{"id":5335,"date":"2016-09-17T20:16:54","date_gmt":"2016-09-18T02:16:54","guid":{"rendered":"http:\/\/admin.patheos.com\/blogs\/janetheactuary\/?p=5335"},"modified":"2016-09-17T20:24:47","modified_gmt":"2016-09-18T02:24:47","slug":"expandsocialsecurity-in-practice","status":"publish","type":"post","link":"https:\/\/www.patheos.com\/blogs\/janetheactuary\/2016\/09\/expandsocialsecurity-in-practice.html","title":{"rendered":"#ExpandSocialSecurity, in practice"},"content":{"rendered":"\n<\/head>

\"https:\/\/commons.wikimedia.org\/wiki\/File:Social_security_card.gif;<\/p>\n

So Clinton and the Democrats have as part of their platform<\/a> expanding Social Security.<\/p>\n

\u201cWhat,\u201d you may have asked, \u201cdo they mean by this?\u201d<\/p>\n

\u201cExactly how,\u201d you may have wondered, \u201cdo they plan on going about this?\u201d<\/p>\n

Now we know. \u00a0Rep. Linda Sanchez has introduced a bill, H.R. 5952, the Strengthening Social Security Act of 2016, which aims to make benefits more generous in several ways, and it sure seems as if this bill is essentially the Democrat\u2019s platform put into legislation.<\/p>\n

Now, when this first came across my twitter feed last week, I had a rather difficult time finding out more about this, but ultimately found a description at the Social Security Administration website, in the form of an analysis of the bill\u2019s costs<\/a> in its various provisions, as worked out by the Chief Actuary\u2019s office. \u00a0This is actually a rather nifty website<\/a>, as they provide analysis for all plans that come across their desk.<\/p>\n

So what are the proposals?<\/p>\n

Recall that the existing formula is based on \u201cbendpoints\u201d: \u00a0in 2016, the basic benefit is 90% of wage-indexed average earnings up to $10,272 plus 32% of the tranche of average wages from $10,272 to $61,884, and 15% of the tranche of wages above\u00a0$51,884 (see here<\/a>), up to the maximum, based on the maximum average pay via the year-to-year taxable wage maximums.<\/p>\n

Thus, the proposal begins<\/strong> with a gradual phase-out of the Social Security taxable ceiling. \u00a0This, of course, moves Social Security even further away from true \u201cearned benefits\u201d and into a redistributive benefit. \u00a0There is a benefit accrual, but it is so laughably small as to be an insult \u2014 a pay replacement rate of 5% on pay above the old wage base, and that\u2019s averaged separately, so that it can\u2019t serve to boost the \u201cregular\u201d average for periods of low pay.<\/p>\n

Second<\/strong>, the proposal boosts this formula, for the lowest tranche of pay, up to a 95% factor. \u00a0 This benefits everyone, of course, but is proportionately most beneficial for low-wage workers.<\/p>\n

Third<\/strong>, the first bend point is itself increased, to 15% above the current level.<\/p>\n

Fourth<\/strong>, use the CPI-E, the consumer price index for the elderly<\/a>. \u00a0This measure of CPI uses as its basket of goods the typical expenditures of the elderly, that is, households with at least one person age 62 or older. \u00a0This means there\u2019s less weight for items like transportation, education, and apparel, and more for housing and medical care. \u00a0Because housing and medical care\u2019s costs have been rising at rates higher than general inflation, this inflation measure would produce, as long as these trends continue, larger COLA increases. \u00a0(But, man, oh man, can you imagine the hue and cry if Medicare controls plus housing market stagnation produce lower CPIs than the CPI-U would generate?)<\/p>\n

Fifth<\/strong>, provide for an alternate surviving spouse benefit \u2014 either the traditional benefit, or 75% of the combined own and spouse\u2019s benefits, whichever is greater. \u00a0This changes survivor\u2019s benefits from an aid for the long-term \u201cstay-at-home\u201d spouse without resources of her own, to a perk or marriage in general.<\/p>\n

