Jason Furman on Bush's Press Conference

Jason Furman writes:

HOW WOULD THE PRESIDENT’S NEW SOCIAL SECURITY PROPOSALS AFFECT MIDDLE-CLASS WORKERS AND SOCIAL SECURITY SOLVENCY?: In last night’s press conference, President Bush endorsed a proposal that would result in substantial cuts in benefits for middle-income families and deeper cuts for higher-income families. While the proposal was described as reducing benefits for the most affluent Americans, it would result in large benefit reductions for middle-class workers, as well.

All workers with incomes above $20,000 today would be subject to benefit reductions, and the benefit cuts would escalate sharply in size as income climbed above $20,000. A worker making $35,000 today would be subject to benefit reductions more than half as large as the benefit cuts imposed on people at the highest income levels. A worker making $60,000 today would be subject to benefit reductions more than 85 percent as large as someone making several million dollars a year.

The benefit reductions for average earners would be the largest in Social Security’s history. The 1983 Social Security reform, for example, lowered benefits for average workers by 17 percent, with the reduction phased in over 46 years. The President’s plan would lower benefits for average workers by 28 percent over a period of 70 years, and by considerably more than that for middle-class workers with incomes somewhat above the average, such as those who make $60,000 today.

Social Security survivor benefits would be cut by the same magnitude. How disability benefits would be affected is unclear, although the President implied they would not be reduced.

The President’s proposed change in the Social Security benefit structure is essentially a plan known as “progressive price indexing” that has been designed by investment executive Robert Pozen. Analysis by the Social Security Administration’s actuaries shows that Mr. Pozen’s plan would reduce benefits for average earners retiring in 2075 by 28 percent, relative to the current benefit structure, and that this reduction would apply equally to retirees, survivors, and people with disabilities.[1] The actuaries also have reported that the benefit reductions under the Pozen plan would close about 70 percent of the 75-year Social Security shortfall.

The White House last night issued a fact sheet stating that its proposals, too, would close 70 percent of Social Security’s financing problems. To do that, the President’s plan either must cut disability and survivor benefits substantially — after all, one-sixth of the savings in the Pozen plan come just from reductions in disability benefits — or cut retirement benefits for middle-class workers even more deeply than the figures cited above (which are the actuaries’ estimates of the benefit reductions under the Pozen plan). If the President’s plan shields disability benefits from cuts, as the President indicated last night — and does not cut retiree and survivor benefits more sharply than the Pozen plan — then it will close 57 percent of Social Security’s 75-year shortfall, not 70 percent. (The 57 percent figure also reflects the small cost of the poverty-level minimum benefit the President proposed last night.)...

Comments

[chickensoup]

They're really good. Tax on the rich is a "Death Tax". No tax on the middle class is a "Tax Subsidy". So basically, the rich don't deserve to be taxed but those in the middle class do. All those earning above $20K are "High Wage Earners". I wonder if janitors feel better knowing they are "High Wage Earners". Class warfare indeed.

[Steve Lee]

I have several comments: Why not improve the over-all economy so that more 50+ workers are employed?
Why not a stock investment plan made up of companies that use 95% US made/orginated goods and services as inputs? (Allowing 5% for materials that cannot be sourced in our country.)
Steve Lee polyscibase.blogspot.com

[pgl]

The White House has a "fact" sheet that says medium wage earners will not get benefit cuts. Just posted over at Angrybear the Le Club for Growth defense of the Bush-Pozen plan. Disinformation at its finest!

[Ralph]

From Jason Furman's analysis, it is clear that the velvet gloves have been removed exposing the iron fist behind Bush's true intentions for SS. Survivors insurance and probably disability insurance will be reduced as well as most of the middle class retirement benefits. Joe Scarborough, a former conservative Republican congressman from Florida, said on his MSNBC show Scarborough Country just after the speech that means-testing will not fly in Congress and he expects many Republicans will be heading for the exits on this one.

[William Jensen]

Mr. Bush’s most recent sales pitch to “cure” Social Security’s ills is rather ingenious albeit fraudulent. He is pawning off his plan as a shift of income from the wealthy to the poor. “The poor will get more benefits and the rich will get less benefits.” Of course, this is nonsense. What he is really suggesting is a benefit cuts for almost all of us.

