. Ain't that a b---
A shameful moment
written by William Danz, April 05, 2013 2:05
I'm a liberal Democrat, and for decades have accepted that many in my party will be to the right of me, and voted Democratic down the line anyway. That ends today.

It's no surprise that Obama is still pursuing his austerity fetish and ignoring jobs, but today he made it official policy, and there's no turning back. Horrible, heartless policy PLUS terrible politics. Democratic congresspeople: run away from this atrocious policy / politics, NOW. People like me will not forgive you, will not vote for you if you don't. We're watching.
Why don't you compute from current CBO projections?
written by root_e, April 05, 2013 2:43
Because CBO shows reduction in benefits due to trust fund exhaustion starting 2038 - 15 years out.

What you want to do is (a) assume that Congress will act to raise revenue if CCPI is not added, and (b) will not act to raise benefits if it is added. That's a ridiculous pair of assumptions.
25 not 15
written by root_e, April 05, 2013 3:03
typo. DI fund gone in 2016.

You need to compare benefits under current law to benefits under the proposed change - and you have not done so.

Also your analysis of the hit from the 2012 tax increases leaves out the hit from the current proposal
Retirees Beware
written by Bart, April 05, 2013 5:54

Of when you hit the magic years of 65 and 75, when your auto and home insurance policies increase by 8 or 10 percent. I doubt very much if the CPI, chained or unchained, consider these lovely thresholds.
Raise the cap, cut the wars and kill the wages system of slavery....
written by Mike Ballard, April 10, 2013 6:39
Let's establish common ownership of the collective product of our labour. There is an alternative.

Recently, it was revealed that there's $21 trillion in the tax sheltered bank accounts of the world's rich, many of whom live in the USA. Endless, useless wars cost trillions of dollars and national debt. Fer Gawd's sake Social Security is solvent. It's running a surplus at the moment. If Social Security EVER DOES run a deficit, it's easy to fix: just lift the cap on Social Security taxing incomes above $103,700 a year. But nooooooooo...Obama just HAS to cozy up to the Republicans rich boys who turn a blind eye to the $21 trillion sitting in Cayman Island bank accounts and rage on about fighting ever more wars to project the power of America's rich in the world.

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About Beat the Press

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.