Now, long-time readers know that the Jane Plan<\/a> proposes a flat benefit for everyone, paid from general revenues, paired with a separate, fully-funded, purely income based component. \u00a0So, yes, it\u2019s redistributive, but it\u2019s honest and transparent about it. \u00a0I should also mention that the United Kingdom recently transitioned from a pay-based benefit not that different from Social Security to a flat benefit, by gradually reducing the value of the upper tranche and increasing the value of the lower tranche, so similar to this process of moving from 90% to 95%, but paired with dropping the 32% level down year-by-year.<\/p>\n

So that means, that, taken in isolation, I don\u2019t have any strong opinion on whether the first level benefit should be 90% or 95% or 100%. As to the CPI-E vs. CPI-U, well, I don\u2019t have enough expertise to determine whether the former is \u201cbetter\u201d in an objective sense.<\/p>\n

But consider this: \u00a0here\u2019s the graph that the SSA provides of their analysis of the long term revenue and expenditures under the proposal:<\/p>\n

\"https:\/\/www.ssa.gov\/oact\/solvency\/LSanchez_20160909.pdf\"
https:\/\/www.ssa.gov\/oact\/solvency\/LSanchez_20160909.pdf<\/figcaption><\/figure>\n

The red dotted line is the cost of the proposal, and the grey line is the cost of Social Security as it exists today. \u00a0Right now, we spend about 5% of GDP; this is slated to rise to 6% of GDP by the late 2030s, dip slightly as baby boomers die, and then grow again as the comparatively small Baby Bust is increasingly joined in retirement by the Millenials. \u00a0The drop that occurs after 2032 or so? \u00a0That represents the exhaustion of the Trust Fund and the immediate cut in benefits down to actual FICA revenues when that occurs.<\/p>\n

Now, the more generous level of spending of proposal is evident in the rapid climb of that red line, which grows to 6.5% in the late 2040s and reaches nearly 7% later (though it\u2019s not clear to me why it continues to climb so much. \u00a0But what\u2019s shocking about this proposal is this: \u00a0even with a funding mechanism of removing the pay cap and providing very little benefit in return, there is still a substantial funding gap<\/strong>. \u00a0In fact, removing the wage ceiling isn\u2019t even enough to fully fund present-law Social Security benefits, on an ongoing basis. \u00a0It seems to me that, if you were going to propose a Social Security bill, even if your primary objective was to bump up benefits, you\u2019d at least be sure it was in long-term actuarial balance! \u00a0(and, though I hate to give them any ideas, you\u2019d think that your next step, after removing the wage base, would be to apply the tax to all income, rather than just wage income \u2014 which, I\u2019ll point out, is what the Jane Plan does.)<\/p>\n

So bottom line: \u00a0I\u2019d label this as a \u201cSocial Security Reform fail.\u201d<\/p>\n

\u00a0<\/p>\n

image:\u00a0https:\/\/commons.wikimedia.org\/wiki\/File:Social_security_card.gif; originally produced by the Social Security Administration and in the public domain<\/p>\n<\/body><\/html>\n","protected":false},"excerpt":{"rendered":"

So Clinton and the Democrats have as part of their platform expanding Social Security. \u201cWhat,\u201d you may have asked, \u201cdo they mean by this?\u201d \u201cExactly how,\u201d you may have wondered, \u201cdo they plan on going about this?\u201d Now we know. \u00a0Rep. Linda Sanchez has introduced a bill, H.R. 5952, the Strengthening Social Security Act of […]<\/p>\n","protected":false},"author":2209,"featured_media":4410,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[450],"tags":[54],"class_list":["post-5335","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-actuarial","tag-social-security"],"yoast_head":"\n#ExpandSocialSecurity, in practice<\/title>\n<meta name=\"description\" content=\"So Clinton and the Democrats have as part of their platform expanding Social Security. "What," you may have asked, "do they mean by this?" 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