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.
Tweaks, of course, are in the eyes of those doing the tweaking and those to whom the tweaking is done. Both these approaches appeal to deficit hawks because they help reduce the government’s payout. Their effect on Social Security recipients is a different matter. Here’s an idea for reporters interested in going beyond complicated Washington speak. Why not go out and talk to people in your communities about what these tweaks—a.k.a. reduced benefits—will mean to them in dollars and cents?
For more from Trudy Lieberman on Social Security and entitlement reform, click here.