Deconstructing the White House Social Security Memo with Hat Tip to KHarris
Peter Wehner’s memo on Social Security can be found here.
There are two substantive points as far as I can see. The first:
Second, we’re going to take a very close look at changing the way benefits are calculated. As you probably know, under current law benefits are calculated by a “wage index” — but because wages grow faster than inflation, so do Social Security benefits. If we don’t address this aspect of the current system, we’ll face serious economic risks. It’s worth noting that wage indexation was not part of the original design of Social Security. The current method of wage indexation was created in 1977, under (you guessed it) the Carter Administration. Wage indexation makes it impossible to “grow our way” out of the Social Security problem. If the economy grows faster and wages rise, this produces more tax revenue. But the faster wage growth also means that we owe more in Social Security benefits. This has produced a never-ending cycle of higher tax burdens, even during periods of robust economic growth. It is the classic case of the dog chasing his tail around the tree; he can run faster and faster, and never make any progress…Here’s a startling fact: under current law, an average retiree in 2050 would be scheduled to receive close to 40 percent more (in real terms) in benefits than an average retiree today — and yet there are no mechanisms in place to produce the revenue to pay out those benefits. No one on this planet can tell you why a 25-year-old person today is entitled to a 40 percent increase in Social Security benefits (in real terms) compared to what a person retiring today receives.
My hat tip is to KHarris because KH had the first blog comment that at least I saw directed at this point. KH is a regular visitor to both Angrybear and Brad DeLong’s webcite and has some excellent comments. KH noted Little Nell (Max Sawicky’s name for someone born in 2000) would pay more in payroll taxes than yours truly but would get no more in retirement benefits. Glad to see Peter is admitting that the Bush plan addresses this alleged fiscal crisis (which is in the General Fund) by imposing more taxes on Little Nell but giving less benefits than someone who just retired.
Wehner’s other point seems to be that there is no free lunch:
You may know that there is a small number of conservatives who prefer to push only for investment accounts and make no effort to adjust benefits — therefore making no effort to address this fundamental structural problem. In my judgment, that’s a bad idea. We simply cannot solve the Social Security problem with Personal Retirement Accounts alone. If the goal is permanent solvency and sustainability — as we believe it should be –then Personal Retirements Accounts, for all their virtues, are insufficient to that task…If we duck our duty, it can have serious short-term economic consequences. Here’s why. If we borrow $1-2 trillion to cover transition costs for personal savings accounts and make no changes to wage indexing, we will have borrowed trillions and will still confront more than $10 trillion in unfunded liabilities.
Hey, I agree. So why is the GOP trying to tell us there is a free lunch?