Saving the Boomer’s Social Security

Originally Published on TheHill, 8/19/2016

The article was published in 2016, but remains largely the same. Saving Social Security exclusively for Boomers is a stagger cost.  That hasn't changed - it is now higher.

Rep. Reid Ribble (R-Wis.), who is retiring after six years in office, has decided it is time to touch the 3rd rail of politics – Social Security. He introduced the legislation “Save Our Social Security” Act (H.R. 5747), which promises to improve the long-term solvency of the program for future generations to come.

The stated point of the legislation is, of course, to avoid the projected benefit reductions of 21 percent across the entire population of beneficiaries that experts believe will start in the 2030s. The subtle subtext of the legislation, however, is more interesting. It sheds light the cost of getting the Boomers through Social Security under the terms of 1983 reforms because by and large they are exempt from this legislation.

At a high level, the legislation accomplishes this goal in roughly three equal parts; 1/3 in tax increases, 1/3 in changes to the retirement age, and 1/3 in a variety of changes to the benefit formula. The proposal begs the question: Do the changes make any sense?  Are we fixing Social Security or looking for ways to pay for a completely broken system.

These changes primarily fall on those born 1965 and after. This approach presents a challenge because this is same audience that was hit hardest in the 1983 reforms. Tax rates peaked in 1990 so the person born in 1968 is really the first to expect to pay the 12.4 percent rate for more than 45 years. The law phased in the new age retirements so that those born 1960 and later absorbed the largest benefit cuts. In conjunction the changes really fell on people who were 17 and younger at the time.

Raises Retirement Age from 67 to 69 

The policy staple of increasing retirement age by two years equates to a 13.3 percent reduction of benefits because people can continue to retire at 67 with lower benefits based on early retirement.

Policy managers justify this change by saying that we are living longer. Life expectancies have increased, but the question remains whether that change is occurring in retirement. The leading cause of increases in overall life expectancy in Americans has been falling infant mortality, a force that tends to make Social Security more solvent rather than less.

The retirement age for Social Security started to change in 2003.  According to research (Actuarial Study 120) provided by the Social Security Administration (“SSA”), someone retiring in 2003 on average expected to live a little over 18 years. Today, the person born in 1965, retiring in 2032, expects to live less time in retirement, but has a slightly higher probability of living to retirement.

If we raise the normal retirement age to 69, that person would have a lower probability of reaching full retirement age would receive full benefits for 16.62 years, which is consistent with someone who was born in 1900. We are asking this audience to work 4 more years to earn retirement benefits because they expect to collect about 3 more years of benefits.

Lowers Benefits 

Changes to benefits formula would substantially further penalize higher-wage earners, who already lose money on the system. Today, workers pay $103 of tax on $1,000 of earnings. At the margin, the higher wage workers receive an inflation adjusted benefit increase of $4.29 per year. (15 percent weight on 1/35^th of $1,000.)  That means someone must live roughly 25 years in retirement in order to break even.

The new formula would use 38 years of earnings rather than 35. Adding 3 more years to the equation lowers the incremental bump to $3.94 per year, a drop of nearly 8%.  By additionally lowering the bend point weight from 15 percent to 5 percent, the annual compensation drops to $1.31, or roughly 70 percent reductions in benefits on high wage contributions. We are not talking about millionaires.  The 15 percent tier affects people with average wages of $61,885.

The proposal would create a new bend point for the truly high-wage earners where the last $103 provides an incremental benefit of $.066 per year. The break-even for these workers approaches 150 years in retirement.

Higher Taxes 

Lower benefits by themselves do not solve the problem. So the proposal would increase the revenue reach of the system adding another $3.5 trillion over time. By committing this revenue to Social Security, the government will have less ability for other priorities like paying down the debt, free college, or shoring up Medicare. While the tax revenue will come from the higher income earners, the inability to finance other priorities will affect everyone.

No one seriously questions whether the system has financial imbalances. The cause of that gap is however not the life expectancy of people born in 1965. They have contributed more to the system than anyone thus far. Changing the retirement age for the program makes no more sense than cutting the benefits of people whose last name contains an “S”. Yes, the change may bring the system into balance, but no it is not addressing the core problems which caused the imbalance.

