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The problem with Chris Christie's plan to fix Social Security

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Editor’s note: This article first appeared on The Hill. Click here for the original post.

Last week, Gov. Chris Christie (R-N.J.) dedicated time to champion entitlement reform at a 4-stop tour through New Hampshire. The governor said “Washington is afraid to have an honest conversation about Social Security, Medicare and Medicaid with the people of our country. I am not.”

So let’s be honest.

The Trustees will soon release the 2015 Trustees Report which will give us new insight to the financial imbalances in Social Security. In the report issued last year, the Trustees projected that the financing constraints of the system will emerge in 2033, forcing a 23 percent reduction in benefits. That exhaustion point means that someone who turns 67 today on average expects to outlive scheduled benefits.

To be honest, the proposal that Christie laid out does not “fix” Social Security. The changes do not even assure us that Social Security will function for 75 years, roughly the time to get most existing contributors through retirement. The Committee for a Responsible Federal Budget projects that his changes create about 60 percent of the savings necessary to kick the can once again.

The biggest problem with Christie’s proposal is that the components do not address the structural issues within Social Security that are causing the imbalances reported by the Trustees. The package in total simply takes the projected reduction of benefits and codifies on whom the reductions will fall.

His proposal calls for the normal retirement age to increase gradually to 69. What does a change in retirement age mean to someone who is 50? The person can still retire at 67, but with the lower benefit levels offered by early retirement. Those rules translate into a 13.3 percent reduction of benefits for someone who elects to keep the retirement age that he has today.

This change would make sense if the problems within Social Security derived from increases in life expectancy of future retirees. The Social Security Administration projects that the life expectancy of a retiree will rise about 2.5 years between 1980 and 2030. If adopted, Christie’s plan would  increase the normal retirement age by 4 years over that time.

While Christie is telling the truth that Americans are living longer, he isn’t telling the whole truth. The research of the Social Security Administration reveals that the largest increases in life expectancy occur at a time of life when people are generally contributing to rather than collecting from Social Security. 

Christie’s proposal also includes the adoption of the Chain-CPI for future COLA adjustments. He says that this measure tracks inflation more accurately. This, however, is not true.

If we are going to be honest, Chain-CPI does not measure actual inflation. It measures in part how people respond to inflation. If I decide, for example, that my health insurance is too expensive, and increase my deductible so that my premium remains the same, Chain-CPI says that the cost of living hasn’t changed because I use less expensive insurance.

The use of Chain-CPI is a benefit cut which reduces buying power of benefits over time. This alternative is a very strange way to fix old-age insurance because the change progressively reduces benefit levels as someone ages. The use of Chain-CPI for Social Security’s COLAs is somewhat like fire insurance which decreases its coverage as more rooms of a house burn.

The governor’s proposal would introduce the idea of means-testing the program. While some estimate that this change will save the program a lot of money, this alternative breaks a founding principle of the program. Social Security should provide benefits without a means or needs test. 

The reasoning for this principle is sound. The program was created to lower the likelihood that a retiree might fall into poverty-ridden old-age. A means-test tends to discourage the savings that actually prevents poverty-ridden old-age. This approach is a strange way to fix Social Security. 

If we are going to be honest, the worker who is 50 and younger is likely better off rejecting Christie’s proposal, and accepting the estimated 23 percent reduction in benefits when the Trust Fund is exhausted. The governor’s vision of Social Security offers even less benefits, and less protection of those benefits. It secures the future mainly for politicians who get to argue about who is ‘fortunate enough not to need’ Social Security as today’s workers approach retirement.

But let’s be completely honest. Governor Christie’s solution is a stop-gap measure that solves the problems for today’s politicians rather the concerns of the retirees who depend upon the system. In 20 years, today’s 50 year-old will be back at the table of politics explaining to his children’s generation that Social Security will work if they just accept less.


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