Peter Diamond and Peter Orszag:
No Revenue Means Steep Social Security Cuts Under Romney: The basic contours of Mitt Romney’s approach to Social Security reform are coming into focus, and the results aren’t pretty…. [H]is strategy is forced to rely on excessive benefit cuts that would undermine financial security for future retirees….
For about two-thirds of elderly Social Security beneficiaries, the payments amount to more than half their overall income. These benefits are protected against financial-market fluctuations and inflation, and they last until death. So they are a crucial form of insurance, almost impossible to purchase, and they are particularly useful during and after periods of severe economic stress, like the one we have lived through these past few years.
Furthermore, Social Security isn’t the core of our long-term fiscal problem… Medicare, Medicaid and other federal health expenditures….
Romney’s website identifies two steps he would take:
First, for future generations of seniors, Mitt believes that the retirement age should be slowly increased to account for increases in longevity. Second, for future generations of seniors, Mitt believes that benefits should continue to grow but that the growth rate should be lower for those with higher incomes….
[H]is approach appears to match the “Social Security Solvency and Sustainability Act” proposed last year by Republican Senators Lindsey Graham of South Carolina, Rand Paul of Kentucky and Mike Lee of Utah… raise the normal retirement age under Social Security from 67 to 70… reduce the future growth rate of benefits for the top 60 percent of earners…. Lower earners would be affected by the increase in the normal retirement age but not the progressive price- indexing component. Middle earners would be affected by both…. These two steps would eliminate the long-term deficit in Social Security… by substantially reducing benefits… a medium earner (someone bringing in about $45,000 a year today) retiring in 2050 at age 65 would receive 32 percent less in annual benefits…. A high earner (someone with income of about $70,000 currently) retiring in 2050 would get 40 percent less….
These benefit cuts are so large because the Romney strategy forgoes any additional revenue. Plenty of other Social Security reform plans take a more balanced approach…. We put forward one such plan in a 2005 book. Updating our plan for the intervening period, the medium earner retiring in 2050 would experience a reduction in benefits of less than 10 percent…. The medium earner’s annual benefit in 2050 is currently projected to amount to $25,000 a year in inflation-adjusted terms. The Romney-type approach would reduce that by about $7,500 a year….
We are not alone in recognizing the importance of limiting future benefit cuts by raising additional revenue for Social Security. As long ago as 1983, a commission appointed by President Ronald Reagan and led by Alan Greenspan designed Social Security reform that combined revenue increases with benefit cuts…