Fiscal hawks’ double standard for Social Security cuts vs. tax cuts
The Committee for a Responsible Federal Budget (CRFB) has taken sides in a scuffle between Social Security advocates and former Senator Alan Simpson. This scuffle concerns Simpson’s colorful defense of Social Security proposals within the report he co-authored with fellow Fiscal Commission co-chair Erskine Bowles—a report CRFB has gone to great lengths to champion.
CRFB was responding to a letter signed by young budget and social insurance experts—myself and others at EPI included—disagreeing with Simpson’s claim that the Bowles-Simpson proposals would strengthen the program for our generation. The merits of these proposals aside, CRFB is shamelessly cherry-picking baselines in response to the letter. Whereas CRFB and other fiscal hawks use a current policy baseline for almost all budget projections—e.g., assuming the continuation of the Bush tax cuts past their scheduled expiration—CRFB doesn’t adopt the same convention when it comes to Social Security. This is hypocritical and reveals what can only be described as a biased policy agenda.
In order to minimize the severity of the Bowles-Simpson cuts, CRFB’s defense of the Bowles-Simpson Social Security plan revolves around a comparison of projected future benefits proposed by Bowles-Simpson relative to benefits payable under current law. However, comparing benefits under Bowles-Simpson to payable benefits assumes that Congress will allow an abrupt 25 percent reduction in Social Security benefits when the trust fund is exhausted in 2033 since Social Security is prohibited from borrowing and benefits are generally funded through a dedicated payroll tax rather than general revenue.1
Social Security’s finances are routinely analyzed using scheduled rather than payable benefits—if for no other reason than the system would always appear to be in actuarial balance if projections were based on payable benefits. On a more practical level, it is inconceivable that Congress would allow draconian cuts to fall on elderly retirees. Unlike active workers, who can theoretically save more (or put off retirement) when benefits are cut, elderly retirees are usually viewed as having few other financial recourses. Thus, even in the unlikely event that nothing is done to shore up the system before the trust fund is exhausted, Congress would almost certainly use general revenues to pay promised benefits. Similarly, Congress routinely prevents scheduled cuts to Medicare physician reimbursements (the so-called “doc fix”). In other words, the difference between the current policy baseline and the current law baseline reflects the difference between what budget analysts assume future Congresses are likely to do versus what is currently set in legislation, including scheduled or automatic tax increases and benefit cuts.
Fiscal hawks—including CRFB—overwhelmingly use a current policy baseline to advocate staunch deficit reduction measures because these baselines show a much larger rise in public debt over the long-term, largely due to assumptions about the continuation of temporary tax cuts and the inability of Congress to contain health care cost growth. If CRFB wants to deviate from past practice and score the Bowles-Simpson plan relative to current law, they should also acknowledge that the plan proposes cutting taxes by $1.4 trillion relative to current law, all in the name of deficit reduction.2 Indeed, the plan “saved” $4.1 trillion over a decade relative to an adjusted current policy baseline, whereas continuing the Bush-era tax cuts will cost $4.4 trillion relative to current law.3 (Without the Bush tax cuts, there would not have been a fiscal commission.) Likewise, CRFB should argue in favor of leaving Social Security out of deficit discussions entirely, since by their definition Social Security is in long-run actuarial balance.
Using a current policy baseline when analyzing tax policies or clamoring for near- and long-term deficit reduction while cherry picking a current law baseline to justify Social Security benefit cuts is a gimmicky double standard that reflects a bias toward cutting social insurance programs.
1. Exceptions to this rule include the current payroll tax holiday and income taxes levied on Social Security benefits for high-income beneficiaries, which revert to Social Security.
2. Estimate based on CRFB’s Moment of Truth Project July 2011 re-estimate of the Bowles-Simpson plan relative to CBO’s March 2011 current law baseline for an apples-to-apples comparison over FY2012-21.
3. This is not an apples-to-apples comparison because the Bowles-Simpson adjusted current policy baseline assumed the Bush tax cuts would expire for households with adjusted gross income above $200,000 ($250,000), for a revenue increase of roughly $700 billion relative to full continuation, but even adjusting accordingly the two are very much in the same ballpark.