Fixing Social Security and Cutting Social Security Aren’t the Same Thing

by Reihan Salam

Rep. Greg Walden (R-OR), chairman of the National Republican Congressional Committee, has declared his opposition to chained CPI to reduce the growth in Social Security benefits on the grounds that doing so is tantamount to “trying to balance this budget on the backs of seniors,” as he said to Wolf Blitzer of CNN. It is easy to see why many conservative groups, included the Club for Growth, have forcefully objected to Walden’s characterization of chained CPI. If a measure that reduces the rate of growth in Social Security payments over the next decade represents an effort to “balance this budget on the backs of seniors,” one assumes it is just as reasonable to characterize the House-passed fiscal year 2014 budget as an effort to “balance this budget on the backs of Medicaid beneficiaries,” in light of the tight cap on the growth of its Medicaid block grants. Had Walden objected to chained CPI and the Ryan Medicaid proposal, one could say in his defense that he was being entirely consistent. But as it stands, Walden is reinforcing the narrative that while Republican lawmakers are devoted to protecting the interests of retirees and near-retirees, they are not nearly as interested in protecting the interests of younger low-income adults and children. 

To be sure, there is a strong case for Medicaid block grants or per capita caps, but embracing this kind of “architectural” Medicaid reform doesn’t necessarily entail agreeing to deep cuts in the rate of spending growth that would likely engender a backlash from governors of both parties and voters. So in this regard, at least, Walden’s remarks on Social Security betray a blind spot that is not uncommon in the House GOP.

This doesn’t change the fact that the case against using chained CPI to set Social Security benefits is actually quite strong, as Andrew Biggs of the American Enterprise Institute has recently argued:

I have no disagreement that, in general, the chain weighted CPI is a superior measure of inflation to the standard CPI-W used to calculate COLAs or the CPI-U used to index the income tax brackets. However, the chained CPI is the wrong measure for Social Security benefits and the income tax code. A better measure for Social Security would be a chain weighted version of the CPI-E, which measures price changes for individuals over 65. This probably would still show lower inflation than the current CPI, by around 0.1 percentage point annually, but would be superior to the current CPI-W, the chained CPI, or the CPI-E on its own (which tends to show higher inflation).

Call me crazy, but I’m guessing that Walden’s critique of chained CPI isn’t quite as sophisticated as Biggs’. But a debate over chained CPI among Republicans could yield a better, smarter Social Security reform proposal. Private retirement savings are proving inadequate to meet the challenge of increasing life expectancy; the Social Security system punishes long work lives; and the Social Security payroll tax appears to reduce fertility, which is problematic for any pay-as-you-go social insurance system. The conservative goal for Social Security shouldn’t just be reducing Social Security expenditures. Rather, it should be leveraging Social Security to raise incomes for older Americans, including low lifetime earners. As I argued earlier this month, there is a clear way forward that’s been articulated by Biggs and other Social Security reform advocates: transform the core part of Social Security into a universal flat benefit; create a new pre-funded mandatory savings component; and reform Social Security Disability Insurance by adding a new front-end of mandatory private disability insurance (PDI), as proposed by David Autor and Mark Duggan. The end result will be a system that is more fiscally sustainable, yet it will also be a system that does a better job of meeting the needs of retirees. 

Social Security isn’t just a budget problem. It is the foundation of retirement security for a large majority of older Americans. The only way advocates of entitlement reform can gain real credibility with voters is if they are committed to actually making the program work better. There is no reason to believe that chained CPI would actually improve the Social Security system, whereas measures like rewarding workers for extending labor force participation, as Biggs and Jed Graham have proposed, among others, would represent real structural improvements that would yield benefits well beyond the 10-year budget window. We need to combine sticks with carrots, e.g., if we call for trimming benefits for the earliest retirees, we should also call for cutting or eliminating Social Security payroll taxes for workers over the age of 62. 

Again and again, a narrow focus on the 10-year budget window is leading us to miss the forest for the trees. It’s a trap. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.