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November 15, 2010

Bowles-Simpson's Non-Progressive Social Security Plan

Greg Anrig

A lot of smart progressives seem to think that the Social Security changes proposed by debt commission co-chairmen Erskine Bowles and Alan Simpson provide a sound basis for reform. Former Office of Management Budget Director Peter Orszag calls the plan a "good starting point for reform," Matthew Yglesias of the Center for American Progress calls it "a framework within which liberals could work," and Kevin Drum of Mother Jones says, "overall it's a fairly progressive plan." Here are some features of the Bowles-Simpson Social Security proposal that make me wonder whether Peter, Matt, and Kevin might want to  give the thing a closer read:

-- The plan would gradually raise the age when Social Security retirement benefits could first be collected from 62 to 64. That would greatly undermine the economic security of future generations of workers, especially those involved in physically demanding manual labor, low-income employment, and really any profession in which a late-career layoff would make it difficult to find a decent replacement job.

-- Of Social Security's long-term funding gap, 92 percent is closed through reductions in benefit levels that already rank 25th out of 30 OECD countries. Although the plan would also very slowly phase in an increase in the cap on earnings subject to payroll taxes, benefit reductions are far deeper than they need to be to restore long-term balance to this essential program.    

-- Raising the age when full retirement benefits can be collected to 69, which has already been increased from 65 to 66 and is scheduled to rise again to 67 over the next decade, would be an additional 13 percent benefit cut for everyone once phased in regardless of when they retire and what they earned.

-- Benefit reductions beyond retirement age increases target beneficiaries at the 50th percentile and higher -- not just big earners. According to Social Security's chief actuary, workers who are in their 20s today and who retire at 65 would experience total benefit cuts of 17 percent if their wages average $43,000 over their working lives; 30 percent if their wages average $69,000; and by 36% if their wages average $107,000.

-- Only retirees in the bottom income quintile would be spared benefit reductions.

The Bowles-Simpson plan unnecessarily dishes out a lot of broadly shared pain. Considering how essential Social Security has been in providing a modicum of retirement security to Americans, particularly now in an era when private pension protections have deteriorated and housing values collapsed, it's really difficult to understand why progressives should like the proposal. 

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