Because Social Security reform is a complex issue, and because some of the President’s remarks in his April 28 press conference left room for misinterpretation, viewers of the press conference may have been left with an inaccurate impression of the President’s Social Security proposals. Some key facts that should be noted are:
The President’s plan would cut Social Security benefits for anyone born after 1950 who earns more than about $20,000.
- While the President focused on the large benefit cuts his plan would impose on high-income workers, all workers earning more than about $20,000 would have their benefits cut.
- The reason for this is that under the plan, the bottom 30 percent of workers — those earning below about $20,000 today — would continue to have their benefit levels determined by the current formula, known as wage indexing. For everyone else, though, benefit levels would be determined by a combination of wage indexing and price indexing (for middle-income workers) or by price indexing alone (for upper-income workers), both of which produce lower benefits than the current formula.
- These benefit reductions would apply not just to retirees but also to survivors. If someone dies and leaves behind young children, those young children will see their benefits reduced under the President’s plan.
- For middle-income workers, the benefit cuts would be the largest in Social Security’s seven-decade history.
- The 1983 Social Security reform cut benefits for average earners (those earning roughly $36,000 today) by 17 percent over 46 years.
- The President’s plan would cut benefits for these workers by 28 percent over 70 years.
- For workers with incomes somewhat above average, the benefit cuts would be nearly as large as those imposed on very-high-income workers — and larger than if nothing were done to shore up Social Security.
- Under the President’s plan, a worker who makes 160 percent of the average wage (or a little under $60,000 today) and retires in 2075 would experience a benefit cut of more than 40 percent. That cut is nearly as large (as a percentage of the worker's promised benefits) as the cut that would be imposed on someone making several million dollars a year.
- Looked at another way, the benefit cut for a worker who makes $60,000 would be deeper than if nothing were done to restore Social Security solvency and the program paid benefits based solely on incoming tax revenue after the trust fund is exhausted.
- This is true for all workers making $55,000 or more: they all would be better off if Social Security were allowed to become insolvent than if the President’s plan were adopted.
- The President stated that his plan would not affect disability benefits, but the cost savings the White House claims for the plan imply significant cuts in disability benefits.
- The “progressive price indexing” plan proposed by Robert Pozen — the plan upon which the President’s plan is based — would close 70 percent of Social Security’s long-term funding shortfall. Similarly, a White House fact sheet claims the President’s plan would close 70 percent of the shortfall.
- However, the Pozen plan obtains about one-sixth of its total savings from cuts in disability benefits, which the White House says are not part of its plan.
- This leaves three possibilities. One is that the President’s plan involves much larger benefit cuts for retirees than the Pozen plan does, to make up for its lack of cuts in disability benefits. (The benefit cuts cited above are based on the Pozen plan.) The second possibility is that cuts in disability benefits are in fact part of the President’s plan.
The third possibility is that the President’s plan would close less than 70 percent of the Social Security shortfall. A plan that included the retiree benefit cuts in the Pozen plan, a new minimum benefit to “eliminate poverty among future seniors” (which the President promised in his press conference), and no benefit cuts for people with disabilities would eliminate just 57 percent of the Social Security shortfall. In other words, the job of fixing Social Security’s long-term problems would be little more than half completed.
