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Women and Social Security Alert No. 32

December 2010; News on President Obama's tax plan and the National Commission on Fiscal Responsibility and Reform, plus new research from AARP and the National Bureau of Economic Research

ITEMS IN THIS ALERT

In the News

  • Groups Think President Obama's Tax Plan Could Threaten Social Security
  • Commission Plan Fails to Gain Needed Votes
  • Bipartisan Policy Center Plan

        Upcoming Events

        • National Academy of Social Insurance (NASI) 23rd Annual Policy Conference, "Meeting Today's Challenges in Social Security, Health Reform, and Unemployment Insurance" Thursday, January 27 - Friday, January 28, National Press Club

          New Research

          • AARP Survey- Social Security: Voices and Values
          • National Bureau of Economic Research Report: How Well are Social Security Recipients Protected From Inflation?
          • Dean Baker's Report- Action on Social Security: The Urgent Need for Delay
          • Center on Budget and Policy Priorities Report- "Progressive" Price-Indexing Would Significantly Cut Social Security Benefits for Many Recipients: Proposal Would Radically Change Program's Philosophy and Represents Misguided Approach
          • Rasmussen Reports Telephone Survey

           

            IN THE NEWS

            Groups Think President Obama's Tax Plan Could Threaten Social Security

            Social Security advocates and analysts have spoken out and argued that President Obama's compromise tax plan is a significant threat to Social Security.  They predict that, after the proposed year-long payroll tax holiday (a 2.0 percentage-point reduction from the 6.2 percent of wages that workers usually pay) expires, returning the payroll tax back to its normal level would be very politically difficult. It could be viewed both by voters and politicians seeking re-election as a tax increase (and 2012 will be an election year).  If the payroll tax isn't returned to its previous levels, Social Security would lose approximately 15 percent of its dedicated funding and might have to compete with other programs for a share of general revenues, which would increase political pressure to cut Social Security benefits.


            Commission Plan Fails to Gain Needed Votes

            On Friday, December 3, The President's National Commission on Fiscal Responsibility and Reform failed to pass the proposal of their co-chairs, Erskine Bowles and Alan Simpson, for reducing the deficit.  The Commission voted 11-7 in favor of the proposal, just three votes shy of the needed fourteen votes to bring the plan to Congress for quick action.

            The plan would reduce the debt by four trillion dollars, three-quarters of which would be from spending cuts and one-quarter of which would be from increases in taxes. Social Security figured among both the benefit cuts and the revenue increases-- in presenting their chairmen's draft, both Bowles and Simpson acknowledged that Social Security does not contribute to the debt but they wanted to offer their solution for Social Security's long-term funding gap (which is projected to begin about 2037).
            The Bowles-Simpson Commission plan's proposed changes to Social Security (as reported on December 2, 2010), include reducing benefits by reducing cost-of-living-adjustments and raising the retirement age to 68 in about 2050 and 69 in 2075.  For example, each one-year increase in the retirement age results in a 6 percent cut in benefits.  And use of the chained CPI COLA cuts a worker's benefits by about 6 percent over 20 years.

            The cuts to Social Security proposed in the Bowles-Simpson plan generated backlash by a number of analysts and politicians.  For example, the Economic Policy Institute released an analysis (A Plan to Bury Social Security, Not to Strengthen It: The Fiscal Commission Finds a Solution that Could Be Worse than Doing Nothing) of the plan's effects on Social Security that concludes that the changes would exacerbate retirement insecurity.  Moreover, the payroll tax holiday enacted December 17, 2010, raises the risk of diverting Social Security's revenues beyond the first year (when they are required to be replaced by the general funds).  This would increase the program's long-term funding gap.

            Bipartisan Policy Center Plan

            On November 17, a project of the Bipartisan Policy Center released a deficit-reduction plan that provides $2 trillion more in federal savings than the Bowles-Simpson plan and includes spending cuts, tax redesign, a one-year suspension of Social Security payroll taxes (as above, to stimulate job creation), and a national sales tax.  From 2012 to 2020, the plan would reduce projected deficits by about $5.9 trillion.  The plan was approved unanimously by a panel chaired by Pete V. Domenici, a former Senator of New Mexico, and Alice M. Rivlin, former budget director for Congress and in the Clinton administration, who also serves on the Bowles-Simpson Commission.

            The Domenici-Rivlin plan includes cuts to Social Security benefits.  The plan proposes an index that would automatically adjust Social Security benefits to increases in Americans' life expectancy, as well as reducing cost-of-living adjustments and benefits for upper-earners.

             

            UPCOMING EVENTS

            National Academy of Social Insurance (NASI) 23rd Annual Policy Conference, “Meeting Today’s Challenges in Social Security, Health Reform, and Unemployment Insurance
            Thursday, January 27 - Friday, January 28, National Press Club

             

            NEW RESEARCH

            AARP Survey- Social Security: Voices and Values

            An October 2010 AARP survey shows that, after jobs, Social Security is the most personally important issue to registered voters aged 40 and over.  Additionally, 54 percent of registered voters think the average Social Security check is too small, and 63 percent of registered voters think that Social Security is more important than ever for the middle class.

            National Bureau of Economic Research Report: How Well are Social Security Recipients Protected From Inflation?

            A report by Gopi Shah Goda, John B. Shoven, and Sita Nataraj Slavov from July 2010 dispels the common belief that Social Security benefits are properly adjusted for inflation because they are indexed to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).  The CPI-W does not adequately protect Social Security recipients from inflation because medical costs have been rising faster than the prices of others goods and services and the elderly spend a greater portion of their incomes on medical expenses than do workers.  This recommendation contrasts with the proposed changes to Social Security in both the Bowles-Simpson and Domenici-Rivlin plans, which suggest cuts in the price-indexing measures for benefits.

            Dean Baker’s Report- Action on Social Security: The Urgent Need for Delay

            In this November 2010 analysis, Dean Baker argues that Social Security proponents need to ensure that no major changes are made to the program in the immediate future.  He points out that there currently is a lot of misinformation about Social Security in the public that could be a detriment to a sound political debate over the program.  He explains how the program will be able to pay full benefits for almost three decades.

            Center on Budget and Policy Priorities Report: Price-Indexing Would Significantly Cut Social Security Benefits for Many Recipients: Proposal Would Radically Change Program's Philosophy and Represents Misguided Approach

            A November 2010 paper by Kathy A. Ruffing and Paul N. Van de Water examines the effects of “price-indexing” proposals to Social Security.  “Price-indexing” would tie initial benefit levels of first-time Social Security beneficiaries to changes in prices instead of average earnings.  The paper explains, for example, how such proposals would cut benefits for many workers, some of whom have fairly small wages, and how price-indexing is not a balanced method for solving Social Security’s eventual financial shortfall.

            Rasmussen Reports Telephone Survey

            A recent Rasmussen Reports nation-wide telephone survey finds that 60% of Americans believe that all or most income should be subject to Social Security taxes; 21% disagree; and 19% are unsure.  With regard to proposals to raise the retirement age (the age at which people are eligible to receive full Social Security deficits), 34% of Americans support raising the retirement age to 70, 51% oppose it, and 15% are not sure.

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