Yesterday, I attended the third annual Peterson Fiscal Summit, a gathering sponsored by the Peter G. Peterson Foundation. The event brought together a number of inside-the-beltway folks to speak on the fiscal challenges facing this country, ranging from the fairly reasonable to the rather unreasonable. Speakers included Treasury Secretary Tim Geithner, President Bill Clinton, House Speaker John Boehner (R-Ohio), Rep. Paul Ryan (R-Wis.), and many others.
The focus this year, somewhat strangely, seemed to be on the wholesale acclamation of the Bowles-Simpson deficit commission report from Dec. 2010, The Moment of Truth. This represented somewhat of a departure from the previous year’s summit, when a fair deal of attention was paid to six very different long-term budget plans from organizations spanning the political spectrum (including this plan from EPI). While Bowles-Simpson was certainly present in 2011, it dominated the 2012 summit.
One rather startling moment came when President Clinton said the Bowles-Simpson proposals “[make] the Social Security system more progressive.” This statement alone—rather misguided—makes it worth revisiting the exact impacts Bowles-Simpson would have had on Social Security benefits, had it been adopted (or should it be adopted). First of all, in fairness, The Moment of Truth doesn’t hide its Social Security reform impacts, publishing a full distributional table on page 55 of the report. But back to Clinton. In calling Bowles-Simpson “progressive,” he is most likely referring to the fact that the provisions within would provide a very marginal bump (as seen in their distributional tables) to the very poorest Social Security recipients while significantly reducing benefits for the vast majority of recipients, including cuts for most low-income beneficiaries.
Clinton is relying on a technical definition of “progressive,” where even deep cuts to a critical government program can be called “progressive” as long as the cuts are larger for higher-income beneficiaries. But progressives should be wary to support this Social Security plan, even with the token bump for some of the lowest earners. Not only does it include draconian cuts for middle-class recipients through a change in the benefit formula and an increase in the full retirement age (this is equivalent to an across-the-board cut because benefits are reduced at any given retirement age), but it would also reduce the cost-of-living adjustment by about 0.3 percentage points per year, lowering lifetime benefits for recipients by about 3 percent on average. This last cut would disproportionately affect the oldest beneficiaries, who are also among the poorest beneficiaries. These cuts would be on top of the 13 percent cut that is gradually being implemented as the full retirement age increases from 65 to 67, a change dating to the early 1980s that takes full effect with the generations born in 1960 and later. Lastly, it’s worth noting that the “progressive” description of this plan only works if one looks at the dollar-value of the Social Security cuts. If one instead scales the cuts as a share of a household’s total income, it is far from clear that even this forced definition of “progressivity” would hold. The chart below, from StrengthenSocialSecurity.org, illustrates estimated impacts to benefits under Bowles-Simpson.
What was also disappointing was hearing some in the room speak to the fact that raising the retirement age for Social Security was an easy and appropriate way to improve Social Security’s finances just because people are living longer these days. In reality, not all people have the luxury of working in positions where it is realistic to maintain employment as one ages. Aside from those who must quit work due to health issues or to care for an ill spouse or family member, many older workers have jobs where they stand a good portion of the day, or engage in even more physically-demanding activities. Nor is everyone living that much longer; recent gains in life expectancy have been concentrated among those with high incomes and more education. The figure below (reproduced from the EPI paper, Beyond ‘normal': Raising the retirement age is the wrong approach for Social Security) illustrates that between 1982 and 2006, life expectancy increased by one year for men in the bottom half of the earnings distribution, and five years for those in the top half of the earnings distribution. Lower-income workers would also be the most hurt by an increase in the retirement age, or any other across-the-board benefit cut, because they rely most heavily on Social Security benefits in old age.