Obama proposes Social Security change

President Barack Obama's coming push for less generous increases in Social Security benefits is angering his party and perplexing economists, many of whom question why he'd replace one ineffective measure with another.
MCT Wire
Apr 10, 2013

In his proposed federal budget Wednesday, Obama will urge a shift away from the way the government has calculated benefits for nearly four decades. It would save the government $230 billion over the next 10 years - which would please those alarmed by sky-high deficits and debt, but do it by slowing the growth of benefits to the elderly and others - a cause for alarm among his liberal base that thought his re-election meant such popular entitlements would continue untouched.

Obama will propose to shelve the standard measure of inflation, the consumer price index calculated by the Labor Department, as the basis for automatically adjusting the size of Social Security checks.

Instead, Obama wants what's called a "chained" consumer price index.

This alternate way to calculate monthly Social Security benefits involves the assumption that consumers don't always pay higher prices, but rather respond by seeking less expensive alternatives.

The net result is a less generous measure of inflation, which would save the federal government what it pays retirees, the disabled and others on assistance programs such as Social Security, some veterans benefits and other assistance programs.

That weaker cost-of-living adjustment means less generous benefits for current and future retirees over the course of their retirement.

"That's not just malarkey, that's damn malarkey," Terry O'Neill, president of the National Organization for Women, shouted during a small but spirited midday rally against the proposed change Tuesday in front of the White House.

Social Security first paid monthly benefits in 1940. Congress voted to raise benefits in 1950 and again in 1952. Since 1975, the benefits have been adjusted annually based not on a vote of Congress, but on the annual rate of inflation as measured by the consumer price index.

As a candidate and later when seeking re-election, Obama flatly rejected proposals to change the way benefits were increased. White House spokesman Jay Carney explained the about-face Tuesday by arguing that Obama's proposed budget in its entirety does a better job protecting seniors and the most vulnerable than do his opponents.

What angers advocates for the elderly and disabled and surprises economists is that there's so little recognition that the existing and proposed cost-of-living adjustments largely overlook the real prices for seniors and the disabled.

"It's a backdoor benefit cut. It's not a more accurate measure of the costs facing seniors," said Monique Morrissey, an economist with the Economic Policy Institute, a liberal think tank. "If anything, the current (cost-of-living adjustment) underestimates inflation (faced by seniors)."

Here's how. Both the current and proposed gauges of inflation measure changes in prices for products and services purchased by the general population. As a subset of the general population, however, the elderly consume health care and a number of other goods and services very differently than the rest of us.

"It's a one-size-fits-everybody bundle," acknowledged Keith Hall, who served as commissioner of the Bureau of Labor Statistics from January 2008 to January 2012. "Might you not want to focus on the elderly and some of their basics?"

During Hall's time at the BLS, statisticians developed an experimental model that tried to create a consumer price index for the elderly. It's known as the CPI-E, and while it is published monthly by the agency, it is only available through subscription and isn't included in publicly disseminated data. The effort remains a work in progress, being continued by Hall's successor.

The consumer price index is put together by people around the country who go to stores and collect price information on thousands of commonly used products and services. They plug this information into a huge database that compares the changes in prices nationwide and regionally, and the collective effort results in the estimated rate of monthly inflation.

"What they didn't do is go and watch seniors buy stuff. It's still very imperfect," said Hall, who thinks doing so would show that seniors actually shop in different places than the broader population. "They've taken the CPI and reweighted it to match the elderly. That's part of the way toward a proper CPI. It's probably not far enough to be useful. The big difference is the elderly seem to shop in different stores."

Hall noted that the elderly disproportionately shop at discount stores, places such as Big Lots, Dollar General and the like. Protesting at the gates of the White House, unions and other liberal groups vowed to exact revenge on the president and Democrats if they cut federal spending by tinkering with Social Security benefits.

"If that's your agenda, there will be no cover," vowed Damon Silvers, director of policy for the AFL-CIO, once an Obama ally.

