In the Interest of Social Security

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Wilhelmina Leigh Wilhelmina A. Leigh is senior research associate of the Economic Security Initiative of the Civic Engagement and Governance Institute at the Joint Center for Political and Economic Studies.

In its deliberations to develop a plan to reduce the federal deficit by more than a trillion dollars over the next decade, the Joint Select Committee on Deficit Reduction considered a proposal to calculate cost-of-living adjustments (COLAs) in all government programs using the Chained Consumer Price Index-Urban (C-CPI-U), rather than the Consumer Price Index (CPI-U).

Implementing this proposal would dramatically reduce Social Security benefits for recipients. Although reducing federal program benefits by changing the COLA computation is indeed one way to reduce the deficit, reducing benefits is not the only way to eliminate the 75-year projected shortfall (of 2.2 percent of taxable payroll) for the Social Security system.

The shortfall can be closed by holding benefit levels harmless and, instead, increasing revenue directed to the system. A recent report of the Commission to Modernize Social Security Plan for A New Future: The Impact of Social Security Reform on People of Color offers recommendations for doing just that.

According to a brief by the National Academy of Social Insurance, over the first ten years after implementation of the C-CPI-U, two-thirds of the deficit reduction achieved would come from cuts in benefits that would be borne by elderly and disabled Americans.

The remaining third would come from revenue increases associated with adjustments to tax brackets and other parameters of the tax code.  After the first decade, deficit reduction due to revenue gains is projected to decrease, while benefit cuts are expected to remain indefinitely.taxes

Reductions in Social Security benefits would be especially problematic for African Americans, among whom benefits (averaging only $1,035 per month for retirees in 2009) are the sole source of income for 40 percent of retiree households ages 65 and older.

The Commission to Modernize Social Security focused on proposals that would both eliminate the projected shortfall and increase benefits for selected vulnerable populations, rather than on proposals that would reduce benefits.

Two of the proposals in its report—eliminating the $106,800 cap on wages taxed for Social Security, and extending Social Security coverage to all state and local government employees—would jointly generate enough revenue to eliminate the projected shortfall.

These two proposals along with a gradual increase in the payroll tax rate of one percentage point and taxing contributions to salary reduction plans (such as flexible spending accounts) would generate enough revenue to not only cover the shortfall but also fund benefit increases for the oldest recipients, students, caregivers, and widowed spouses.

It is in the nation’s interest to reduce its deficit. It is also in the nation’s interest to provide a tune-up to the Social Security system so it will remain solvent over the next 75 years. Achieving the first goal by reducing the modest benefits that provide a lifeline to so many Social Security recipients of color, however, is not the right way to go.

This post was originally publishd by the Joint Center for Political and Economic Studies and was republished with permission from the author.

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