Not long ago, presidential aspirant Tim Pawlenty sat down with reporters from the Pittsburgh Tribune-Review for a heart-to-heart about his policy positions. The interview covered everything from from Libya to health care. (We know where he stands on that last one). He talked of his personal battles with the Minnesota legislature and said “you’ve got to draw some lines in the sand.” Apparently Social Security is one of those lines:
Major changes to entitlement programs will have to be enacted to stave off financial disaster for the country. That includes means testing for cost of living increases for Social Security and overhauling Medicare and Medicaid.
Okay, readers may understand overhauling Medicare—the Ryan plan has gotten some press. Medicaid? Not much knowledge there. Means-testing Social Security’s COLA provisions? Definitely a non-starter for all but the most serious students of Social Security. If reporters asked Pawlenty what he meant by means-testing the COLA arrangement, the paper did not print his explanation, no doubt leaving readers to scratch their heads.
Failing to ask follow-up questions is a serious no-no in journalism. But this slip is major since it let a major presidential candidate off the hook for coming clean about something super-important to everyone on Social Security now and who will be in the future. So far, the MSM has done a poor job of explaining Social Security changes to the public, instead passing them off as tweaks. In a Washington Post column, Charles Krauthammer argued that the problems with Social Security were “back-of-the envelope solvable—raise the retirement age, tweak the indexing formula (from wage inflation to price inflation) and means-test so that Warren Buffett’s check gets redirected to a senior in need.” Sounds simple, huh? Others say such changes will pinch beneficiaries, especially as they age, when inflation has eaten into their pensions, savings dwindle, and health care costs increase.
To help out reporters and anyone else who wants to know how the program’s benefits might change, we did a little research ourselves to figure out what Pawlenty might have been talking about. One idea is to change the way benefits are calculated at the time when someone retires. Under some proposals, people with average lifetime earnings of, say, more than $30,000 would get a smaller benefit than they do now. For those whose earnings are under $30,000, the current schedule of benefits would remain in effect, and they would not see a decrease in their monthly checks.
The other way benefits might decrease is to use a different method to calculate cost-of-living adjustments. The COLA increase is calculated after someone retires and begins to receive benefits. Generally, these raises come each year, but recently there have been no COLA increases because inflation has been relatively low.
A fact sheet on cost-of-living adjustments published by the nonpartisan National Academy of Social Insurance (NASI) points out that since “Social Security makes up an ever greater share of elders’ income, even minor erosions of the real value of their benefits are a public policy concern.” (Full disclosure here. I am one of NASI’s 900 members.) The Social Security Administration reports that the median income for couples and unmarried persons age sixty-five to sixty-nine in 2008 was $35,300; for couples between age seventy-five and seventy-nine, it was $22,600.
What exactly is on the table? The current CPI formula to calculate the increases measures changes over time in the price of a market basket of goods and services. One proposal with political traction would adjust the benefits to what’s called a “chained” Consumer Price Index. That means benefits would be calculated to reflect changes in consumers’ spending patterns. For example, they might buy more chicken than beef when beef prices are rising. Proponents of this method argue that the chained CPI is a truer reflection of the cost of living—but, in practice, it would lower benefits over time. NASI’s fact sheet points out that changing to a chained CPI would result in a result in a monthly benefit that is about 8.4 percent lower than under current law by the time someone reaches age ninety-two. Those receiving Social Security disability benefits would also find similar decreases in their benefits.
Means testing for SS and Medicare will be the final attack on the American Middle Class. Think about it folks. Traditional retirement plans (fixed benefit) are gone. Whats left are 401Ks, IRAs, and Social Security (SS). If you save for your 401k and IRA you will lose your SS with the means testing.
Do the math, you're taxed 6.2% on a salary up to around $106K for a guarrenteed benefit of Social Security. If you do the 401K you risk another 5% or more of income for a potential better gain. In most cases this gain is nominal and you will be penalized by your saving through means testing and loss of SS. If you're in the middle class and the government starts means testing, stop 401K and IRA. Spend what you saved during your late 50's and early 60's before you take SS.
This income manipulation is done for more than SS but also protect your Medicare. One serious illness and your middle class estate is wiped out.
Don't kid yourself, the target for means testing isn't the very wealthy like Bill Gates. That is a strawman argument. The target is the upper middle class making $100k to $250K.
The answer for SS is to raise the salary cap for contributions to SS to $250K and put a top level limit on SS payout at 70 yr old of $55K adjusted for inflation
#1 Posted by aj Michaels, CJR on Thu 19 May 2011 at 11:30 PM
The answer for social security is to balance the budget (now) and pay down the debt (soon) so that the non-transferable, unenforceable IOU's that make up the social security "trust fund" will actually be worth something in a few years, instead of eroding into utter worthlessness by the inflation that will inevitably come from borrowing or printing money.
Once fiscal sanity happens (if it does happen), the only way any entitlement program can persist without a bailout- be it a union pension fund, an Ivy League endowment, or a government retirement program - is for the plan to invest in real assets in the free market . Any plan that depends on future contributions instead of dividends or capital gains - like the current Social Security scheme depends on future general fund revenues to benefits - is doomed - such a plan is nothing but a Ponzi scheme that will never survive without exponentially increasing infusions of new cash.
#2 Posted by padikiller, CJR on Fri 20 May 2011 at 12:09 AM