Comments

pike84

You see folks this is why nothing gets done in Washington. You talk about getting spending and entitlements under control the lobbyists fire up the fear. You talk about gun rights and control and the lobbyists fire up the fear. You talk about raising taxes the lobbyists fire up the fear..
As Spock said (Mr. Spock-Star Trek) "the needs of the many out way the needs of the few...or the one". Lets remember our young citizens and give them a chance seeing how we have screwed them over...Our young citizens didn't spend the US into the black hole we're in, we did and we need to fix it...

horst

I would like to slam Obama for being two faced on the issues like he and his campaign did to Mitt. but this is the right thing to do. If "EVERYONE" and I mean "EVERYONE" took a 5% cut in pay, benefits, entitlemnts, whatever you want to call it. We could fix this mess. IT'S THAT SIMPLE!!!!

rukidding

Because of the mess that "our" government and greedy CEOs have put us in, I have taken way more than a 5% cut; closer to 40% would be accurate.

Vladtheimp

What exactly did any CEO do to you personally?

Lanivan

Social Security is an earned benefit insurance program. It has not added one thin dime to the deficit. It is one of the most efficiently run government programs in US history. We have known for the last 60 years there will come a time when the tsunami of baby boomers will all begin drawing social security. Even so, the program is not in peril, having enough in it's coffers to pay benefits for the next 20-24 years.

It's a shame Obama must offer such an unpopular and unpalatable proposal just to assure Republicans about his seriousness about reaching a long-term deal to stabilize the national debt, and to entice Repubs back to the bargaining table. Once again, the odds are good his attempts at negotiation will be rejected.

Tweak, or scrap altogether, the cap on FICA contributions. This would ensure the programs' solvency in perpetuity - problem solved.

Btw, Horst, Obama did just a week or so ago reduce his salary by 5%.

truthhurts

give the guy a cookie...what about his pension, benefits for life, lavish vacations on the American dime, etc etc

Lanivan

Knee-jerk reaction much? Are you suggesting Obama's pensions and benefits are any different from other modern presidents? Of course, you seem like the type who thinks you could do a much better job.....

Vladtheimp

So much misinformation, so little time,

Earned Benefit Insurance Program - I wish that was true - it used to be, but the politicians in D.C. (both parties) took all the money from the so-called Social Security lockbox and spent it on other programs, putting IOU's into the fund. After carrying an empty fund for years, they finally dumped Social Security in the rest of the entitlements - your Social Security check is now identified as a "Federal Benefit Payment." To add insult to injury, the politicians (I'll let everyone decide which ones) eased the requirements for SSI disability so that millions are now drawing that entitlement from the Social Security funds after their 99 weeks of unemployment run out.

"It has not added one thin dime to the deficit. Even so, the program is not in peril, having enough in it's coffers to pay benefits for the next 20-24 years." FALSE- "Some senior Democrats are claiming that Social Security does not contribute “one penny” to the federal deficit. That’s not true. The fact is, the federal government had to borrow $37 billion last year to finance Social Security, and will need to borrow more this year. The red ink is projected to total well over half a trillion dollars in the coming decade." " The lost Social Security tax revenues are being made up with billions from general revenues that must all be borrowed. The combined effect is to add $130 billion to the deficit in the current fiscal year. " http://factcheck.org/2011/02/dem...

"It's a shame Obama must offer such an unpopular and unpalatable proposal just to assure Republicans about his seriousness about reaching a long-term deal to stabilize the national debt, and to entice Repubs back to the bargaining table." FALSE. The Chained CPI is a minor change calculating inflation more correctly. It is a popular entitlement-reform proposal that was a feature of the Simpson-Bowles and Domenici-Rivlin bipartisan deficit-reduction plans.

Bottom line - we've once again been lied to and screwed by the federal government, which is why most young people do not expect to see any payments themselves from Social Security; in 1950 sixteen workers paid for the social security retirement benefit of each retired employee; now roughly 2 current workers support each retiree - do the math, the young folks can.

