The National Committee to Preserve Social Security and Medicare released the results of a new poll of Baby Boomers and older Americans regarding the future of Social Security. While the results show greater concern for Social Security's future than the National Committee generally projects – 14 percent say it is in crisis and an additional 49 percent say it has major problems, while the National Committee tends to downplay the problem – nevertheless the results regarding policy solutions appear favorable to the left. The survey asked, "Which of these four ways to insure the future of Social Security would you be most in favor of?" While I would have phrased the questions differently – I have seen polls showing that progressive benefit reductions rank higher than all policy options other than increasing the wage cap – and would have included younger respondents, who are most likely to be affected by Social Security reform, these results do pose a challenge to those who would wish to fix Social Security finances entirely on the benefit end. Click here to read the full results and cross tabs.
Monday, April 6, 2009
New poll: NCPSSM: Americans Support Protecting Social Security Benefits
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Yes I think the challenge for reformers is that they view 'crisis' amongst themselves as one of sustainability which is largely defined as minimizing claims on the General Fund going forward. This builds in the somewhat silent assumption that the response to TF Depletion in 2041 will be demands that benefits be kept at the current schedule come what may. Which requires the premise that retirees at that time will have the political clout to make that happen.
This narrative made perfect sense in the early 90s when it appeared that Trust Fund depletion would coincide with the period of peak impact of Boomers on the system. That is under projections that TF depletion would come around 2029 Boomers would be aged from 65 to 83. At that point the mortality tables suggest that half of the oldest Boomers would still be alive and voting with that percentage going up as you moved down through the cohort. This dovetailed with a prevailing popular image of the Boomers being naturally selfish, the 'Me Generation' (subject of a bazillion magazine cover stories) and an understanding that seniors tend to vote at higher rates. The combination of selfishness and voting demographics was thought to be powerful enough to just swamp the Gen-Xers push back. Moreover this basic narrative was supplemented by one that holds that taxes will have to be increased at the time of TF shortfall or programs slashed to pay for Boomer Retirement only to see Social Security go 'bankrupt' or 'flat broke' at TF depletion which younger workers have translated into 'No check for me'.
And this isn't just theoretical. I have been blog commenting on this since there first were political blogs and the sense of resentment from younger workers is palpable, they really do believe they are going to get screwed two ways, paying extra taxes first and then getting nothing latter.
Under this scenario a reform proposal that included some immediate package of benefit cuts and tax increases that could be phased in in time to make the Selfish Boomers share the pain while making sure that some benefits would be in place for Gen-X made sense. If we were still sitting in 1994 watching the solvency of the TF erode in the way it was.
But by 2000 the calculus had changed considerably. Instead of the TF projecting to go to depletion at the point of maximum Boomer impact on Social Security and the ballot box it was now set for 2037 when Boomers would be aged 73 to 91. Moreover this meant that just about half of Gen-X would be eligible for benefits themselves. Under these circumstances a policy of starting phased in benefit cuts in 2009 largely gives Boomers a pass (it being accepted dogma among reformers that people in retirement or approaching it should not have their retirement options curtailed when they don't have an opportunity to build up their PRAs in time) while guaranteeing that Gen-X gets their baseline benefit cut. In effect they are being asked to gore their own ox. And this became even more true as TF depletion pushed out from 2037 to 2041 over Bush's first term.
Now given that crisis at TF depletion is really just a matter of taking a smaller benefit in 2042 than some of these Gen-X retirees were getting in 2040, and that timing and needed cut being contingent of actual economic performance, it might not be as bad as expected, selling an across the board guaranteed cut in benefits offset by whatever gains you would get from your PRA (after clawback) naturally gets harder to sell.
After all for workers making under the median 'crisis' is defined as a future benefit cut. Arguments that lifting the cap wouldn't backfill the entire gap lose their power when those workers realize that the rest of the gap will require benefit cuts anyway. Nor are they likely to be moved by arguments that crisis should be measured not by TF balances but instead by the time transfers from the General Fund need to start. After all the General Fund is mostly funded by a tax that many of them (and particularly those with children) don't have to pay to start with.
