by Bruce Webb
Following up on the publication of CBO’s Long Term Budget Outlook (see previous two of my posts) CBO yesterday published Social Security Policy Options (Summary for Web) and Social Security Policy Options (Full 51 pg PDF) scoring various revenue and spending cut measures that have been proposed for Social Security. The included Table shows various fixes scored as a percentage of 75 year GDP with the gap measured at -0.6%. Meaning that any fix scored at 0.6% or above backfills the entire gap, while fixes scored below that would have to be applied in combination. CBO does warn that certain fixes are interactive meaning that they are not simply additive, applying two might have either positive or negative effects on the total. I am going to publish this to get the ball rolling but will be updating both this post and comments over the next couple of hours.
BTW, the full version provides an excellent summary of Social Security overall, people not totally familiar with how the system operates (and some who think they are familiar but labor under certain misconceptions) might find it useful to skim through the relevant sections.
Well there is a lot here. First it is fairly common for people on the Left to insist that the easy solution is just to lift the cap. But as the table shows it matters a great deal how that is implemented, for example a fix along the lines suggested by Obama during the campaign of taxing income above $250,000 at 4-6% would close the gap between 0.1 and 0.15% or between a sixth and a quarter of what is needed. On the other hand simply eliminating the taxable minimum while allowing those extra taxes to contribute to benefits neatly fills the gap, while eliminating it and not allowing that to contribute provides a 0.9% fix which would leave room to enhance lower income worker benefits. But advocates need to be specific in what they are proposing, ‘lift the cap’ on its own is too reductionist.
Second this table pretty much validates the Northwest Plan for a Real Social Security Fix. While no option matches it exactly, option 2 is very close and in line with Coberly’s original proposal (pre-trigger): phase in a 2% increase by 0.1% per year, 0.05% each for employee and employer, for 20 years and the entire 0.6% gap is accounted for.
Third some of the benefit cut proposals being made end up being pretty punitive while still not doing the trick. For example means testing has to include 70% of all workers even to make up 5/6th of the gap while raising the Full Retirement Age to 70 only fills half of it. At a minimum we owe it to workers to allow them to have a voice in whether they want to accept a phased in tax increase rather than what can add up to dramatic changes in lifetime benefits.
The longer version of the document examines the specific effects of all 30 listed options.