All of the above is why it's been said that Bernie Madoff only wishes he could have pulled off a Ponzi Scheme half as successful as the federal government has done with Social Security. But don't believe me, do the research yourself.

Lanivan

It's fascinating how one can say the page is white, and another will declare and expound on the fact that it is in fact the absence of color.

SS currently has s $2.7 trillion buffer that will be exhausted by 2033 without any changes, after which benefits would be reduced to 75%. As to your opening arguments, are you referring to the non-marketable gov't bonds that were created to indirectly finance federal general purpose deficit spending? My understanding is that these bonds were created when revenues exceeded expenditures - 1983-2009 - with the excess invested in these special bonds. SS's ability to make full payments once payouts exceed revenue will depend on the gov't's ability to make good on the bonds. Otherwise, I can find nothing that fits the scenario you describe.

You didn't mention, but I think significant, is that gov't forecasting methods for SS have barely changed since it's inception. SS predictions are based on a commission of actuaries (calPERS!), rather than statistical science. This is where the arguments for/against Chained CPI would benefit - one of the major complaints against is that data used by advocates is not accurately reflective of economic/buying habits of the elderly. Btw, I'm blown away by the idea you seem to go along with the idea as well as Nancy Pelosi.

There are many other ideas that make sense. The payroll tax rate hasn't changed since 1990 - 6.2% (other than going down to 4.2% for 2 years during the recession). One idea is to raise the rate 1% over 20 years. The income cap could be tweaked. The retirement age could be raised. I think Congress had better put ideologies aside as the reliance on SS benefits will be staggering, thanks to low interest rates on savings, the severe recession (thanks again Bush/Cheney), the diminishing of retirement funds as the newly unemployed had to dip into savings until new employment was found - if it was.

The statistic that most caught my attention is that the upward redistribution of income is responsible for about 43% of predicted SS shortfalls in the next 75 years. Another consequence of the spiraling degree of wealth inequality!

Vladtheimp

Did you read the description at Factcheck.org - hardly a source with a conservative perspective? If you choose to willingly suspend disbelief in an effort to see what the feds have done to Social Security through rose colored glasses, there is nothing I can do about that. If you think there are sufficient funds in the trust fund, whether in bonds or magic beans, to mean that the gov't won't have to borrow and add to the deficit this year and hereafter to cover SS costs, dream on teenage queen.

When Social Security is competing against welfare, Medicare, Medcaid, Defense, etc. for its share of the pie, those relying on it will be in for a rude awakening, and glossing over its problems to save face for one party or the other is doing those folks a huge disservice.

Wingmaster

:( only because your so right and I'm so screwed!

Lanivan

Thanks. You've prodded me to do more reading up on SS than in any time since my '72 Econ research paper. If anything, you understate the problem. TQ is now miserably one-dimensional.

If only Reagan had gone Keynesian instead of supply side, and paid down debt previously created to stimulate the economy after the '80 recession instead of tax cuts and raising the debt ceiling 18 times. Bushes 1 & 2 carried on the tradition (although, to his credit as well as costing him reelection by Repubs cutting off support, Bush 1 was smart in calling it voodoo economics). If they all had balanced the budget like the centrist Clinton instead of driving up the debt, Obama wouldn't have had the debt ---- storm he - and us - currently face.

And then the Recession of'07-09, when Bush set an all-time record by increasing debt by $1.1 Trillion in 100 days (I will accede that, although under his watch, it wasn't entirely his fault). When you tack on the massive loss of revenue during 07-09 that accounts for nearly 1/2 of the current deficit onto Bush's tax cuts, you have the #1 reason for the huge deficit - reduced tax payments.

Meanwhile, since 1980, the share of US income going to the top 1% has doubled, while the share going to the top 0.01% has quadrupled. Those government tax policies that have reduced revenue, needed for investment in the future and paying down debt, to the lowest levels in 80 years have exploded income inequality to a level not seen since about the same time period. #1 strain on the economy - income equality.