So yes indeed the 'benefit end' only people really do have a challenge. They have been hemmed in by the calender calculus.
This argument is often framed as one of 'selfish' Boomers greedily collecting their checks while younger workers have to take on three jobs just to pay for it.
Bruce,
I'm not sure how much the solvency date issue has to do with how to resolve solvency; if the gap is $10 trillion, $5 trillion or $1 trillion, you still have to decide whether to close it by raising taxes or cutting benefits. (There may be differences in preferences based on people's ages, but that's a different story.)
But I basically agree with you that many on the reform end saw insolvency as a budget problem to be solved, not a budget AND retirement income problem. Something like price indexing perfectly solves the budget problem, but unless we assume everyone will react by saving more -- as assumption that makes much of the Social Security program itself redundant, since a good chunk of what it does is force myopic people to save -- then solving the budget problem causes a retirement income problem. So, at least from my view, we need to build greater individual savings so the burden on Social Security won't be as large. Presumably you'd have a different policy view, but I think you've caught onto a significant issue on the reform end of things.
"Yes I think the challenge for reformers is that they view 'crisis' amongst themselves as one of sustainability which is largely defined as minimizing claims on the General Fund going forward. This builds in the somewhat silent assumption that the response to TF Depletion in 2041 will be demands that benefits be kept at the current schedule come what may. Which requires the premise that retirees at that time will have the political clout to make that happen..."
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The General Fund will be tapped circa 2019 as things are going, so if that's the issue that's the date.
Reformers may think among themselves of the issue as being whatever, and status quoers may do the same.
But taxpayers think of the issue as being when their taxes go up. And Congress has shown it is very sensitive to taxpayers thinking that way.
Taxpayers will be thinking about that a lot circa 2019, when a 15%-20% across-the-board income tax increase from today's levels will be needed to raise the general revenue required to service the trust fund bonds. (Simultaneously with a tax increase double that size for Medicare, etc., a >50% tax increase total).
Now, when considering the political clout of the various self-interested voting groups as of that day to come, some relevant poll questions then:
To all ...
[]"Do you favor preserving SS benefits?"
[Self-interested answer:] Yes! Of course!
[] "Do you favor raising your taxes >15% to pay benefits to those much richer than you, who don't need them?"
[Self-interested answer:] No!!
To the millions of retirees in the middle class...
[] "Do you favor avoiding raising taxes on your fixed, limited retirement income -- including on your SS benefits! -- by >15%, thru means testing 'the rich' out of benefits?
[Self-interested answer:] Yes!
To the over-influential filthy rich....
[]Do you favor avoiding raising taxes on all your fat pension, investment, deffered comp, etc., income by >15% ... thru means-testing yourselves out of your relatively puny SS benefits?
[Self-interested answer:] Yes!
To corporations, labor union members, working persons raising families, investors ...
[] Do you favor avoiding a >15% tax increase on all your income, by means-testing the rich out of SS benefits?
[Self-interested answer:] Yes!...
Means-testing the rich out of SS benefits got its start with the 1983 Reform, is frequently proposed today, and will be proposed only more frequently as the alternative post-2019 income tax hikes come nearer.
For the life of me, I'm trying to find some group of taxpaying voters who post-2019 will have a self-interested reason to oppose means testing the rich out of benefits to avoid that tax hike.
If even the rich support cutting their own benefits, who's going to oppose it?
Jim,
I agree that it wouldn't be hard to produce poll findings very contrary to these, in part by forcing people to make realistic choices regarding what's involved to fix Social Security. Let's say we raise the tax max; fine, that gets you less than half the 75 year deficit and nowhere close to sustainable solvency. (Ask younger respondents whether they want the system to run out again when they get really old, or whether they want everyone to cough up for a fix that will last.) In any case, the tax max is popular because it amounts to, "Would you favor a plan that pays your full benefits by raising someone else's taxes? Why yes, I would. But beyond that there are some tougher choices.
