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

The Wrong Kind of Social Security Reform



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Last week, Andrew Biggs of the American Enterprise Institute discussed the parlous state of Social Security’s finances (“CBO’s best guess is that the Social Security shortfall is roughly four times larger today than it was just six years ago”) and recent calls from left-of-center Democrats for expanding Social Security, and how these proposals are likely to exacerbate rather than improve Social Security’s fiscal health. Biggs acknowledges that President Obama has proposed reducing cost of living adjustments to improve Social Security’s finances before noting that he withdrew the proposal after encountering intense criticism from Democratic lawmakers, several of whom have instead backed an expansion of benefits. A New York blog post takes Biggs to task for not highlighting the role of Republicans in stymieing Social Security reform:

Obama suggested nothing to help Social Security apart from that one time he did exactly that, when he proposed reducing Social Security’s cost-of-living index. (Even this absurd formulation is wrong: Biggs is ignoring the fact that Obama also proposed similar measures behind closed doors in 2011 and 2012, and was rebuked by Republicans every time.)

It is worth noting that the proposal in question does more than reduce Social Security’s cost-of-living index, as Biggs has explained in great detail. The president’s call for adopting chained CPI to calculate Social Security’s annual cost-of-living adjustments (COLAs) was tied to using chained CPI to index income-tax brackets. This would accelerate “bracket creep,” the process through which households find themselves in higher tax brackets because average incomes generally rise faster than inflation. “While the Social Security cuts due to chained CPI would stabilize at around 4 percent of outlays (being limited by the average recipient’s lifetime),” Biggs writes in NRO, ”the income-tax increases would keep growing in perpetuity.” Why would Republicans oppose a cut to Social Security benefits tied to a tax increase that will disproportionately impact low- and middle-income households? 

And Biggs also argues that while there is indeed a case for restraining the growth of Social Security benefits for middle and high earners, applying chained CPI to COLAs is an unusually bad way to accomplish this goal. One of the points Biggs often emphasizes is that advocates of Social Security reform must focus on the central goals of the Social Security program and public pension policies more broadly, e.g., to eliminate poverty among older Americans. Social Security’s generous inflation adjustment is important in part because private pensions aren’t subject to a generous inflation adjustment. But rather than simply leave the Social Security program in its current form, Biggs has proposed reforms that would, among other things, strengthen the role of private savings while making Social Security more generous to beneficiaries with low lifetime earnings. That is, Biggs is not exclusively focused on making Social Security cheaper. His goal is to make it better.

New York continues:

With faux generosity (“It’s hard to blame the president alone for backtracking”), Biggs pivots from blaming Obama to blaming Democrats in Congress. He cites a plan to shore up Social Security by Representative John Larson. Biggs grudgingly concedes that Larson “at least attempts to balance the system’s tax revenues and benefit outlays,” which is Biggs’s way of saying that, according to an independent analysis by the Social Security Administration, Larson’s plan restores complete solvency to the Trust Fund over 75 years. He proceeds to complain that Larson’s plan raises taxes too much.

Of course, this doesn’t contradict Biggs in the slightest. Biggs describes Larson’s plan as “the most responsible bill” from a Democratic lawmaker, and his main objection is in fact that Larson “makes no attempt to hold down costs” — a pretty big point to miss. 

At no point anywhere in his op-ed does Biggs mention Congressional Republicans, not to mention their repeated refusal to accept Obama’s deal that would have cut Social Security spending in return for closing tax deductions for the affluent. He is, of course, correct that many liberals opposed such a deal. But this merely illustrates how self-defeating it was for Republicans to spurn Obama’s deal. Cutting Social Security is extremely unpopular — as unpopular as just about any mainstream policy option. It is also essential to the conservative goal of restraining the size of government. Having a Democrat who is prepared to sign, and provide public cover to, Social Security cuts is an unbelievably fortunate opportunity for the right.

Let’s review: is it in fact “self-defeating” of Republicans to spurn a proposal that accelerates bracket creep while also reducing Social Security outlays in a way that risks undermining one of the better aspects of the Social Security program?

I recommend reading Biggs and Sylvester Schieber’s work on the state of retirement incomes, a subject they’ve addressed in the Wall Street Journal and, at greater length, in National Affairs.



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