Of course, our only hope is to privatize SS and hand over the Holy Grail to Wall Street - mission accomplished! We could actually reincarnate the very conditions that produced the program in the first place! Speaking of Social Security, the last serious reform was in 1983 when Reagan/Greenspan, within days of it running out of money, tweaked it enough to keep it going for the next 70 years or so.

There are dozens of good ideas out there that could insure SS viability for decades. I am coming around to the chained CPI, although that alone won't be enough. How about eliminating tax breaks for corporate jets and carried interest to help round up? Repubs will have none of that, tho. Obama's budget does seem to offer a common sense approach to increas in revenue + deficit reduction + trimming social net programs + paying down debt. I can already hear the chorus of congressional supply siders singing "not on my watch".

Your final comment pretty much sums it up. Looks like retirement will consist of living on a boat along the coast - again, just like back in the day.

Wingmaster

I think this qoute fits here nicely:

“Republicans believe every day is the Fourth of July, but the democrats believe every day is April 15.”― Ronald Reagan

Enjoy your holiday weekend Lan!

Lanivan

He also said, "To paraphrase Winston Churchill, "I did not take the oath I have just taken with the intention of presiding over the dissolution of the world's strongest economy". Then that great actor doubled the deficit taking it from $79 billion in '81 to $152.5 billion in '89.

Bush, not to be outdone, managed to take $127 billion SURPLUS in '01 and dump a $1,413 billion deficit in Obama's lap. But it's all Obama's fault!

Let's celebrate, and take our tax refund and buy some Bushmaster stock!

Oh wait, Ron also said, ""I do not believe in taking away the right of the citizen for sporting, for hunting and so forth, or for home defense. But I do believe that an AK-47, a machine gun, is not a sporting weapon or needed for defense of a home.'' ---Ronald Reagan, at his birthday celebration in 1989.

Maybe we better save it for retirement. Read 'em and Weep, Meatloaf.

Vladtheimp

Thanks. You have convinced me that Republicans are responsible for every problem faced by the United States/World/Cosmos. If only we could wipe the dirty bas#&rds off the face of the earth, and the filthy, greedy 1% and let lord Obama, Nancy Pelosi, and Harry Reid have their way, we would be living in perpetual peace, harmony, and wealth.

The fog of conservative propaganda has lifted, thanks to you!

Lanivan

Finally, you see the light! I knew it was just a matter of time when, after months of civil debate and my concerted efforts to present facts, statistics, and reasoned, objective, considered analysis, you would give up your life-long held philosophy of government, and life in general. I am affirmed!

Let's celebrate and take our tax refund and invest in some US Treasury Bonds!

Vladtheimp

Unfortunately for me, news of my leaving the dark side did not reach our great president in time; I had to pay the IRS rather than get a refund. At least I can rejoice that the Great Leader will use the money I sent for worthy, progressive causes. Maybe I can take a small piece of the credit for stopping global warming and dropping the level of the seas.

Lanivan

You should have heeded my words months ago. I got not only an engraved Christmas card but a refund. Do you have to pay the State of Michigan? If so, perhaps you will be contributing to the dredging efforts to increase Lake Mighigan water levels - a win-win for you!

This is called governmental "persuasiveness".

Wingmaster

Ah, rejoicing in someone else's misery in see one's income redistributed. A true trait of a centrist I might add!

Glad to see you kept your tax dollars under your matress for as long as possible Vlad.

Vladtheimp

When I mentioned competing programs for dwindling funds, I forgot to mention payment of interest on the national debt, which is constantly being driven upwards by he whose name I am not permitted to mention in Lanivan's presence:

Indeed, between 2013 and 2022, estimated interest costs will be:

higher than Medicaid spending;
equal to half of Social Security spending;
close to what is spent on all of defense.

The estimated interest costs assume a fairly steady and moderate increase in rates over the decade.

Hang on, it's starting to be a wild ride indeed.

.

Wingmaster

:)

Lanivan

oh, wipe that smirk off...

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