January 25, 2005

ON NOT PAYING FOR WARREN BUFFETT'S RETIREMENT:

White House Looking for Ways to Ease Opposition to Social Security Overhaul (EDMUND L. ANDREWS and RICHARD W. STEVENSON, 1/25/05, NY Times)

The Bush administration, facing opposition from Democrats and unease among Republicans over its plan to overhaul Social Security, is looking at new ideas for cutting future benefits that would hit wealthy retirees harder than those in the middle or bottom ranks of wage-earners, people involved in the discussions say.

But despite signs of reluctance from Capitol Hill, the White House remains confident that it can find a consensus on legislation that President Bush can sign into law, administration officials and advisers to Mr. Bush said.

People who have been briefed on White House discussions said the administration was striving to retain as much flexibility as possible both on legislative tactics and policy details. Deliberations are under way within the White House and between the White House and Republican leaders in Congress over how to proceed, they said, but there is no sense of panic or even surprise within the administration. [...]

The White House has already floated one approach to the issue of future benefits, suggesting that the benefits be based on price increases rather than on the current formula, which is based on economy-wide growth in wages. Since wages tend to rise faster than prices, the effect would be to set benefits at lower levels than promised under current law.

But that approach drew intense criticism from Democrats and some Republicans. Administration officials are now reviewing an idea called "progressive indexation." The idea is in effect a compromise that would allow initial benefits for low-income workers to rise in line with their wages but would peg benefits for affluent workers to the inflation rate.

The effect would be to direct relatively more benefits to lower-income people than to higher-income people.

White House officials say that future benefits have to be reduced in order to close a long-term financial gap that the government estimates at roughly $3.7 trillion over the next 75 years.

Shifting from wage indexing to price indexing would in itself come close to eliminating the projected shortfall.

But such a change would mean Social Security would steadily replace less and less of a person's pre-retirement income.

The new approach would help protect people at the lowest rungs of the income scale. But it would not save nearly as much money. By one estimate, it would close about two-thirds of the projected shortfall.

"They are trying to make the proposal more friendly to low-income workers," said David John, a senior analyst at the Heritage Foundation, a conservative research organization. "The major problem is that if you don't do full price-indexing you don't get the full savings and you don't completely solve the problem."

The alternative idea was proposed by Robert Pozen, an investment executive in Boston who was a member of Mr. Bush's advisory commission on Social Security in 2001.

White House and Treasury officials are studying computer analyses of that idea, Mr. Pozen said in an interview last week.


The Democrats' historic opposition to means testing made sense, at least politically, when all social programs were straight entitlement programs, but with that era drawing to a close mightn't they serve their putative constituencies best by agreeing to such reforms?

Posted by Orrin Judd at January 25, 2005 7:13 AM
Comments

Democrats aren't the problem, weak-kneed GOPers are. It is becoming more apparent that while Bush will press ahead on this issue Congressional GOPers seem to be ready to run and hide. The ideas to tie ss benefits to the rise in inflation not wages and adding means testing make sense - the fact that they are shot down quickly doesn't bode well. The end result therefore will probably a crappy bill that satisfies no one. And if Bush spends a lot of capital on this issue but then gets little to show for it then he will have less capital to spend on other issues (tax reform for example).

When common

Posted by: AWW at January 25, 2005 8:14 AM

Means testing in the end suits the Democrats, because it would complete the transformation of Social Security from a retirement fund scheme into a welfare scheme.

The disaster for the rest of us (and eventually for the Democrats themselves) is that 1-2 generations later (some people are slow to catch on, though not in general minorities) you have a population which has responded to the incentives presented, and saved nothing for its retirement. Entire generations dependent on the state, more and more of the population as life expectancy extends, and bound by economic necessity to vote accordingly. It's a socialist's dream outcome! The exact opposite of an 'ownership society'. See today's EU for what this means in practice.

Republicans need to drive carefully around this trap.

Posted by: ZF at January 25, 2005 8:22 AM

ZF:

No, no. The dirty secret is that if you privatize the system no one will qualify for the public benefits by the time they retire.

Posted by: oj at January 25, 2005 10:43 AM

The vast majority of people who get benefits aren't millionaries. This is the achilles heel of selling this program. The debate needs to be on the state of the program now, what needs to be done. But if people start claiming that Social Security is largely giving money to people who don't need it the people who do are going to be out in force to oppose it. The bottom line is that Social Security is one of the most popular programs -- and not among folks like Donald Trump. It's a huge mistake not to acknowledge the fact that it DOES mean a lot to a lot of people then lay out the reforms.

Posted by: Sam Tanow at January 25, 2005 12:15 PM

Question: If a comforatble retirement for the elderly is the main concern of the Democrats, why do they tax savings and investment during the working years?

Posted by: Tom C., Stamford,Ct. at January 25, 2005 12:31 PM

Privatize the program and they will be millionaires when they retire.

Posted by: oj at January 25, 2005 12:55 PM

ZF;

The other dirty secret is that support for Social Security is based on large part because it's perceived as a retirement fund where you get your own money back. Admitting that it's really a welfare system will eviscerate public support for it. That's why the Democratic Party has fought means testing, because that will exclude most of the middle class from benefits and poof, no support.

Posted by: Annoying Old Guy at January 25, 2005 2:26 PM

I have been going over the numbers on this lately. I am close to OJ sort of.

Posted by: Robert Schwartz at January 26, 2005 2:26 AM
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