What makes me laugh is that I assume whatever Mr. Bush says is completely opposite of what he means. If he says he wants to enact the “Clean Skies Act“, or whatever its called, I know that he wants to enact the “More Pollution You Will Breathe Act.” Similarly, in his most recent "proposal" with respect to Social Security, he isn’t really proposing income transfers from high income earners to low income earners, what he is really doing is protecting his tax cuts. His plan is to reduce benefits for all of us in order to reduce social security’s obligations and mitigate the size of the deficit. If he doesn’t do that, then at some point his venerated tax cuts are going to have to be rolled back in order to meet the debt obligations that are coming due.

In short, the Social Security battle has nothing to do with Social Security other than to destroy it in order to protect his tax cuts for the richest 5% of Americans.

[Buckshot]

Bush's promise to increase the social security payments to the lower income folks is simple pandering - it's what got him into office twice. Remember when he handed out billions in tax cuts to people who didn't even pay any income taxes in the first place? Without doing that, he wouldn't be president now.

Any president elected in our system must pander to the poor masses - those who pay zero income taxes. They comprise amost 50% of the population, after all.

Ya gotta promise to soak the rich and give to the poor or you'll never get elected. If you don't get elected, you can't accomplish much.

People on this blog talk about Social Security "solutions" as if they exist. There is no solution. The government can only cut benefits, raise taxes, or do a combination of the two.

Even a promise of private accounts is a joke. They might be "private" for the first few years, but there's nothing to prevent the government from changing that in the future.

Solution.....Take care of your own future. If you don't understand that social security is, and always will be, just simple income redistribution, then you should just stop talking.

[Grace Nearing]

"People on this blog talk about Social Security "solutions" as if they exist. There is no solution. The government can only cut benefits, raise taxes, or do a combination of the two."

Buckshot: Gee, those sound like solutions to me, especially if you throw in raising the cap on payroll taxes, which would make it a combination of the three. Or possibly raising retirement ages (maybe by additional quarters rather than years). So make that a combination of the four. There are various tweaky (but not gimmicky) adjustments that can be made to keep the system solvent. The one thing that can't be done and keep the system solvent is a carve out, which is what private accounts represent.

[sm]

What's wrong with income redistribution?

If it goes from poor to rich, it's bad! Let's call that feudalism.

[Jennifer]

Also, there may be no change at all needed for Social Security to be solvent and pay full benefits for generations. That would take an economic growth rate of only 2.2% which is much below the average of the last 50 years. There will be no Social Security problem for another 40 years in any event, and likely none then. No solution needed, for the solution is already here.

[Neil']

Let's try to stop the intelligent from falling for the new Bush SS project by exposing the hidden trick. Bush can claim he's shifting the burden of reform more on the wealthy than the poor and middle-middle (a long term adjustment) while fending off the short-term hit of raising or eliminating the salary cap. Not only that, but in this economy and under rightwing domination, do median wages really rise much higher (if at all) compared to prices? More Rovian cleverness.

[KeithK]

An important issue I haven't heard addressed yet, is the role of the "trust fund" in the new plan. I realize (as does everyone invovled in the debate) that the trust fund does not exist as a pile of money somewhere and is just a pile of US treasure IOUs - and I don't have to travel to West Virginian to figure that out. But it is important in discussing the "Social Security shortfall."
Does the new plan consider the trustfund part of the shortfall, and effectively forgive the IOUs, or does it see it as a shortfall in the general fund.
If it's the former, the new plan is not just fixing the Social Security acuarial shortfall, but converting money borrowed from the Social Security program into money taken from the Social Security program (to support tax cuts and spending). Also, with reduced Social Security benefits and the same payroll tax rates, social security payroll taxes will continue to flow to the treasury to support current spending (enabling further tax cuts), in return for entries in the trust fund ledger, which the President and conservative economists have told us are totally fictional.
In summary, how this plan treats the trust fund will show whether it is an attempt to "shore up Social Security" or simply a means of raiding the SS payroll taxes longer to lower income tax payments.

[Josiah Bartlett]

Hey Buckshot!!

Did it ever occur to you that the income tax is income redistribution too?

Sometimes it's from corporations to the people or vice versa. Sometimes it's from the rich to the poor, or as currently from the poor to the rich. But any time taxes change, some people get the honey and some people get something else.

Now what sort of policy does the most good for the most people?

[JC]

"Solution.....Take care of your own future."

