Lying, Cheating and Stealing to Gut Social Security

The insiders in Washington really really want to cut Social Security,
and they are prepared to say or do anything to do it. Among the latest
lines is that they want to make Social Security more "progressive." This
sort of rhetoric appeared in a report from the liberal Center for
American Progress (CAP) in a plan that proposes substantial cuts in benefits.

To understand what CAP and other proponents of increasing the
progressivity of Social Security mean, consider the idea of raising a
marginal tax rate paid by many middle-income people from 25 percent to
35 percent. The current 25 percent bracket begins at an income of
$34,500 for singles, and $69,000 for couples.

Raising this tax rate by 10 percentage points would be a substantial
hit to tens of millions of families who are certainly middle class by
anyone's definition. However, this tax increase would also be
progressive. The bottom 60 percent of the income distribution would not
be touched at all, and those just over the cutoffs would only see a
small increase in their tax burden.

Nonetheless a couple earning $100,000 a year would see their taxes
rise by $3,100, which is not a trivial matter for a middle-class couple.
This is the way in the CAP plan for cutting Social Security benefits is
progressive. It would lead to substantial reductions in Social Security
benefits for people who earned an average of $60,000 or $70,000 during
their working lifetimes. While such people earned more than most
workers, such salaries don't quite put them on par with Bill Gates.

The reason why CAP wants to cut the benefits of factory workers and
school teachers is because this is where you have to go if you want to
have any substantial reductions in Social Security payments. Peter
Peterson, the billionaire investment banker, is fond of telling
audiences that he doesn't need his Social Security check.

However true this might be, Mr. Peterson's Social Security check,
along with those received by all the other millionaires and billionaires
in the country, really doesn't make any difference for the program's
finances. There are not many rich people, and because Social Security is
a progressive program, the billionaires' Social Security checks are not
much bigger than the checks received by ordinary workers.

This means it doesn't matter for the program whether or not Mr.
Peterson and his wealthy friends get their Social Security checks. When
they talk about cutting benefits for "affluent retirees" or making the
program more "progressive," they are talking about cutting benefits for
schoolteachers, firefighters and other middle-income workers.

This is not the only trick that the Social Security cutters are
playing these days. One proposal from both Bowles-Simpson and CAP is to
change the annual cost of living adjustment (COLA) for retirees. They
propose using an alternative index for the COLA that they claim is more
"accurate."

The reality is that these people have no clue whether their preferred
index is more accurate in measuring the rate of inflation experienced
by retirees. Their index was not designed for this purpose. What they do
know is that their index provides a lower COLA leading to lower
benefits. After 10 years the COLA provided by their index will have
reduced the benefits for a retiree by roughly 3.0 percent. After 20
years, the decline would be 6.0 percent. This would be a substantial cut
in income for many people who are entirely dependent on their Social
Security and just getting by now.

If accuracy is the issue, rather than cutting benefits, we could ask
the Bureau of Labor Statistics to design a price index that specifically
measures the rate of inflation experienced by the elderly. There is
little interest in Washington in this exercise because the evidence we
have now indicates an elderly index would lead to a higher COLA, not a
lower one. So, in the interest of accuracy, let's be clear: The Social
Security cutters want to see a lower COLA for Social Security
beneficiaries. They do not give a damn about having an accurate one.

The Washington insiders may not be very honest in their efforts to
cut Social Security, but they deserve some sympathy. After all, on
policy grounds they have no case.

Social Security is an incredibly effective program. It provides a
core retirement income to tens of millions of people, while insuring
almost the entire workforce against disability or early death. And, it
does this at an administrative cost that is about one-tenth as high as
private insurers charge. In addition, it is fully solvent long into the
future.

They have an even harder time with the politics. Social Security is
enormously popular across the political spectrum from the left-wing of
the Democratic Party to the devout Tea Party faithful.

In short, those who want to cut Social Security must overcome the
fact that they have no argument on policy grounds and their scheme faces
enormous political opposition. As a result, the Washington insiders
have no choice. If they want to cut Social Security they will have to
lie, cheat and steal. And the Washington insiders are very good at these
tactics.