Wednesday, October 20, 2010

3 New Reports Show Republican Proposals Weaken Social Security

Just in case you had any doubt about what Pat Toomey and other Republicans' plans will do to Social Security, here are three new studies that show what will happen if the GOP takes the House and Senate.

First - Center on Budget and Policy Priorities:
Ryan Plan Makes Deep Cuts in Social Security

The Roadmap for America’s Future, which Rep Paul Ryan (R-WI) — the ranking Republican on the House Budget Committee — released in late January, calls for a radical redistribution of resources from the broad majority of Americans to the nation’s wealthiest individuals. [1] It provides the largest tax cuts in history for the wealthy, raises taxes on the middle class, ends guaranteed Medicare benefits, erodes health care coverage, partially privatizes Social Security, and makes deep cuts in guaranteed Social Security benefits.[2] This paper explains the full dimension of the cuts in Social Security, using information from a new analysis by the Social Security Administration’s chief actuary.[3]

Second - Chief Actuary of Social Security
Analysis Reveals Proposals to "Save" Social Security Result in Deep Cuts in Retirement Income for Middle Class Seniors

Ways and Means Social Security Chairman Earl Pomeroy (D-ND) today released the results of a study from the Chief Actuary of Social Security analyzing several proposals, including those advanced by Republican Congressional leaders, as ways to reduce the long-term cost of Social Security. The analysis reveals that, contrary to the assertions by their proponents, these proposals would have a profoundly negative impact on the retirement security of middle-class seniors in addition to high-income retirees.

"There's been a lot of discussion about how easy it would be to cut Social Security in order to save it," said Chairman Pomeroy. "I asked the experts to analyze the proposals being made because I felt that much of this discussion lacked substantive information. The truth is that none of the cuts being proposed are easy on anyone and in fact, all of them will hurt middle class seniors and their retirement security. I don't think the average American worker could afford to lose 30 percent of their Social Security, which is what would happen under the Republican proposal. That's not what I'd call ‘saving' Social Security."

The Office of the Chief Actuary analyzed several proposals - including those by Budget Committee Ranking Member, Rep. Paul Ryan (R-WI), and Minority Leader John Boehner (R-OH) - that claim to make "modest" changes affecting higher-income seniors in order to "save" Social Security.

"The new analysis reveals that these proposals result in benefits cuts ranging from ten percent to as high as 50 percent,” continued Pomeroy. “As I talk to seniors today about stretching their Social Security benefits with no cost of living adjustment in sight, they would not agree with describing cuts of this magnitude as ‘modest’.”

Today average Social Security benefits are $14,000 a year for retirees. Six in ten seniors rely on these modest Social Security benefits to provide the majority of their income, and one-third of seniors have little other than Social Security to live on.

Proposals analyzed by the Chief Actuary include:

  • raising the retirement age from 67, as scheduled under current law, to a higher level-this reduces benefits for all regardless of when they retire;

  • flattening benefit levels and reducing replacement rates by tying initial benefit levels to price levels rather than wage levels (sometimes referred to as "partial price indexing" or "progressive price indexing");

  • adopting an alternative measure of inflation as the basis for the annual cost-of-living adjustment (COLA).

The attached charts outline the impact of these proposals.

Chart 1 is a baseline, showing benefit levels under current law for individuals retiring in 2010.

Chart 2 shows the size of the benefit cuts under "price-indexing" as proposed in the Ryan plan – H.R. 4529, the Roadmap for America's Future. The chart displays the size of the cuts for workers with various earnings levels, and for different generations. It shows that the cuts affect the middle class and become increasingly deep for future generations.

Chart 3 shows how proposals to raise the retirement age cause a reduction in benefits regardless of what age the individual retires. The chart shows benefit levels for individuals retiring at ages 62, 65, 67 and 70. It compares current law, indexing the retirement age to longevity (similar to the Ryan plan), and raising the retirement age to 70 by 2040.

Chart 4 illustrates the effect of changing the COLA by switching to an alternative measure of economy-wide price inflation. The oldest beneficiaries are the ones most affected.

Third - Joint Economic Committee:
JEC Report: Republican Proposals Weaken Social Security Guarantees and

Cut Benefits for Many Americans

Washington, DC -- A new report by the U.S. Congress Joint Economic Committee finds that two central elements of the Social Security proposals put forth by Republican lawmakers—“privatization” and “progressive price indexing” —would result in benefit cuts for millions of middle-income workers, jeopardize the solvency of the Social Security Trust Fund and undermine the program’s ability to keep millions of Americans from living in poverty.

The report, “Unnecessary Risk: The Perils of Privatizing Social Security,” focused its analysis on recently revived Republican proposals to privatize the program by allowing future retirees to divert a portion of their payroll taxes to individual investment accounts.

“Privatizing Social Security jeopardizes the security in Social Security,” said Congresswoman Carolyn B. Maloney, Chair of the JEC. “This report highlights that it is unwise to look to the stock market for a guaranteed annuity. We all know all too well that the stock market is subject to wild swings. We cannot afford to roll the dice with our seniors’ retirement security.”

A key finding of the report is that with privatization, retirees will be subject to fluctuations in the performance of the stock market and overall returns will vary based on individual investment decisions, with significant swings in returns and account accumulations possible from year to year and even month to month.

  • An annuity purchased by a worker who retired in 2008, after the Great Recession had begun and the stock market had collapsed, would replace only 40 percent of his final income, down from 87 percent replacement just two years earlier. For example, a worker expecting an annuity of $867 per month in 2006 would have received $399 per month if he retired in 2008.

  • The report shows that in the post-World War II period, a worker’s annuity purchased at the time of retirement, after investing 7 percent of his earnings over a 40-year career, could replace as much as 156 percent of his final salary or as little as 36 percent, depending on which year the individual retired and purchased the annuity. (See chart below).

The JEC report finds other significant problems with privatization:

· Allowing current contributors to divert funds out of the general Social Security Fund into private accounts will exacerbate the shortfall in revenues for current and future retirees as well as for current and future recipients of disability and survivors insurance.

· Private accounts are unlikely to provide a guaranteed retirement annuity, indexed for inflation, as the current Social Security system provides.

Private accounts may encourage lower-income workers to borrow against retirement savings in order to provide food and education for their children.

Lower-income households, women, African Americans and Hispanics would be hurt most by privatizing Social Security, since they depend more heavily on Social Security for their retirement income. For example, among adults 65 and over, Social Security accounts for 79 percent of income for the bottom income quintile while making up just 25 percent of income for the top quintile.

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