For instance, ask people whether they'd like their income taxes to rise to pay for solvency, as opposed to just "tapping" other sources of revenue. You might get a different answer.
Alternately, ask people whether they'd favor a tax increase or mandatory retirement savings accounts, in which they'd effectively pay the extra money to themselves. Again, results may differ.
The point is that you need a framework by which to make these kinds of decisions. Standard polls (on the right as well as on the left) don't do a great job with this. Focus groups have their problems, but they can be helpful in this area.
Polls? Just the word asks many questions. How were the questions phrased? What is the knowledge of those answering the questions? If those answering do not understand the subject or have misconcieved ideas, then what good are they? A good survey covers all possible answers. This survey assumed that everyone wanted to keep SS.
What are the options:
Do nothing and see payable benefits with COLA drop to 73% payable without COLA under current law. This translates into a 60% cut with COLA. This means the actual shortfall between revenues under current law and benefits paid with COLA is 40%.
If we want to solve the problem by raising the retirement age, it will need to go to 74 years of age for full benefits. This basically kills off about 15% of the population from ever getting benefits. However, workers would pay longer and collect fewer years. Keep in mind that for every increase in the retirement age, a person pays another full year and the theoretical balance of what they have paid in grows. In actuarial terms, a person needs to live 2.5 years longer for each year of increase in retirement age. The 1983 change raised full retirement from 65 to 67. This counters the full increase in life expectancy from 1900 to 2000. In other words the entire increase in life expectancy was taxed with none left for the retiree to enjoy.
We could raise taxes by 85%, but then those paying these taxes would not see their benefits increased. The tax rate has already risen from 2% to 10.6% from 1937 and 2000.
Of course we could cut benefits and bring them in line with what was actually paid in taxes. Benefits were basically cut 20% when the 1977 benefit formula came into being.
We could raise the base to which SS is applied. But the problem with this is the base is already at $106,800. This covers nearly all wages now. Applying it to 100% would raise only 17% more in revenues. If you the benefit formula remains the same, theoretically less than 43% of this 17% would be available to pay the shortfall due to having to pay higher benefits on a higher wage base. The base has risen from $3000 to $106,800. It used to be about 120% of the average wage and now is about250%.
We have already raised the retirement age by 2 years, the tax rate by over 430% and the base at twice the rate of inflation and still have a problem. Maybe we need to look at the root cause instead of symptoms.
The answer is simple, but not painless.
Keep in mind that right now there are over 117 million potential voters under the age of 46 while there are fewer than 100 million over age 46. This ratio will not change much. Also, the offspring of the boomers outnumber the boomers as does generation x is outnumbered by their offspring. Add in the fact that mortality tables begin to eat away at generations after age 60 and their numbers drop at a good rate.
My solution is simple; Eliminate the SS-OASI payroll tax. The employer’s portion is directly deposited into a self directed IRA style account controlled by the worker. The employee’s portion is left in the payroll check to pay for whatever (college, home, healthcare, savings, etc). The $2.4 Trillion in the OASI Trust fund is used to pay a means tested benefit based on assets not income. Income is not a good measure of the ability to pay your way. The trust fund would be depleted in ten years. General revenues would be used to pay to take care of those who need help. In this way, all help according to their ability not because they make a wage. At the end of 37 years, the system reaches equilibrium where less than 9% of seniors would need any type of assistance from taxpayers. The result would be that workers would have benefits that pay twice what social security promised to pay and three times what social security can pay.
Why not add in a question like this. If you had the choice between paying 10.6% of your wages to SS and getting 73% of payable benefits or keeping your 10.6% payroll tax and give up any SS benefits, what would you do?
I would bet that the percent and total numbers from those under age 46 would increase dramatically and out number all those over age 46.
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