Premature Rejection: Pelosi, Unions Nix Deficit Plan

Premature Rejection: Pelosi, Unions Nix Deficit Plan


Of all the tough belt-tightening and revenue-raising measures proposed in Erskine Bowles’ and Alan Simpson’s deficit-reduction draft proposal last week, none drew more condemnation than their proposals to fix Social Security. That’s too bad. Washington could use a glimmer of leadership right about now, and a bipartisan plan to fix Social Security’s funding gap would do the trick.

The Bowles-Simpson draft suggests that it might not be impossible to pull it off. The co-chairmen of the president’s fiscal commission proposed to hike the age at which recipients could claim full retirement benefits, from 67 to 69. It would tax a larger portion of the incomes earned by rich workers each year, while increasing their benefits at the back end.  It would use a stingier inflation measure to calculate retirees’ annual cost-of-living increases. The beauty of the plan is that it squeezes everyone a little, so no one should feel uniquely aggrieved. And it phases in at a pace so measured it’s practically glacial, so that everyone has time to prepare.

Maybe Democrats simply wanted to be the ones to say “Hell, no”
for a change — but the response is no more productive when they say it.

None of that, however, has mollified critics, the most vocal of whom are at the liberal end of the political spectrum. They range from Nancy Pelosi who called Bowles-Simpson “simply unacceptable,” to AFL-CIO president Richard Trumka, whose statement read, “The chairmen of the deficit commission just told working Americans to ‘drop dead,’” to liberal-leaning bloggers who had written off what they were calling “the cat food commission,” even before the co-chairs’ proposal last week. (The name refers, of course, to the old myth that some seniors are so poor they have to eat cat food.) Maybe Democrats simply wanted to be the ones to say “Hell, no” for a change — but the response is no more productive when they say it.

Most of the objections to Bowles-Simpson focus on the proposed increase in the age at which you qualify for full retirement benefits. Under current law, the full retirement age (FRA) is 67 for people born in 1960 or later; Bowles- Simpson proposes to let the FRA continue rising until it hits 69 for people born in 2008 or later making the first workers to face an FRA of 69 two years old — they’ll have time to prepare. The youngest age at which you could file for benefits would also gradually rise, from 62 to 64.

Whatever weaknesses the plan may have, indifference
to lower-income Social Security participants isn’t one of them.

Opponents say any increase in the retirement age is unfair to blue-collar workers, who can’t work deep into their 60s like people with desk jobs. But the Bowles-Simpson plan anticipates that and exempts retirees with physical jobs from the delayed FRA. The plan also increases the “progressivity” of the system, so that lower-wage workers get even higher benefits as a percentage of their working salaries than they do today. In fact, cutting relative benefits for higher-income earners — not the higher retirement age — is the proposal’s single biggest cost saver. Whatever weaknesses the plan may have, indifference to lower-income Social Security participants isn’t one of them.

The real problem with the Bowles-Simpson Social Security plan, apparently, is that it includes any benefit cuts at all. A debate in this fall’s Democracy Journal between the Brookings Institution’s Isabel Sawhill and Greg Anrig of the Century Foundation offered a glimpse at the fissures even among Democrats on the issue. Sawhill argues that cutting benefits as part of a far-reaching Social Security fix would benefit Democrats by proving that they can make the compromises needed to get entitlement spending under control.  Anrig takes a harder line:

For progressives to restore public faith not only in government but in themselves, they have to forcefully defend and build on their greatest successes, such as Social Security [and] Medicare... These programs improved security and opportunity for all generations of Americans. They don’t need to be cut; they need to be enlarged and strengthened.

You can understand Anrig’s principled stand, but voters seem to favor Sawhill’s flexibility. A Bloomberg poll leading up to the election showed that 80% of likely voters want compromise in Washington. (However, in one of the maddening mixed signals Americans have been sending on fiscal issues, other polls show that voters oppose raising the retirement age to 69 by a 60-40 margin.) Social Security, with its well-defined goal (actuarial balance over 75 years), relatively predictable costs and revenues, and its own dedicated source of income (the FICA tax) is the kind of controlled environment in which such a compromise just might flourish.

After all, Social Security has inspired improbable political alliances before. The first resulted in the Social Security rescue package in 1983. According to Steven Gillon, a political historian at the University of Oklahoma and author of The Pact: Bill Clinton, Newt Gingrich and the Rivalry that Defined a Generation, Social Security also brought together arch-rivals Bill Clinton and Newt Gingrich in 1997 — or nearly did. “Both men had begun to worry about leaving a political legacy,” Gillon recounts, “and Social Security reform was going to be it.” According to Gillon’s sources in Congress and the White House (including Erskine Bowles, then a Clinton adviser), the pair were on the verge of an agreement on Social Security reform. Then the Monica Lewinsky case broke and the moment for bipartisanship slipped away.

Could a comparable truce occur today? Both parties have sworn to uphold Social Security, and the pressure to show the voters some fiscal responsibility is almost palpable. The Democrats in particular may find compromise difficult, but consider the alternative. If nothing is done, the system faces an immediate 22 percent cut in benefits when the trust fund runs out in 2037. That’s a legacy no one wants.

Eric Schurenberg is Editor in Chief of the CBS Interactive Business Network

Reporter: Temma Ehrenfeld