The proposal doesn’t fix Social Security.  It shifts the consequences of the gaps to people who had nothing to do with the creation of them.

 

From Gutting To Savings #Social Security, a mirage of debate

“Statements by President Trump and top Democratic presidential candidates in recent days have thrust Social Security into the middle of the 2020 campaign.” ~ Washington Post

Last week I lamented that the issue of Social Security has gone 0 for 7 in the Democratic debates, see article. I felt, and still do, that law makers need to focus more the program’s long-term stability, and the media needs to hold our elected officials to account. Nothing suggests to me that either is happening.

This week, the program is drawing fresh attention from heavyweight news outfits like the New York Times, Washington Post, CNN, plus a range of political outlets because of comments coming from leaders in both parties. Unfortunately, the news reports and opinion pieces tell you more about the breakdown of the debate than the direction of the program. Social Security is being used as a prop for wedge politics.

There are two underlying stories here: President Trump made comments in an interview with CNBC’s Joe Kernen about the size of entitlement spending. Elsewhere, Biden and Sen. Bernie Sanders (I-Vt.) have exchanged barbs over comments about Social Security that date back decades. (The best coverage of the stories seems to be in the Washington Post, read here.)

In the first story, Trump seems to suggest that he might consider revamping entitlement programs after the election. Almost overnight, writers inserted “Social Security” into the story as an example of an entitlement to provide context for the reader. Then articles stated that the President was open to cutting Social Security. Outlets like Forbes ran pieces that said that Trump actually said Social Security cuts were on his agenda. By the time the story reaches outfits like Huffington Post, Trump has committed to gutting the program. Now the media claims that Trump is attempting to “walk-back” comments that he never actually made.

Here is the interview clip. Read; the words Social Security never appear in the interview.

Will Entitlements Be On Your Plate?
At some point they will be. We have tremendous growth. We're going to have tremendous growth. This next year I—it'll be toward the end of the year. The growth is going to be incredible. And at the right time, we will take a look at that. You know, that's actually the easiest of all things, if you look, cause it's such a big percentage.

I have no idea what he is saying. The words Social Security do not appear in the entire interview. There is nothing here about cuts. Instead of reporting the news, the media is conflating news with analysis (guesswork) such that the news can be sold in the eyeball marketplace on the internet - to great effect by the way.

In separate but similar story, Sanders has questioned Biden’s commitment to Social Security. In return, Biden has accused Sanders of distributing ‘doctored’ videos, edited to make it appear that Biden has ‘advocated for Social Security cuts for 40 years’.

Neither story deals Social Security. Both are garden-variety wedge politics playing out on a level not far removed from that of a 3rd grade playground. Each case is a matter of he said (somewhat doctored), she denied. What Biden said in 1983 is irrelevant today. What he said 10 years ago is not meaningful. It is nearly $10 trillion of crisis ago. Paul Krugman summarized this story best; “The Sanders campaign has flat-out lied ..., and it has refused to admit the falsehood. This is almost Trumpian.” (Here are two fact check reviews if you are interested; see PolitiFact, FactCheck.)

The impact of this type of this progression has an unfortunate and serious consequence for the program. The lesson for politicians of any level is to evade the subject like the political plague. This response has less to do the price paid at the ballot box from older voters today, and a lot more to do with fear that any combination of words will morph into attack ads that last over 40 years.

While there isn’t any news here, neither Trump nor Biden deserves a pass on Social Security either. Both want to run the country. In the case of Trump’s comments, the media should be asking questions rather than inserting answers. Mr. President could you tell us specifically what the contraction “that’s” refers to? What are the numerator and denominator that make up your “big percentage”? At that point we can start to ask about “easiest.”

It is entirely fair for Sanders to point out that Biden has no plan for Social Security. His plan stops at empty rhetoric and vague promises. He promises to raise money and he promises to spend money. What an astonishing commitment to arguably the most important program in the federal government. Sanders should further point out that the GOP broadly does not have a plan. Suggesting that the GOP wants to gut Social Security or privatize the system is absurd. The real problem is that politicians on the right want to do nothing, and the current debate structure incentivizes it, and subsidizes it.

Social Security hasn’t been thrust into the news. It is nothing more than a label to attract readers.