CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press Robert Pozen’s Myth Creation on Social Security

Robert Pozen’s Myth Creation on Social Security

Print
Monday, 13 December 2010 12:36
The Boston Globe helped to create some new myths on Social Security with a piece by Robert C. Pozen that ran under the headline “Myth Busters: The Truth About Social Security Reform.”

Pozen first told readers that Social Security is not progressive even though its payback structure is highly progressive. (A low-wage earner will get a payment equal to about 90 percent of their average wage income, while a maximum wage earner [$106,800 in 2010], will get a benefit equal to less than 30 percent of their taxable wage.) He argued that the differences in life expectancy (wealthy people live longer), offset the progressivity of the payback structure.

While this is partially true, the differences in life expectancy do not fully offset the progressivity of the payback structure. Also, Social Security includes survivor and disability benefits that disproportionately benefit low and moderate-income earners.

The second myth created by Pozen’s piece is his claim that the proposed increase in the Social Security retirement age is no big deal. He described as a myth the claim that:

The Budget Commission’s proposal raises retirement age too quickly, especially for physical laborers.”

First, the commission did not issue a proposal. The co-chairs, Erskine Bowles and Alan Simpson, issued a proposal that got the support of 9 other commission members, 3 short of the number needed to make it a formal proposal of the commission.

Pozen goes on to tell readers that the proposal increases the normal retirement age at a:

“much slower pace for increases in the retirement age than the projected increases in life expectancy. During the 48 years between 2027 and 2075, the normal retirement age will rise by only two years, but life expectancy in the United States will on average rise by more than 10 years.”

Actually, the Social Security Trustees project an increase in life expectancy of 6.4 years over this period. The bulk of gains in life expectancy in recent years have gone to high-end earners. If this pattern continues in coming decades, it is very likely that the gains in life expectancy for most workers will not exceed the increases in the normal retirement age proposed by Bowles and Simpson.

Pozen then assures readers:

“In their proposal to reform Social Security, the co-chairs would allow physical laborers to claim half of their benefits early and the other half at a later date. Moreover, the proposal directs the Social Security Administration to develop a new and more flexible method for delivering retirement benefits for those in “physical labor jobs.”

Actually, the suggestion by Bowles and Simpson that there would be different retirement schedules for different occupations is reversing a worldwide trend toward standardizing benefit schedules. The Bowles-Simpson proposal is precisely the policy for which Greece was widely ridiculed. Hairdressers were one of the occupations that qualified for early retirement based on the fact that they worked with dangerous chemicals. It is not clear that the government is well positioned to make this sort of assessment and that it can impose rules that prevent easy gaming.

The third myth created by Pozner’s when he labels as a myth the claim: “The proposal would constitute a large “cut’’ in Social Security benefits for American workers.

Before addressing the benefit schedule, it is worth noting Bowles-Simpson propose a change in the annual cost of living adjustment (COLA) that would amount to roughly a 3.0 percent cut in benefits for someone who lives 20 years after starting to collect benefits. Whether or not this is “large” can be debated. However, it is worth noting that this proposed cut would have more impact on the after-tax income of most beneficiaries than the ending of the Bush tax cuts would have on most of the people who earn more than $250,000 a year.

For example, those earning more than $300,000 a year would see their income about $250,000 taxed at a 36 percent rate instead of a 33 percent rate. Since this higher rate would apply to just one-sixth of their income, it would reduce their after-tax income by just 0.5 percent. Only the very wealthy would see their after-tax income fall by a larger percentage due to the expiration of the Bush tax cut than the 3.0 percent cut in Social Security proposed by Bowles-Simpson from changing the annual COLA.

The media and members of Congress have certainly acted as though this change in taxes is “large,” so the proportionately bigger cut in benefits proposed by Bowles and Simpson must also be “large.”

Pozen wrongly asserts that:

“The proposal would actually increase the current schedule of Social Security benefits for low-wage workers. It accomplishes this result by expanding the concept of minimum benefits available to any worker.”

In fact, most low-wage earners would not have enough years of earnings to qualify for the step up in benefits proposed by Bowles and Simpson.

Pozen then notes that, in addition to the cut in the COLA, scheduled benefits will be cut for “more affluent workers.”  It is worth noting that “more affluent workers” in this context means anyone with average earnings above $10,000 a year.

Pozen also claims that the schedule of benefits proposed by Bowles and Simpson must be compared to the payable benefit in years after 2037, since the program is not projected to have enough money to pay full benefits in years after 2037.

In fact, there are literally an infinite number of ways to fill the gap in funding. The idea that if Congress does not endorse the Bowles and Simpson plan that there would be no other way to close the projected shortfall in the next 27 years is absurd on its face. 

Comments (6)Add Comment
Pozen, Simpson, Baker Stand Together Against Gaming of Longevity
written by izzatzo, December 13, 2010 1:50
Hairdressers were one of the occupations that qualified for early retirement based on the fact that they worked with dangerous chemicals. It is not clear that the government is well positioned to make this sort of assessment and that it can impose rules that prevent easy gaming.


Exactly Mr Whose Your Nanny. Finally Mr Nanny finds something the Statist Nanny State can't do - establish unique longevity standards for occupations like hairdressers.

