The Super Committee and Social Security:The Super Committee and Social Security:Should the Bowles-Simpson Proposals Be Should the Bowles-Simpson Proposals Be on The Table?on The Table?

Comments byWilhelmina A. LeighSenior Research AssociateJoint Center for Political and Economic Studieswleigh@jointcenter.org

16 September 2011Rayburn House Office Building

Should the Bowles-Simpson Proposals Be Should the Bowles-Simpson Proposals Be On The Table?On The Table?

No, not all of them

If the Bowles-Simpson proposals were revised so that the proportion of the 75-year shortfall to be eliminated by increasing revenue were to exceed the proportion to be eliminated by reducing benefits, then the entire package of proposals should be on the table.

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Bowles-Simpson: Percent of Shortfall Bowles-Simpson: Percent of Shortfall Eliminated by Method of EliminationEliminated by Method of Elimination

Percent of Shortfall Eliminated Method of Elimination of Shortfall

63 percent Net benefit reductions (changing method of calculating COLA,

increasing age eligibility thresholds, and modifying benefit formula)

30 percent Lifting cap on taxable payroll

7 percent Extending coverage to newly hired state and local government employees

Joint Center for Political and EconomicStudies 3

Reno and Walker, How Would Seniors Fare—by Age, Gender, Race and Ethnicity, and Income—Under the Bowles-Simpson Social Security Proposals by 2070? Social Security Brief No. 38, NASI, September 2011

Why Do I Answer As I Do?Why Do I Answer As I Do?Social Security benefits are an essential

source of support for retirees.Thus, reducing benefits would impoverish

many future retirees.In particular, reducing benefits by raising

the age eligibility thresholds would disproportionately disadvantage some subpopulations.

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Social Security Benefits Are An Essential Social Security Benefits Are An Essential Source of Support for RetireesSource of Support for Retirees

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SSA, Income of the Population 55 or Older, 2008, Table 9.A3 at http://www.ssa.gov

Percent of Income from Social Security Benefits Among Retiree Households Ages 65+ (2008)

Reducing Benefit Levels Would Impoverish Many Reducing Benefit Levels Would Impoverish Many Future RetireesFuture Retirees

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SSA, Annual Statistical Supplement 2010, Table 5.A6 at http://www.ssa.gov

Average Monthly Retiree Benefit Payments, by Race (2009)

Life Expectancy at Birth, by Race and GenderLife Expectancy at Birth, by Race and Gender

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CDC, NCHS, Health, United States, 2010, Table 22 at http://www.cdc.gov/nchs/hus/contents2010.htm#table022

68.3

68.0

Under Bowles- Simpson Proposals Retiree Under Bowles- Simpson Proposals Retiree Benefits Would Be Reduced Notably by 2070 Benefits Would Be Reduced Notably by 2070

Amount of Projected Benefit Cut for African

Americans Under Bowles-Simpson Proposals (2070)

Percent of African Americans

Projected to Receive Benefit

Cuts Under Bowles-Simpson Proposals (2070)

Average Monthly Retiree Benefits

Received by African-American

Males (2009)

Average Monthly Retiree Benefits

Received by African-American

Males (2070)

10 percent or more 52 percent $1,120.00 $1,008.00 or less

20 percent or more 28 percent $1,120.00 $896.00 or less

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Reno and Walker, How Would Seniors Fare—by Age, Gender, Race and Ethnicity, and Income—Under the Bowles-Simpson Social Security Proposals by 2070? Social Security Brief No. 38, NASI, September 2011

Example: African-American Males

How Would I Revise Bowles-Simpson How Would I Revise Bowles-Simpson Proposals for Social Security Reform? Proposals for Social Security Reform?

• … delete modifications to PIA formula that would reduce benefits

• … delete proposed COLA calculation change

• … delete increase in age eligibility thresholds

• … delete proposal to lift cap on taxable wages

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How Would I Revise* Bowles-Simpson How Would I Revise* Bowles-Simpson Proposals for Social Security Reform? (cont’d)Proposals for Social Security Reform? (cont’d)

Add proposal: eliminate cap on taxable earnings and count all earnings toward benefits, but using a much flatter formula

Add proposal: treat all salary reduction plans as if they were 401(k) plans (i.e., tax them for Social Security and Medicare)

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* NB: Among the Bowles-Simpson Proposals, extending coverage to newly hired state and local government employees would be retained.

How Would I Revise Bowles-Simpson Proposals How Would I Revise Bowles-Simpson Proposals for Social Security Reform? (cont’d)for Social Security Reform? (cont’d)

• Suggested modifications on previous slides would generate more than enough revenue to cover the projected 75-year shortfall.

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Reno and Lavery, Fixing Social Security: Adequate Benefits, Adequate Financing NASI, October 2009

How Would I Revise Bowles-Simpson Proposals How Would I Revise Bowles-Simpson Proposals for Social Security Reform? (cont’d)for Social Security Reform? (cont’d)

• Revenue generated in excess of 75-year shortfall by suggested revisions could be used for purposes such as:–… those included in Bowles-Simpson proposals

(new special minimum benefit, and 5% increase in benefits for long-term recipients) –… and/or alternatives (e.g., paying widowed

spouses 75% of the couple’s prior worker benefits, and reinstating student benefit beyond ages of 18 or 19

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