Proposals to Cut Social Security Resurface
by Jessica Schieder, 10/10/2013
Proposals to cut earned Social Security benefits have resurfaced as politicians scramble to build a budget deal that could reopen the government and potentially avoid an economic disaster caused by a federal default.
By 2020, 33 percent more Americans over the age of 65 are expected to be living in poverty, as compared to the 6 million living in poverty today, according to a report by the U.S. Senate Committee on Health Education Labor and Pensions. Now is not the time to cut a program which 65 percent of qualified seniors rely on for more than 50 percent of their income.
Cutting Social Security at a time when there are more seniors, seniors have much less than necessary saved for retirement, and seniors are living decades past their working years could push millions of elderly Americans below the poverty line during the course of their retirement.
Approximately 75 percent of Americans nearing retirement age have less than $30,000 in their retirement accounts. Implementing chained CPI would result in an average 3 percent cut in earned Social Security benefits over the course of a 20 year retirement, according to Dean Baker of the Center for Economic and Policy Research, further reducing seniors’ income.
This cut would be magnified as the retiree aged. Consequentially, the oldest and poorest would be hit the hardest. At age 75, retirees would receive 3.7 percent less in benefits. At age 85, retirees would be receiving 6.5 percent less in benefits. At age 95, retirees would 9.2 percent less in benefits.
Rep. Ted Deutch (D-FL) said last Wednesday that, if chained CPI is adopted to calculate cost of living adjustments (COLA), “We’re telling hungry seniors, ‘You’re not pinching your pennies hard enough … Skip more meals, don’t fill all of your prescriptions.’”
Recycled proposals to tie earned benefits to the chained CPI (chained consumer price index) have not changed, and they would be no less harmful to vulnerable seniors than experts have previously warned. We’ve been down this road before: proposals to tie Social Security benefits to chained-CPI (consumer price index) were brought up in a 2010 deficit reduction plan produced by the “Gang of Six”, during fiscal cliff negotiations in January, again by Senators Bowles and Simpson in February , and by the president’s FY2014 budget.
Using the chained CPI to calculate Social Security benefits would reduce federal obligations by approximately $107.8 billion over the next decade (with cuts increasing over time), but cutting earned retirement benefits is not a silver bullet to reduce the federal deficit.
Additionally, cutting the income of one out of every eight Americans would have ripple effects throughout the economy. Tying Social Security’s inflation adjustment to chained CPI would mean $107.8 billion less would flow into the economy. Social Security benefits make up approximately 40 percent of all income for our nation’s seniors, who represent approximately 13.1 percent of the total population.
With less income, seniors would be able to spend less. The National Committee to Preserve Social Security and Medicare estimates that decreasing the purchasing power of seniors would suppress GDP growth and result in job losses.
Proponents of tying benefits to chained CPI are quick to explain their concern for the long-term viability of the program. But while it is true that an aging population has put strain on the system, the program is far from broken.
Americans are living longer, and the U.S. population as a whole is aging. In 1960, there were 5 workers per Social Security beneficiary- or 5 individuals paying Social Security taxes per qualified senior. The ratio has since dropped to three-to-one, and is expected to continue falling until there are 2.3 workers per beneficiary in 2050. These pressures are not the fault of the program.
Small changes to Social Security could close the funding gap and ensure the Social Security Trust Fund remains solvent well into the future, supporting Americans during a vulnerable time in their lives. Cutting retirees’ earned benefits is not the solution.back to Blog