When conservatives face a choice of cutting Social Security -- something they
have long sought -- in return for an increase in taxes, they suddenly become
friends of the elderly and the working class. But what is really behind their newfound fondness for the vulnerable?
This is from an article from Andrew Biggs, "resident scholar at the American
Enterprise Institute and former principal deputy commissioner of the Social
Security Administration," appearing at the NRO:
The Chained CPI: A Bad Deal All Around, by Andrew Biggs, NRO: The
Chain-Weighted Consumer Price Index (or chained CPI, for short), which
President Obama included as part of his formal budget proposal, seems like a
no-brainer for any White House–GOP grand bargain on the budget deficit.
After all, the chained CPI ... would reduce entitlement spending and
increase tax revenues by a combined $340 billion over ten years, providing
something for both sides to like and dislike. Yet ... the chained CPI is bad
policy that both liberals and conservatives may come to regret. ...
In Social Security, the chained CPI would replace the CPI-W (intended for
urban wage-earners and clerical workers) in calculating annual
cost-of-living adjustments (COLAs). Once fully implemented, lower COLAs
would reduce a retiree’s average lifetime benefits by around 4 percent,
cutting Social Security’s long-term shortfall by around one quarter.
Yet while Social Security does need to be fixed, and lower benefits for
middle and high earners should be a part of the equation, smaller COLAs
weaken a feature of Social Security that actually works: The program’s
generous inflation adjustment counteracts the absence of inflation
adjustment in private pensions. And unlike most reforms, which reduce
benefits progressively ... COLA reductions fall hardest on the oldest
beneficiaries, who are most at risk of poverty. An 85-year-old is 66 percent
more likely to be in poverty than a 65-year-old, but the chained CPI will
cut the 65-year-old’s by only 1 percent and the 85-year-old’s benefits by 8
percent... Moreover, the chained CPI, like CPI-W, doesn’t account for the
fact that older retirees spend disproportionately on health care, a sector
in which inflation is particularly high.
[Note: The article and supporters of this policy say the chained CPI is a
better measure of inflation, and that may be true for some groups, but the last
sentence shows that it is not a better measure of inflation for the
elderly.] I don't disagree with the arguments above about who would be hurt, and
that we should protect the most vulnerable -- I think we should raise the
payroll tax cap rather than cutting benefits -- it's just strange to see them
made at the NRO (the Obama administration's proposal includes a call to protect
older retirees from the changes noted above, and it's not surprising to see this
omitted from the discussion -- it undercuts the GOP's attempt to position itself
as defending older retirees against a Democratic proposal). Continuing:
A better policy would peg COLAs to wage growth, which is around 1 percentage
point faster than inflation, coupled with a lower initial retirement-benefit
level to keep lifetime receipts the same. The lower starting benefit would
dissuade workers from retiring too early. Higher benefits later in life
would focus resources where the danger of poverty is greatest, as well as
compensating for the fact that most non–Social Security sources of
retirement income aren’t inflation-indexed at all. ...
Again, I'd raise the payroll tax cap first, but let's move on to the tax
argument. As you read this, remember all the complaints from Republicans during the presidential election about
middle and lower income households not paying their share of federal taxes,
about how they take too much and give too little relative to the "burdens" on
If adopting the chained CPI for Social Security would be misguided, applying
it to the income-tax code would be even worse. ...
Republicans would surely oppose such an increase if they understood it.
Making matters worse, the largest rate increases will be on low- and
middle-income households. The Congressional Joint Committee on Taxation
projects that in 2021, 69 percent of the gains in revenue would come from
taxpayers with incomes below $100,000, though they pay only 28 percent of
total income taxes. Individuals in the highest income brackets would be left
essentially untouched... Conservative reformers such as National Review’s Ramesh
Ponnuru are pushing for a tax code that’s friendlier to families and
middle-income earners. The chained CPI is hard to fit into that narrative.
It’s hard to see how chained CPI can be a win for conservatives..., why
should Republicans take the rap for a measure that weakens Social Security
for the least well-off and institutes a large and regressive tax increase?
I don't find it hard at all to imagine Republicans supporting regressive tax
changes (see their past policies) and weakening Social Security (ditto). The
real goal for Republicans, of course, is to prevent tax increases of any type.
If they give in anywhere, it might help with arguments that taxes on the wealthy
must go up, and that cannot happen. The puzzle is why Obama would put forth a
measure that allows Republicans to position themselves as defending the elderly
and the working class as they pursue their real goal of keeping taxes from
increasing. I guess he thought it wouldn't really happen, that Republicans would
end up looking like unreasonable obstructionists on the tax issue, and that the
press would all of a sudden turn on them as a result of their intransigence, but
it wasn't hard to see this coming:
So what’s this about? The answer, I fear, is that Obama is still trying to
win over the Serious People, by showing that he’s willing to do what they
consider Serious — which just about always means sticking it to the poor and
the middle class. The idea is that they will finally drop the false
equivalence, and admit that he’s reasonable while the GOP is mean-spirited
But it won’t happen. ... Oh, and wanna bet that Republicans soon start
running ads saying that Obama wants to cut your Social Security?
Anyone else getting tired of relying upon Republican intransigence to defend Social Security and Medicare from Obama's Grand Bargains that are intended to appease the "Serious People" that cannot be appeased?