Buckshot ... Hey -- you got yours so why should you care about anyone else? Nice Christian attitude.

[Steve Breeze]

If the trust fund is KeithK states a fiction it represents an enormous theft of taxes from the working people who paid it. Since there SS funds are designated only for SS payments there is no problem with SS claiming those funds back. If there is any problem it is with the general fund that "borrowed" the SS funds and will have trouble, given our massive debt, paying it back.

It is also worth noting that Keith’s is not alone in his point of view. GW Bush on April 15th "There is no trust `fund' -- just IOUs that I saw firsthand," Of course the file cabinet held Treasury bonds, backed by the full faith and credit of the United States government.
Yesterday Bush in trying to allay fears of stock market being to risky offered this option; “I know some Americans have reservations about investing in the stock market, so I propose that one investment option consist entirely of Treasury bonds, which are backed by the full faith and credit of the United States government. "

So is are T bonds a fiction or the safest investment on the face of the planet? Makes you wonder when someone has to take both sides of the same argument to sell their "solution".

[JustUs]

I was just wondering.....if you are able to "divert" some of your Social Security contribution to a private account, what happens to the amount that your employer would normally be contributing to Social Security on top of the money that is deducted from your paycheck? Are they let off the hook for that money, or do they still have to send it in to Social Security anyway? Or, will they claim that since the money won't be going into the fund, that they don't have to make their normal contribution?

Since I haven't heard "them" mention it, I wonder if this is just another way to funnel even more money back into the pockets of businesses at the expense of the public.

[Jordan]

President Bush reminds me of a door-to-door home repair salesman. One day he shows up at your house and tells you that there's a major problem with your roof and that he can fix it. There is no problem with the roof, and even if there is, he can't fix it. If you let him try, you and your house will end up a lot worse off.

[Bruce Webb]

Steve Breeze and Jennifer, you rock

I am an American Baby Boomer. According to conventional wisdom part of the most selfish generation in the history of the world. So I am faced with a choice: accept 100% of promised benefits until 2041 when I am 84 years old and then take a cut to 72% assuming the economy performs down to the dismal levels assumed under Intermediate Cost or take a guaranteed cut right now.

Personally I am betting on some combination of a better economic return than the Social Security Trustees assume and/or my chances of being run over by a bus before 2041. Either is much more likely than the Bush plan being passed.

"Look Mommy, over there! What's that smell??" "Don't worry Honey, it is just the Republican Party being fried on the Third Rail of American Polictics"

FDR - still the One.

[ken melvin]

It was a political maneuver. He seeks to collapse support for SSI by turning the middle class. Once he's done that, he can get rid of it.

[me]

Another argument I haven't heard is that most US job creation is in Indai and China and Brazil, rather than the US. Guess what? They don'[t pay into social security.

Also the depressed wages hold down payments into social security.

And lastly, I am one of those 50+ whose job was offshored to India, and now I pay nothing into social security.

Do the math yourself.

[anne]

Media coverage of the President's proposal for reducing Social Security benefits, has evidently focused not on the reduction of benefits but on a transfer from the rich to the poor. The reporting takes as given that Social Security benefits can not be sustained unless the program is changed. Change then is taken to mean offering private accounts. So, in a few moments reporting came to emphasize the impossible nature of Social Security as given, the transfer of benefits from the rich to the poor, and the opportunity of all the rest build our private retirement fund. I am surprised and saddened at how readily the debate about Social Security appears to have been changed.

[BillH]

A side note. Liberals protest the idea of cutting the middle income retiree's benefits. Fine. But retirement benefits indexed to inflation are what the old Civil Service Retirement System provides, a system that was called generous.

If I recall rightly, in the old days (50's, 60's)Congress passed bills raising Social Security benefits and expanding coverage quite regularly. So the system we have today evolved somewhat haphazardly, it wasn't planned that way from the beginning.

Ironically, this leaves liberals in a (true) conservative position, fighting to protect the results of history.

[tante aime]

ZABU Forever

It's interesting, yet a little bit frightening,
to watch the creeping Neoization of the Republic
Party behind the Rovian ZABU movement, as they
demonize those in society who are members of or
are sympathizers to Democracy, or those who seek
to uphold values of social freedom and welfare.

Like His Excellency Robert Mugabe, from whom the
Rovians stole his cleansing strategy, a faith-based
ZABUist movement has only one goal; re-election 2008.
"Justice Sunday" wasn't the first demonstration of the
ZABU power putsch, and it certainly won't be the last.

