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Monday, April 15, 2013

Why are Republicans Suddenly So Worried about the Elderly and the Working Class?

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 the wealthy:

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 and crazy.
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?

    Posted by on Monday, April 15, 2013 at 11:46 AM in Economics, Politics, Social Security, Taxes | Permalink  Comments (32)


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