Mar 1, 2005 by Guest Blogger
In an op-ed column in today's New York Times, Paul Krugman argues that the GOP leadership's drive to create private Social Security accounts isn't about "finding a way to strengthen Social Security; it's about finding a way to phase out a system that conservatives have always regarded as illegitimate."
Lawmakers will need to find a way to ensure that benefits aren't cut for Social Security recipients in the future, whether or not that includes some form of private accounts. They will need to do so, however, in a way that doesn't place those benefits at risk.
Social Security benefits are currently responsible for keeping 13 million elderly people from living below the poverty line. If those benefits did not exist, almost 50 percent of elderly people would live below the poverty line. If the level of those benefits were to be put at risk through the creation private accounts, some seniors would fare well; however a number of them would end up losing out on thousands of dollars per year, and many household incomes would fall below the poverty line. Click here to see a new report from the Center on Budget and Policy Priorities that outlines the effect of Social Security on poverty among senior citizens. The report provides data on a state-by-state basis.
Feb 17, 2005 by Guest Blogger
In continuing efforts to combat what they see as a detrimental plan by President Bush to overhaul Social Security, Senate Democrats have unveiled a new tool to aid their cause: a social security calculator which shows how much individuals will lose if benefits are "price-indexed" as opposed to "wage-indexed." Many Senators are posting these calculators on their official web sites to bring attention to the issue. While the calculator cannot accurately portray what would happen with an overhaul because no specific plan has been announced, it does show what would happen if the criteria to which benefits are currently indexed were to change. This is a policy which is supported by a number of Congressional GOP leaders, as well as many senior administration officials.read in full
Feb 16, 2005 by Guest Blogger
As reported in the Washington Post this morning by Dan Froomkin, President Bush has said for the first time he would consider raising the cap on income subject to payroll taxes.
The president has previously stated firm opposition to raising the tax rate but has remained silent on the cap on social security payroll taxes, currently set at $90,000. The president's announcement opens the door to the possibility of dramatically increasing Social Security revenues. Estimates by Social Security actuaries show by lifting the cap completely, it may be possible to close the entire funding gap in the program over the next 75 years.read in full
Feb 3, 2005 by Guest Blogger
In last night's State of the Union Address, President Bush made Social Security one of his key topics of discussion. In his speech, he mentioned many true statistics about social security. It is true that over the years the number of workers paying into the system compared with the number of retirees collecting benefits is declining. It is true that sometime around the year 2020, if th system is left alone, the Social Security trust fund will be paying out more than it takes in. It is true that some sort of reform will be necessary in order to ensure that the system is solvent in the future.
However, Bush did use some potentially misleading rhetoric during his speech. When discussing the growing Social Security shortfall -- which will begin after the year 2020 -- he said "by the year 2042, the entire system [will] be exhausted and bankrupt." This statement is misleading on many levels. The words "exhausted and bankrupt" do not accurately describe the situation. The Social Security Trustees have predicted a 27 percent benefits cut by the year 2042 if no reforms to the program are passed. The Congressional Budget Office has predicted a 22 percent benefits cut by the year 2052 if no reforms are passed. A cut in benefits of approximately one-quarter is not the same as "exhausted and bankrupt." By that year, our surplus will be exhausted, but not the entire trust fund. Bush used these words in an attempt to make the situation appear more dire than it actually is; in order to garner more support for his plan to overhaul what is, in reality, a financially sound program.
Another interesting comment regarding what would happen if no reforms were passed was when Bush mentioned, "In the year 2027, the government will somehow have to come up with an extra $200 billion to keep the system afloat." While $200 billion sounds like a lot of money, it is nowhere near the shortfall created by Bush's tax cuts -- all of which have been financed by the deficit as opposed to spending cuts. $200 billion is also roughly the amount that our defense operations in Iraq and Afghanistan have cost. If the government is really interested in preserving Social Security - our most successful social insurance and poverty prevention program - there is no doubt they could find other ways to come up with $200 billion, without engaging in a costly overhaul that will also necessitate benefits cuts.
For more on Bush's discussion of Social Security in his State of the Union address, see this article and this article. For a great report on how Bush's plan will phase out Social Security and result in benefits cuts, read this report from the Center for Economic and Policy Research.
Jan 27, 2005 by Guest Blogger
President Bush has stated in the past that the United States could "take some lessons from Chile, particularly when it comes to how to run our pension plans." Chile's retirement insurance program has gotten attention lately because the reforms enacted in the country a little over twenty years ago share many similarities with reform plans being discussed by U.S. Republican leaders today.
The major similarity is that Chilean workers pay a percentage (roughly 10 percent) of their salaries into private investment accounts. This system was put in place with the thought that these accounts would spur economic growth as well as provide monthly pension benefits larger than what the traditional system could offer. Two major differences, however, include the fact that Chile's private pension system is not currently optional, and also, according to this article in the New York Times, the country "was careful before it started its private system to accumulate several years of budget surpluses." The U.S., unlike Chile, is considering a social security reform in the midst of multiple consecutive years of budget deficits.
