The Blog of the Frances Perkins Center

Posts Tagged ‘Andy Stern’

“Reasonable” adjustments to Social Security to cut the deficit?

In Economics on May 5, 2010 at 9:02 am

With the advent of the president’s National Fiscal Commission (AKA the “deficit commission”) last Tuesday and the Peter G. Peterson Foundation‘s star-studded conference the following day, there’s been a fair amount of talk about the federal deficit and ideas for “compassionate, fair, and reasonable” cuts to Social Security to help diminish that deficit.

First, let’s get one fact out of the way: Social Security in no way contributes to the current deficit. Social Security has run a surplus for decades, and that surplus has been invested in U.S. Treasury bonds.

Second, let’s recognize that demographic trends are not surprises. Social Security’s actuaries have known about the baby boom for the last 50+ years and have noted the increase in expected lifespans. These changes have been factored into the trustees’ projections. The only surprise events that do impact those projections are massive ups and downs in the U.S. economy.

Ok, time to examine those “compassionate, fair, and reasonable” cuts:

1) Increase the age of retirement — raising the retirement age to 70 seems like a no-brainer, right? Think of all those bronzed seniors dotting the nation’s fairways. An American man born today can expect to live to be 75.6 and women almost 81. But if you delve more deeply into the data, you learn that the life expectancy for African Americans is approximately five years less than the average. In fact, among different population groups, there may be as much as a 20 year difference in life expectancy. Would it be “fair” to raise that age of retirement above the current 67?

In addition, as the current unemployment situation illustrates, it’s difficult for people over 60 to find employment. And with high unemployment rates for young workers entering the workforce, it doesn’t seem “reasonable” to force older workers to keep working.

And don’t forget that, while an office-bound executive with a pass to the gym may be in fine physical shape at age 70, someone who has spent decades working as a carpenter, a short-order cook, or a hotel housekeeper may be physically worn out by age 60. Would it be “compassionate” to ask that worker to wait to age 70 to collect retirement benefits?

2) Index benefits according to income — Look back again at those bronzed golf club-winging seniors. Does it seem fair that they collect full Social Security benefits while at the same time clipping coupons from their stock investments and perhaps even receiving private pension benefits? Why not cut their Social Security benefits to free that money up for those who really need it?

Here’s where you run up against the philosophy upon which Frances Perkins, FDR, and their associates originally founded the program. Social Security is a social insurance program, not a welfare program. If the Smith family’s house burns, the insurance company doesn’t say to them, “Since your family income and net worth are high, we’ll pay only 70 percent of the amount for which your home is insured.” No, as with any insurance program, you pay in an agreed upon amount and you receive what you’re due. Social insurance is a contract. To diminish payouts based on income would diminish support for the program; higher income workers would balk at subsidizing the program for the less wealthy. They would not see such a change as “fair” or “reasonable.”

3) Privatize Social Security — This 2005 impetus by the Bush Administration should be dead; too many people have lost thousands in their IRAs and 401(K) accounts since 2008. For many of them, Social Security is a more important part of their retirement income than they ever imagined it would be.

So, if Social Security cuts aren’t the answer to erasing the deficit, what should the president’s commission be talking about?

According to labor leader Andy Stern, one the president’s appointees to the Commission, there are six avenues to fiscal responsibility. In a letter that he wrote to his fellow Commission members, Stern listed: improving the budget process; reforming defense spending and the tax code; reviewing all entitlements including tax entitlements; strengthening retirement security; and reforming immigration policy.

His comprehensive holistic approach is a welcome change from those who have been beating the drum for cutting Social Security and Medicare and instituting a Value Added Tax (VAT), all of which would disproportionately hurt lower income Americans. And that’s definitely not “compassionate.”