If that happens, moral hazard would set in and the customers would want early retirement too, based on regular drenchings of poison shampoos, mousse, gels, conditioners, and volumizers, not to mention flammable pomades of petroleum hair wax.

Next thing you know the professional class would hop on the bandwagon for earlier retirement as well. Lawyers with excess paper cuts. Doctors with latex allergies. Economists with bloated present values. There's no end to it. Everyone would claim they're going to die before everyone else.

Robert Pozen and Alan Simpson would be proud Mr Nanny. This could have reduced the average work life to ten years, created a labor shortage, rising wages and the end of unemployment all at the same time, but because of Mr Nanny, Americans will never game their longevity again, going stoically into the hereafter according to standardized actuary tables based on the highest living standard in the world, The Austerian Standard.
Baptism by fire.
written by diesel, December 13, 2010 3:39
Excuse me maam, but I'm going to douse your head with a product that is so toxic that I had to qualify as a hazardous materials handler before they would even allow me to unscrew the lid.

But it do sure make you look purty.
U know who you are really up against?
written by JL, December 13, 2010 5:35

I at time disagreed with your selective analysis and reporting. However, your continued accurate analysis of the SS issue should be commended esp. you are opposing and trying to diffuse the false info put out by the Peter Peterson's foundation, which received $1 billion to start with.

How much do you have to oppose him?

In any event, Peterson did tell Bloomberg News that he is TRULY concern about the future of this country for his nine grandchildren and that ITSELF motivates him to clean up the budget deficit and foreign debts.

It truly is that the powerful will get the platform to spill out bunch of bs.
¡Es difícil encontrar un mito NUEVO!
written by JHM, December 14, 2010 4:20

Dear Dr. Bones,

When your colleague Baker promised "sone NEW myths" about SS, I was sceptical: he repeats himself so relentlessly that his criteria for novelty are not to be trusted by a rational being.

Nevertheless, so it is! The Pozen neocomrade has indeed come up with some nifty hitherto-unheard-of ammo for his team in the _Klassenkampf_.

The biggest single news item, though, cannot have been manufactured at the H*rv*rd Victory School. Or even cooked up at MFS Investment Management.


  • Somehow press-beater Baker has let the fishwrap industry get off unrebuked for drawing no attention to a certain ingenious scheme of Neocomrade Fedguv Senator the Freelord of Simpson and E. B. Bowles, M. B. A., a scheme which I betcha Kiddiemaster Pozen urgently wishes *he* had invented. Yet obviously his freelordship cannot have done so, for he describes it as follows:

    "In their proposal to reform Social Security, the co-chairs would allow physical laborers to claim half of their benefits early and the other half at a later date. Moreover, the proposal directs the Social Security Administration to develop a new and more flexible method for delivering retirement benefits for those in ‘physical labor jobs’."

    The Baker demythologisation of that one is not positively bad, but I find it a little tame and want to try my own hand:

    As the saying used to go, the Freelords of Simpson and of Pozen are the sort of nobility/gentry "who take Manual Labor to be the name of a Spaniard." Especially _à propos_ would be a revival of that obsolete bromide, considering that around here -- within a fifty-kilometre radius of the former Allston (Massachusetts) College of Chirurgy and Barber Science, http://j.mp/gnU9eF -- nine out of ten instances of "physical labor" spotted by me involve _las indocumetadas y/o los indocumentados_. [**]

    And that must do for now, Bones, since I must already be in violation of Comrade Krugman’s three-inch rule. Though he does not say [http://j.mp/gC7g0K] what typeface he uses.

    Happy days (through affordable healthcare).




    ___
  • You can always tell a H*rv*rd: "Robert C. Pozen is senior lecturer of business administration at Harvard Business School and chairman emeritus of MFS Investment Management."

    [**] Of course the Juanitas and Josés one meets with north of the [Mystic] river are not, technically speaking, Spaniards.

    The point, for present purposes, is that they are not true, blue redene... redstate Arizonans either. Hence Sam can save a whole lot of red ink by shipping themem back to Boca Grande or wherever rather than give them even a _maravedí_ in pensions for old age or disability. As soon, that is, as we have developed robots who (?) can garden the grounds of Castle Simpson adequately, and bring up the next generation of Von Pozings, and fix the plumbing at Mr. Bowles’s country _dacha_, and . . . .





  • The relevant data is life exp. at age 60-65
    written by Goldilocksisableachblonde, December 14, 2010 5:11
    Pozen: "During the 48 years between 2027 and 2075, the normal retirement age will rise by only two years, but life expectancy in the United States will on average rise by more than 10 years.”

    Baker : "Actually, the Social Security Trustees project an increase in life expectancy of 6.4 years over this period"

    Even more actually , the tables in your link show that for the relevant figure in this discussion - remaining life expectancy at age 65 - the increase is only ~3 years from 2025-2075.


    ...
    written by andy, December 14, 2010 5:33
    I rarely look at comments. Are they always this insane?

    The Globe has been growing increasingly "conservative" fiscally and anti-union over the last decade or so. It's nice to see someone calling them on it.

    Write comment

    (Only one link allowed per comment)

    This content has been locked. You can no longer post any comments.

    busy
     

    CEPR.net
    Support this blog, donate
    Combined Federal Campaign #79613

    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.

    Archives