Sunday, April 07, 2013

What's the Alternative to Chained CPI

Matthew Yglesias is upset that the President has raised the possibility of using chained CPI for cost of living adjustments for Social Security:
The risk here now is twofold. Inside the Beltway, Republicans can say "well, look, we disagree about taxes but why don't we just do these entitlement reforms that even the president thinks we should do." Meanwhile, outside the Beltway Republican candidates can run ads castigating Democrats for bankrupting the country so badly that they want to add Social Security cuts to the dastardly Medicare cuts they already implemented. Part of the point of the Senate Democrats' budget was to stake out a position of easily defensible high ground. This seems like the White House wading into a much more exposed piece of territory.
If the leading concern is that the Republicans will take one of President Obama's proposals and run misleading or false attack ads, the President may as well close up shop and go home. That's inevitable.

If the leading concern is that the Republicans will propose a Social Security "fix" that renders the program solvent for the indefinite future, it's been pretty clear that the Democrats and President Obama would cooperate. That's been true for more than four years. Obama's "grand bargain" proposal from a couple of years ago included a Social Security "fix".

The Republicans won't propose to isolate Social Security, patch the program and end their demagoguery about its pending insolvency because they don't want to fix the program and leave it, essentially, as-is. Were they to actually propose such a Reagan-style fix, it would not be the Democrats whose agenda would suffer were it to become law.

I think Yglesias also misapprehends public sentiments about Social Security. That is, while there's not broad excitement or enthusiasm for benefits cuts, the net impact of decades of rhetoric about the program being on the verge of bankruptcy has created a context in which the public (including many Social Security recipients) is willing to accept cuts in order to preserve the program. There is no broad, public confusion about which party wants to preserve Social Security and which would prefer to privatize or end the program and, while the Republicans might create scare ads to try to gin up their base, I don't think many outside of the Republican base would be receptive to the notion that it is the Republicans who want to prevent cuts and save Social Security.

Social Security is supposed to be self-funding. If you want to preserve it as a self-funded program over the long-term, you need to look at its income and expenditures. If you want to complain that the President is looking at the wrong number, please tell us: what number would you prefer that he look at? Sure, you can argue that the President should be asking for a FICA tax increase to cover the projected growth in Social Security expenditures, instead of suggesting a cost of living adjustment that will lower payments over the long-term, but it's pretty obvious why the President isn't offering the Republicans a tax increase in exchange for their agreement with his tax increase for the general fund.

It would be reasonable to argue that there are presently two aspects of Social Security that are putting the most stress on the system, SSD benefits for disabled workers and the effective subsidy given to families where one spouse does not work outside the home or earns significantly less than a higher-earning spouse. If you believe the definitions are too lax, it would be reasonable to argue that Congress should revisit its definitions of what constitutes a disability for the purposes of qualifying for SSD. If you do not, it would be reasonable to argue that a spike in SSD applications and qualifications due to a significant downturn in the economy justifies a subsidy from the general fund, just as SSI payments for disabled persons who don't have enough work credits to qualify for SSD are paid from the general fund.

It would similarly be reasonable to argue that the benefits given to a stay-at-home or lower-wage spouse offer value to society, but would more reasonably be paid for out of the general fund as opposed to from wage-based contributions. Keep the program true to form, as a compulsory savings program, and to the extent that Congress believes it beneficial to society to provide a larger-than-otherwise-available retirement benefit to the lower-earning or non-earning spouse, pass that cost onto society as a whole instead of asking workers who will not receive that subsidy to take a benefits cut in order to subsidize other families. But... I don't hear anybody making that type of argument.

The proposal I hear most often is to remove the cap from FICA taxes, such that the wealthiest in effect experience a pretty massive tax increase. The argument is that if you look at the numbers, that move renders Social Security solvent for the indefinite future. The first problem is that it's a non-starter: nobody who is in a position to effect Social Security reform is backing it. It's not going to happen. The second problem is that you will shift some wealthy and powerful defenders of Social Security from the pro- column, based upon the largely equitable system for collecting and distributing benefits, into the anti- column, based upon your transforming a savings program into what will come to be perceived as a welfare program. You'll mobilize every anti-tax group that is presently agitating over significantly smaller numbers to target Social Security. So if that's your idea of "serious", you're agitating for a proposal that is completely unrealistic and, over the longer run, is apt to bring the roof down on our heads.

Let's recall also that one big factor here is that senior citizens vote. Yglesias is concerned about Republican ads that "Obama cut your Medicare and wants to cut your Social Security" because... senior citizens vote. So why am I to believe that if senior citizens realize that chained CPI is reducing their benefits to an unacceptable level, no politician will notice, and no senior will say, "Hey - let's vote for the politician who's going to fix this boondoggle and implement a more reasonable COLA"? We are presently talking about ten year budget plans but that means we're talking... five Congresses, two, maybe three Presidents... none of which can bind its successor. For a point of comparison, under the present formula if the cost of living adjustment would reduce benefits due to deflation, the COLA applied is zero percent - by design, not by accident. Seniors will notice what is happening.

Seriously, it's easy to say, "The President shouldn't have made that specific proposal, even though it fixes Social Security's books", but what's the alternative? And why should we view as "serious" a President who simply shrugs off the issue because a tough choice is involved or, shocking as it is, because politics are involved?

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