The Super Committee and Social Security: Should the Bowles-Simpson Proposals Be on The Table? Comments by Wilhelmina A. Leigh Senior Research Associate Joint Center for Political and Economic Studies wleigh@jointcenter.org 16 September 2011 Rayburn House Office Building

Should the Bowles-Simpson Proposals Be On The Table? No, not all of them If the Bowles-Simpson proposals were revised so that the proportion of the 75- year shortfall to be eliminated by increasing revenue were to exceed the proportion to be eliminated by reducing benefits, then the entire package of proposals should be on the table. Joint Center for Political and Economic Studies

Percent of Shortfall Eliminated Method of Elimination of Shortfall Bowles-Simpson: Percent of Shortfall Eliminated by Method of Elimination Percent of Shortfall Eliminated Method of Elimination of Shortfall 63 percent Net benefit reductions (changing method of calculating COLA, increasing age eligibility thresholds, and modifying benefit formula) 30 percent Lifting cap on taxable payroll 7 percent Extending coverage to newly hired state and local government employees Reno and Walker, How Would Seniors Fare—by Age, Gender, Race and Ethnicity, and Income—Under the Bowles-Simpson Social Security Proposals by 2070? Social Security Brief No. 38, NASI, September 2011 Joint Center for Political and Economic Studies

Why Do I Answer As I Do? Social Security benefits are an essential source of support for retirees. Thus, reducing benefits would impoverish many future retirees. In particular, reducing benefits by raising the age eligibility thresholds would disproportionately disadvantage some subpopulations. Joint Center for Political and Economic Studies

Social Security Benefits Are An Essential Source of Support for Retirees Percent of Income from Social Security Benefits Among Retiree Households Ages 65+ (2008) SSA, Income of the Population 55 or Older, 2008, Table 9.A3 at http://www.ssa.gov Joint Center for Political and Economic Studies

Reducing Benefit Levels Would Impoverish Many Future Retirees Average Monthly Retiree Benefit Payments, by Race (2009) SSA, Annual Statistical Supplement 2010, Table 5.A6 at http://www.ssa.gov Joint Center for Political and Economic Studies

Life Expectancy at Birth, by Race and Gender 68.3 68.0 CDC, NCHS, Health, United States, 2010, Table 22 at http://www.cdc.gov/nchs/hus/contents2010.htm#table022 Joint Center for Political and Economic Studies

Under Bowles- Simpson Proposals Retiree Benefits Would Be Reduced Notably by 2070 Example: African-American Males Amount of Projected Benefit Cut for African Americans Under Bowles-Simpson Proposals (2070) Percent of African Americans Projected to Receive Benefit Cuts Under Bowles-Simpson Proposals (2070) Average Monthly Retiree Benefits Received by African-American Males (2009) Average Monthly Retiree Benefits Received by African-American Males (2070) 10 percent or more 52 percent $1,120.00 $1,008.00 or less 20 percent or more 28 percent $896.00 or less Reno and Walker, How Would Seniors Fare—by Age, Gender, Race and Ethnicity, and Income—Under the Bowles-Simpson Social Security Proposals by 2070? Social Security Brief No. 38, NASI, September 2011 Joint Center for Political and Economic Studies

… delete modifications to PIA formula that would reduce benefits How Would I Revise Bowles-Simpson Proposals for Social Security Reform? … delete modifications to PIA formula that would reduce benefits … delete proposed COLA calculation change … delete increase in age eligibility thresholds … delete proposal to lift cap on taxable wages Joint Center for Political and Economic Studies

How Would I Revise* Bowles-Simpson Proposals for Social Security Reform? (cont’d) Add proposal: eliminate cap on taxable earnings and count all earnings toward benefits, but using a much flatter formula Add proposal: treat all salary reduction plans as if they were 401(k) plans (i.e., tax them for Social Security and Medicare) * NB: Among the Bowles-Simpson Proposals, extending coverage to newly hired state and local government employees would be retained. Joint Center for Political and Economic Studies

How Would I Revise Bowles-Simpson Proposals for Social Security Reform How Would I Revise Bowles-Simpson Proposals for Social Security Reform? (cont’d) Suggested modifications on previous slides would generate more than enough revenue to cover the projected 75-year shortfall. Reno and Lavery, Fixing Social Security: Adequate Benefits, Adequate Financing NASI, October 2009 Joint Center for Political and Economic Studies

How Would I Revise Bowles-Simpson Proposals for Social Security Reform How Would I Revise Bowles-Simpson Proposals for Social Security Reform? (cont’d) Revenue generated in excess of 75-year shortfall by suggested revisions could be used for purposes such as: … those included in Bowles-Simpson proposals (new special minimum benefit, and 5% increase in benefits for long-term recipients) … and/or alternatives (e.g., paying widowed spouses 75% of the couple’s prior worker benefits, and reinstating student benefit beyond ages of 18 or 19 Joint Center for Political and Economic Studies