Two Graphs that Every American Worker Should See

Apparently the Fiscal Commission believes that only the very poorest (those with career earnings in the range of $10,771) depend upon Social Security's benefits for security in old age--because they are the only ones the Commission spares from cuts. The middle and working class, it seems, could part with a huge slice of their benefits. The Commission's proposed cuts would hit the middle class, and hit them hard.

Of course, you would not know that if you only paid attention to the media's coverage of the various Commission reports. They make it seem like the proposals are just a spoonful of tough medicine for a nation gone wild.

To help shed some light on the matter, I made a chart and graph comparing annual benefits under current law and recent reform proposals for what the Social Security Administration calls a "medium" earner (career earnings of $43,084) [1] and a "high" earner (career earnings of $68,934). [2]

I think it's safe to say that a 65-year-old with average career earnings of $43,084 a-year relies on Social Security considerably in retirement. As this chart shows, their current annual benefit of $16,674, which is just 55% above the poverty line, would be cut by more than $2,300 under the Rivlin-Domenici plan, $4,000 under Bowles-Simpson and more than $7,000 under Ryan's plan.

Those with average career earnings of $68,934--a solid middle class salary, but still not what we would call "rich" by any means--currently receive $22,212 if they retire at 65. Under the Rivlin-Domenici plan they'd lose $2,500, and under Bowles-Simpson they'd lose close to $7,000--a whopping 36% cut. (Data on the cuts under the Ryan plan were not available.)

Bowles, Simpson and Rivlin have claimed time and again that we can "strengthen" Social Security--ie shore up its finances for the next 75 years--without hurting those who need it. In fact, they have made avoiding the sudden cuts that would occur in 2037 if Congress were not to act, their raison d'etre. Even incoming GOP Budget Committee chairman, Rep. Paul "Privatization" Ryan, has chimed in with his own violin playing about the cruelty we would be inflicting on seniors if we were not able to pay full benefits in 2037 when the Trust Fund is exhausted. Here is a precious quote from his Roadmap's website [4]:

Left on its present course, beneficiaries will face a 22% across-the-board benefit cut when the Social Security Trust Funds are exhausted. According to the 2010 Social Security Trustees Report, median income-earners now approaching retirement will receive benefit cuts in excess of $4,000. Even those who are currently on Social Security – those now 62 and older – may experience indiscriminate cuts in benefits at a time when they are increasingly reliant on the program. Lost in the heated rhetoric against reform efforts is the real pain that will be inflicted on seniors if we continue to cling to this unsustainable status quo.

(Click here [5] for the full Ryan quote, as well as similar remarks in the Bowles-Simpson proposal and the Rivlin-Domenici report.)

But the same Bowles & Simpson, who claim to be trying to save beneficiaries from the immediate 22% cut they will suffer if Congress takes no action to shore up the Trust Fund (which would be both an historical anomaly and a political impossibility), would end up only providing "medium" earners ($43,084) $200 more than if nothing was done. For the so-called "high" earners ($68,934), their proposed benefit cuts are even worse than if the Trust Fund were exhausted. $2,100 worse. So much for "strengthening" Social Security!

The fact is, two-thirds of our seniors rely on Social Security for a majority of their retirement income. No matter how poorly our 401(k)s are performing or how much home equity we've lost in the recession, Social Security is there for us.

That's why if the media won't speak up about these cuts, we must. We cannot let elite budget wonks living in the Beltway bubble conceal what they are trying to do to us. They are doing nothing less than pulling the rug out from under the middle class in this country. And they are getting away with it.

On November 30th, the Strengthen Social Security [6] campaign's National Call Congress Day [7], call your representatives and tell them how you feel. Tell them that the only people whose benefits should be cut are the lying bureaucrats on the President's Fiscal Commission.

Postscript for wonks: As you may have noticed on the graph, even under current law, benefits for people aged 65 are going down because the normal retirement age is now at 66 and will reach 67 in 2022. This is noteworthy. Before we begin raising the retirement age even further, should we not allow time to consider how the current changes affect retirement security and the labor market? The majority of beneficiaries claim benefits before the normal retirement age, choosing instead to take a 7% cut for every year below the NRA that they retire. For someone currently retiring at 62, that is a whopping 28% cut--for the rest of their lives! I'm betting that a whole lot of those people work in physically demanding jobs or have lost their job in late middle age. Otherwise, why would they take such a big cut?

Another thing. If anyone was wondering what makes Rep. Deutch's plan more generous, it is because he would index benefits to a special consumer price index (the CPI-E) created by the Bureau of Labor Statistics that is meant to be a more realistic estimate of the elderly's cost-of-living. The regular CPI-W does not weight medical costs in proportion to the chunk they take out of seniors' paychecks. This is really an important reform. All of the current reform proposals suggest adopting the chained CPI, which assumes the elderly can replace their current services with cheaper ones as prices go up. Again, this does not take into account medical services that cannot be easily replaced at a lower price. The SSA estimates it would result in a 0.3% cut in the COLA every year--beginning now, for current beneficiaries! That's 6% over 20 years. And we haven't even explored the full potential of the BLS's CPI-E! How come we have heard so little about Deutch's plan?

If you would like to know about my methodology in making the graphs, take a look at this explanation [8] by Nancy J. Altman, a nationally renowned scholar on Social Security and the Co-Director of Social Security Works & the Strengthen Social Security campaign.