His Excellency George Bush addresses only the most
fundamental issues for his people, not their daily
bread, not their cost of food and energy spiraling
out of control, but their place here in life, and
their place in a history of his celestial Republic.

"People of faith", ZABU cries, "Rise up and drive the
non-believers from out of government, drive the liberal
judges from our justice temples, drive social welfare
from our Wall Street killing floors, and place all your
faith in us! We will lead our people from out of Egypt!"

(smattering of scripted applause at the mixed metaphor)

Now Bush is talking SSTF as safety net for the nation's
poor, a sort of welfare, although he's waiting to use
that derogative on the day ZABU votes to eliminate it.

I tell this to a business associate, and he just smiles.

"Forget politics," he warns, "and focus only on your
business."

"But that was the philosophy of the Krakow ghettoes!"
I protest. "'Just look the other way.'"

"Yeah," he shrugs, "and you saw what happened to those
who resisted. Nazis killed a hundred-for-one innocents."

"But you can't just focus on business and ignore Bush!"
I wrung my hands.

"Save as much as you can as fast as you can," he had
stopped smiling now, "and protect your family and
those who you love."

And then Rove's ZABU thugs came for my kids.

"Any person . . . who . . . refuses . . . service in
the ZABU Youth Movement . . . or who in any manner
shall knowingly fail or neglect or refuse to perform
any duty required of him under the [402 U.S. 99, 101]
execution of this title . . . shall be punished by
imprisonment for not more than five years, or by a
fine of not more than $10,000, and may be subject to
loss of US citizenship and subsequent deportation."

The ZABU plan is as serious as a heart attack.

You've been served.

[emeldir]

Social Security as it currently is, is too attractive next to private accounts. If the current system goes on and the economy is good- no problem. Only if there is a 75 yr depression does SS fall apart. So how to make private accounts look good? Gut SS- make it a welfare program that promises little for everyone making over $20,000 yrly!
This is just another gut SS proposal and again it is not in crisis. If I'm going to be cut 33% on the Pozen plan, I'd rather take my chances and take the current plan and maybe get a 25% cut in 2042( and not until 2042) and that's if the economy does not grow squat between now and 2042!

[Early Elias]

'So is are T bonds a fiction or the safest investment on the face of the planet? Makes you wonder when someone has to take both sides of the same argument to sell their "solution".'

Just what I was looking for! Superb.

[anne]

Social Security is fine for another 40 years, at least. Should economic growth average 1.9% over these 2 coming generations, then the trust fund will be spent by 2045. But, why should we assume the economy will not grow considerably faster than 1.9%. Productivity growth alone should be as fast and there is population growth. Growth of 2.2% from here would preserve the trust fund and allow full benefits for generations beyond 2045. Pay attention to the economy, encourage productivity, and there is only an imagined problem with Social Security for years to come. There need be and should be no reduction of benefits now, nor tax increase now, to undermine a program that has been a wonder for so many Americans for so long.

[Buckshot]

Analogy time.....

Imagine a young couple without children began spending more than they could earn. Both of them have decent jobs and get promotions and raises, yet they keep spending more than they earn.

They maintain balances on various credit cards, paying the minimum each month, and they pay several hundred each month just on interest.

They drive new cars, and trade them in often, so they always have large car payments.

They go on vacations regularly, they eat out often, they buy new clothes, etc etc.

They drink, they smoke, they occasionally gamble, they leave the lights on, the furnace on, and the air conditioner running.

Their parents loan them money, which they spend. They write IOU's. Their siblings, aunts, uncles, and grandparents loan them money. They write IOU's.

They occasionally go to the loan sharks to "consolodate" their debt. They pay high interest whenever possible, and they rationalize every purchase with the thought "We deserve it".

The sweet young couple one day decides they need to "shore up" their finances. Meanwhile, they buy a boat,

[Buckshot]

a motorhome, a jacuzzi, a new wardrobe, and they trade in both their cars for new models. Their net worth is a negative $400,000. They get hungry thinking about it all, so they order two large pizzas, but before the pizza arrives, they change their mind and go out for crab, lobster, t-bone steaks. It turns out to be too much food, so they leave half of it on the plate, and charge it all to the VISA card.