The New York Times article provides a good description of how Chileans have fared under this system. As the first group of workers to depend on this system begin to retire, it is becoming evident that benefits are falling short of what was originally advertised when the program was put into place, and will unfortunately plunge many once-comfortable retirees into poverty. Not only that, but the Chilean government has had to continue diverting billions of dollars into a safety net for workers whose monthly contributions were not large enough to ensure a minimum pension. While the Chilean and U.S. economies and workforces are different and thus will benefit differently with private pension plans, it helps to look at the problems Chileans are experiencing with their private accounts if we are going to be considering enacting similar policies.
Jan 20, 2005 by Guest Blogger
The lack of a proposal from the White House on the President's specific plans for Social Security reform has continued to raise doubts and widen the divide of consensus on the proper way to approach this issues. In yesterday's Washington Post, House Ways and Mean Committee Chairman Bill Thomas (R-CA) was quoted as saying the President's plan would be a "dead horse" upon arrival in Congress and that it "cannot, given the politics of the [Congress]" win passage.
Representative Thomas is one of the most powerful Republicans concerning tax policy and will have a huge influence on the fate of Bush's domestic agenda in his second term - particularly Social Security reform.
Also recently released, a new analysis by Center for American Progress/The Century Foundation senior fellow Ruy Teixeira on recent polls concerning Social Security. It seems not only has Bush lost Congress, but he continues to be unable to sell the American public on his policies.read in full
Jan 18, 2005 by Guest Blogger
In an editorial yesterday, the Washington Post proclaimed that it plans to offer an occasional series of discussions on social security, in light of the recent onslaught of attention being devoted to the issue. The first article in the series can be read here.
In the series on social security, the Washington Post hopes to explore many questions, including the following: What is the role of Social Security in today's retirement system? What is the size of the shortfall? What are the alternatives for addressing it? What are the risks and potential benefits of private accounts? How have they worked in other countries? Check the Post in the upcoming weeks for in depth coverage on the subject.
Columnist Paul Krugman of the New York Times also continues to regularly discuss his feelings on social security reform in frequent op-eds. The latest can be read here.
Jan 14, 2005 by Guest Blogger
With all of this talk about social security, many analysts and politicians are looking to examples from abroad to either back their proposals or disprove others' proposals.
One particular case getting a lot of attention is Great Britain. In her American Prospect article, "A Bloody Mess," author Norma Cohen discusses Britian's go at pension privatization approximately twenty years ago. In fact, it appears that there are basic similarities between what Britain enacted, and what President Bush may propose in the very near future; that is, a cut in guarenteed benefits with the option for beneficiaries to make up for those cuts by earning high returns on private accounts.
Check out the article to see why there is now growing consensus in Britain that the privatization policy must be reversed. Paul Krugman also discusses the issue in a column today titled "The British Invasion."
Jan 6, 2005 by Guest Blogger
Reporters at the Wall Street Journal and CongressDaily have obtained a memo written by Peter Wehner -- a senior official in the Bush administration. Besides stating that social security reform would be "one of the most significant conservative governing achievements ever," the memo notes that not only is the creation of private accounts key to reform, but benefits cuts would be key as well. The latter point is not one that the President has publicly said would accompany any social security reforms, although this memo makes it clear that it is on the minds of many.
See this New York Times article to read about differing views on social security reform.
Jan 5, 2005 by Guest Blogger
In 2001 Bush appointed a commission to look at social security, and this commission came up with three proposals. One of the proposals, called Option 2, is currently receiving a lot of attention on Capitol Hill, with Bill Frist recently stating that "[It's] on the table, and it makes sense to me." Option 2 would link future social security benefits to increases in inflation over a worker's lifetime, rather than wages.
One of the major problems with this proposal is that in our economy wages rise faster than inflation. According to this Washington Post article, the new benefits formula would "stunt the growth of benefits, slowly at first but more quickly by the middle of the century." While the proposal would work towards solving the problem of social security's long term deficit, the program does not show signs of reaching the level of "crisis" that many in the government are claiming. In fact, as Krugman points out in a New York Times column, if these proposals are put in place it "will do nothing about the real fiscal threat and will instead dismantle Social Security, a program that is in much better financial shape than the rest of the federal government."
These overhauls would also come with a stinging cost to future retirees. The average middle class worker retiring in 2022 would see a benefits cut of 9.9 percent, while in 2042 benefits would fall by more than a quarter. These cuts would be detrimental considering that over the past 60+ years the social security program has done more to stave off poverty than any other program.
In a recently released report, the Center on Budget and Policy Priorites highlighted the fact that other policies embraced by this administration will end up costing the country a lot more than the social security shortfall in the future, particularly the cost of Bush's tax cuts and Medicare prescription drug benefits. The report can be found here.