Although the deficit-reduction plan from Erskine Bowles and Alan Simpson, co-chairs of the President’s fiscal commission, didn’t get enough votes to secure the panel’s endorsement, some people think it should form the nucleus of a big deficit-reduction package. But when it comes to Social Security, the plan is sorely out of whack. We’ve previously
the Bowles-Simpson approach to achieving Social Security solvency as unbalanced, relying excessively on benefit cuts rather than revenue increases. Our new report makes clear just how deep those benefit cuts – and how patchy the plan’s claimed protections for low and moderate earners – would be. In brief:
The plan would cut benefits for the vast majority of future Social Security recipients. Many recipients barely get by on Social Security; benefits for elderly and disabled people are already very modest, averaging only about $14,000 a year. For an average worker who toils until age 65, Social Security replaces just 37 percent of past earnings (after subtracting Medicare premiums) — a figure that’s already slated to fall under current law because of changes enacted in 1983 that are still being phased in, as well as rising Medicare premiums. The Bowles-Simpson plan would reduce those benefits further. And it would simultaneously ask most of those same beneficiaries to pay more out of their own pockets for health care.
Contrary to many reports, those benefit cuts would affect most lower-paid beneficiaries. A new analysis by the Social Security actuaries confirms that the plan’s touted protections and enhancements for lower-income workers — specifically, a so-called “hardship” exemption from a higher retirement age and an enhanced minimum benefit — would cover only a fraction of such workers.
The plan would weaken the link between the amount of Social Security taxes a worker paid and the amount of benefits he or she later received. Its proposed benefit cuts for medium- and higher-paid workers are especially deep. Eventually, most workers would end up getting very similar benefits despite big differences in the amount of payroll taxes they contributed. That could very well undermine public support for the program over the long term.
The proposal is unbalanced, relying on benefit cuts for two-thirds of its savings over 75 years and four-fifths in the 75th year. Illustrating the plan’s lack of balance, the total amount paid in Social Security benefits would be barely higher in 2085 than it is today when measured as a share of the economy, despite a dramatic increase in the share of the population that is over age 65.
While Social Security is in solid shape in the near term —it can pay full benefits until 2037 without difficulty, and about three-fourths of scheduled benefits even after that — policymakers should take action soon to restore the program’s long-run solvency. But the Bowles-Simpson plan is not the right approach.