They decide to start a budget, but that makes them hungry, so they swing by the ice cream place and each has an $8 fudge sundae.

To get away from their problemes they take a drive and burn up a tank of gas, then stay in a motel. A $150 per night motel. Room service. Pool. A big bar bill.

They need to "shore up" their budget.

Now, you wanna hear about their "retirement plans"?

After seeing how they live, you wanna know their "strategy" for the future?

Is it not clear as day?

[anne]

The analogy works for households; let's save and invest more. The analogy does not work for Social Security, which has a large and growing surplus and can easily, with even moderate economic growth, be in surplus for generations. Social Security reform is rather designed to end than reform Social Security. There is no problem. Look to other ways to find fault with Teddy or Franklin Roosevelt :)

[anne]

Aside on health care:

http://www.nytimes.com/2005/04/30/business/30retiree.html

Health Coverage Dispute Pits Older Retirees Against Younger
By MILT FREUDENHEIM

It is a health care issue that pits older retirees against younger ones, and both sides are asking Congress for help.

Some employers and unions want Congress to override a recent federal court ruling that would force employers who offer health insurance to early retirees to give comparable coverage to retirees who are 65 or older and eligible for Medicare.

Health coverage for younger retirees, as a bridge to Medicare, can be an inducement to workers to take early retirement, so that younger, lower-paid people could replace them. But groups taking the side of retirees older than 65 - notably AARP, the influential advocacy group - say that if superior benefits for early retirees is a form of age discrimination. And federal courts have agreed, citing the Age Discrimination in Employment Act.

Unfortunately for both sides, the issue arises at a time when climbing health costs have meant that only about one in seven private employers still covers retirees of any age. And the number providing coverage continues to shrink - even among larger employers who are slightly more likely to cover retirees, according to a report published last month by the Employee Benefit Research Institute, a nonprofit study center in Washington.

Spokesmen for the United States Chamber of Commerce and the National Education Association union who testified Thursday at a hearing of the House Subcommittee on Employer-Employee Relations predicted that the recent court ruling would accelerate the decline in retiree benefits.

"The climate continues to get worse," said Douglas R. Greenfield, a Washington lawyer for the teachers' association.

The latest court ruling builds on a 1998 lawsuit filed by a group of older retired county employees in Erie, Pa. The plaintiffs argued that the county's benefits for people over age 65, who had been pushed into a Medicare health maintenance organization, should be equal to the benefits being offered to early retirees....

[bakho]

Why not take the taxes that Reagan and GHWBush put on SS benefits and turn them back into the SS program? SS benefits could be taxed on a sliding scale. Those with plenty of income in retirement would pay taxes back into the SS fund. Then if something happened and they no longer had the income, the SS benefits would still be paid, but not taxed or taxed less. This would be much better than saying that future benefits for those making over $20,000 will be cut. It would insure that SS is there for all those who need it when they need it. This is not rocket science.

[Lee A. Arnold]

Patrick R. Sullivan: So!: roll back Bush's INCOME tax giveaways to the wealthiest. --The trade-off that does the least damage, and corrects an immoral error.

[camille roy]

Okay, let's see: job security is on the decline, job hopping and extended intervals of unemployment is the new norm. Worker financed 're-training' is now required. The cost of housing and education goes up. Ditto for health insurance, although you are quite likely not to have it at all.

In this environment, the ReTHUGlicans are proposing to cut social security for anyone making more that 20 thousand a year? What nutjobs! I didn't support them before but now I DESPISE them because they are proposing to drive a stake through whatever pathetic security I possess.

I'm furious.

And how self-serving! They have defined middle-class DOWN to anyone making over 20 thousand a year. Here in the bay area that is a poverty wage.

[me]

"Okay, let's see: job security is on the decline, job hopping and extended intervals of unemployment is the new norm. Worker financed 're-training' is now required."

Now that everyone is an independant contractor, how much profit do you think those buisnesses are claiming on which to pay SS?

[ssn]

I think it's Bush'es error change social security number politic

[liberal]

BillH wrote, "But retirement benefits indexed to inflation are what the old Civil Service Retirement System provides, a system that was called generous."

Are you sure you're not comparing apples and oranges?

SS is also indexed to inflation in terms of the initial size of the payments upon retirement. It's the initial payment calculation that's influenced by wage trends. What evidence do you have that CSRS wasn't indexed in the same way?