[BREAKING - I may have been spun, but you can't spin a Dead Parrot. And Brad Delong raised similar objections more concisely. Andrew Samwick explains, too.]
Max Sawicky peers at the WaPo report suggesting that Bush plans to propose a change in the indexation of Social Security benefits. Max also refers us to a July 2004 CBO study which evaluated a similar plan put forth by the Bush Social Security Commission in 2001.
His gist - the Bush plan, inclusive of the benefits of the personal accounts, results in a reduction of benefits for everyone born after 1950, with the exception of workers in the lowest quintile - in that quintile, everyone born after 1970 takes a benefit cut. And that is not just a cut relative to current law, and current mandated benefits. Even in the supposedly dire scenario where the TrustFund is exhausted (around 2050) and only current revenues are available to pay current benefits, the hypothetical Bush benefit is less than the "current revenue" benefit.
OK, why would I get excited about that? Or, lacking excitement, is there some robust Rep response?
Some possibile counter-spin might include:
(a) The CBO study is irrelevant because Bush's final proposal will look waaay different. Color me dubious.
(b) The CBO study is not dynamically scored with sufficient dynamism.
Groan - how can I tell? The CBO does look at macro effects, and they tell us this:
Effects on the Macroeconomy
CSSS Plan 2, like other significant changes in Social Security policy, could affect the level of economic output through changes in the amount of labor that households supply to the economy and in the amount of money they save. Illustrative calculations suggest that under CSSS Plan 2, real (inflation-adjusted) gross national product (GNP) could be about half a percent higher by 2025--and about 3 percent to 4 percent higher by 2080--than it would be under current law.(16) That range of results comes from differing assumptions about how open the U.S. economy is to flows of foreign capital and how Social Security will be structured in the long run.
CBO analyzed the potential overall economic effects of CSSS Plan 2 using a model of economic growth that is suitable for assessing the macroeconomic impact of changes in Social Security policy. The model distinguishes between people of different ages, earning abilities, and earning histories. In the model's economy, people are forward-looking, adjust their behavior in anticipation of future changes in tax rates and benefits, and believe with certainty that those changes will occur.(17) The simulations were carried out under the "trust-fund-financed benefits" baseline scenario. Under that scenario, Social Security remains financially viable in the long run, once the trust funds have been exhausted, through cuts in benefits. Because of the complexity of calculating macroeconomic effects, some of the provisions of CSSS Plan 2 were simplified in the analysis. However, those simplifications would be unlikely to significantly alter CBO's general conclusions about the plan's effects.
CSSS Plan 2 would affect the economy primarily through its changes to scheduled benefits--which would alter households' expectations. Under the plan, benefits (adjusted for risk) would be reduced for most of the first 50 years, relative to those that people would receive under the baseline scenario, even after including payouts from individual accounts (see Figure 3B). The cut in benefits would reduce households' spending and boost their saving before retirement. Under CSSS Plan 2, the total budget deficit would be larger than it would be under the baseline scenario for the first several decades because a portion of payroll tax revenues would be redirected to individual accounts. Eventually, however, CSSS Plan 2 would cut outlays by more than it would cut revenues and have a positive effect on the budget balance in the long run (see Figure 2B). According to CBO's simulations, national wealth (the sum of private wealth and cumulative budget surpluses) would be 10 percent to 12 percent higher in 2080 than it would be under the baseline scenario....
I am having trouble seeing how folks can rally around this. I am also not sure why they have to - the Bush proposal can be "fixed" simply by promising more, which can be done by jiggling the indexation - make it COLA plus 1%, or wages less 1%, or something a bit more saleable, however "kludgy". This proposal strikes me as just a little too intellectually honest, and a little too light on guidance from the political overlords.
MORE: Yes, I am gloomily aware that a big part of the CBO wealth result is almost surely due to reduced federal deficits, and yes, I can foresee other proposals for reducing same.
UPDATE: The Dead Parrots are on this, and are scratching their heads with more flair than I, but they haven't exactly rebutted this. [Follow their updates - their rebuttal is pretty compelling, and Brad DeLong is troubled for similar reasons - what exactly is the "right" way to adjust for equity risk, and how is the CBO doing it here?
UPDATE 2: Josh Marshall of TPM links to a WS Journal story about Republican Senators getting some hand-holding from Karl Rove.
My own feeling is that the inevitable will come to pass: SS becomes a true need-based old-age welfare program (ie, "need indexed" - which it already is to an extent, since SS benefits are taxed), and we have personal accounts. This wouldn't be such a bad thing, IMO.
One thing that annoys the heck out of me is how people discussing the President's plan are tripping over themselves with the silly "4% of 6.5%" stuff. The truth of the matter is that the proposal is for 4% of the SS wages to go to the account, with the rest to go to the regular SS program, as well as the entire "employer's contribution".
(An aside: I'd prefer to see the hidden "employer's contribution" abolished - just bump up salaries by that amount, and show the entire tax. Hidden taxes are evil.)
As to indexing, price indexing is what should be done. There's no real reason for SS to be increasing in real terms even after one has retired.
Posted by: Foobarista | January 05, 2005 at 02:21 AM
As to indexing, price indexing is what should be done. There's no real reason for SS to be increasing in real terms even after one has retired.
I am highly confident that for retirees, the annual benefit is indexed to inflation.
The wage indexing comes in to play when calculating the future benefit due to current workers. For example, a dolar contributed five years ago "ought to" be adjuted for inflation, or interest rates, or something. Well, the "something" is the wage index, and the goal is to preserve the relative value of someone's contributions during their working life.
Posted by: TM | January 05, 2005 at 06:21 AM
Well, duh. I was born in 1951 (Dr Weevil in '53). I have assumed my whole adult life that my SS benefit would be reduced from what has been "promised." It's actually an optimistic assumption, since I've assumed I would have other resources and would fail a means test.
The further reduction for people born after 1970 is worrying, those are my kids they're talking about.
Posted by: steevil (Dr Weevil's bro Steve) | January 05, 2005 at 08:50 PM
"I have assumed my whole adult life that my SS benefit would be reduced from what has been "promised."
The further reduction for people born after 1970 is worrying, those are my kids they're talking about."
Don't worry...the same subversive thought manipulation that was done to you and our peers over the last 15 years to make you/us ACCEPT a reduction in "promised" benefits...will be done again so that your/our children will quietly acquiesce as THEY are fucked over.
Posted by: Liberal AND Proud | January 06, 2005 at 11:04 AM
The simple fact of the numbers of us born 1945-1955 is the problem hasn't occurred to you?
Posted by: steevil (Dr Weevil's bro Steve) | January 06, 2005 at 01:00 PM
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