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December 07, 2011 at 07:44 AM
In December 2010, the National Commission on Fiscal Responsibility and Reform, a bipartisan committee created by President Barack Obama to identify policies to improve the fiscal situation in the medium term and develop sustainable financial practices in the long term, made recommendations to improve Social Security.
Following the supercommittee’s failure to make recommendations on how to reduce the deficit, the Urban Institute released on Monday a paper, “How Would the President’s Fiscal Commission’s Social Security Proposals Affect Future Beneficiaries?” analyzing the potential effects of the commission’s recommendations. The institute found that high-income seniors “several decades from now” could see their benefits reduced, but that seniors at the bottom of the lifetime earnings distribution would be “largely shielded” from significant reductions.
The proposal, put forth by Commission co-chairs former White House Chief of Staff Erskine Bowles and former Sen. Alan Simpson in November 2010, included recommendations to increase the amount of earnings subject to the Social Security payroll tax; modify the benefit formula to slow future benefit growth; replace the current CPI in cost-of-living-adjustments with the chained CPI; index the full retirement age as well as the early retirement age to life expectancy to maintain a fairly constantly ratio of working years to retired years; cover new state and local workers under Old-Age, Survivors, and Disability Insurance.
Of the 18 members on the commission, 11 voted in favor of the recommendations. However, 14 affirmative votes were needed to pass the report to Congress.
Authors Melissa Favreault and Nadia Karamcheva found that by 2070, the commission’s proposals would cut benefits to the top 20% of lifetime earners by one-quarter, compared with the bottom 20% who would lose 3% off their monthly checks.
If lawmakers wait until the Social Security Trust fund is exhausted, the authors write, “the required adjustments to OASDI benefits and/or payroll taxes would need to be considerable. Congress could avert these sorts of adjustments by starting to phase in provisions that would improve the program’s long-run financial status over the next two and a half decades.”
The report notes that there is a high degree of sensitivity in their analysis depending on which assumptions analysts use in their projections. As such, it’s important to focus on “relative differences across options, including counterfactuals like payable or feasible benefits, using consistent metrics, rather than focusing on any particular percentage or other value to summarize a complex set of interacting provisions like those in the NCFRR proposal.”
