By Andrew Dobelstein
President Obama’s proposal to restrict the growth of Social Security by changing annual cost-of-living adjustments (COLAs) from the present Consumer Price Index (CPI) to a Chained Consumer Price Index represents a disingenuous departure from his earlier position to hold fast on Social Security. Such a proposal itself would have little effect on either Social Security benefits or on the long-term Social Security Trust Fund needed to satisfy future beneficiary claims. The Congressional Budget Office recently estimated that a chained CPI (CPI/U) “would increase, on average, by 3 percentage points more slowly per year than will the existing CPI,” and that Social Security’s total outlays would “decline by 4 percent, from currently scheduled outlays.” This option, CBO estimated, would improve the 75-year trust fund balance by only 0.2 percentage points of GDP and would extend the trust fund exhaustion date by four years at the most. (CBO, 2010)
The real hazard in the president’s proposal comes from Including Social Security in deficit reduction negotiations for at least two reasons. First, Social Security is not part of the deficit. In fact, it may be the only federal program with a surplus in its Trust Fund. Clearly, there have been confusions about how to account for surpluses in the fund. Congress approved the use of a “unified” budget by including Social Security Trust Fund operations in the 1974 budget process, and accounting for Social Security taxing, spending and its reserves has bounced back and forth: off-budget from 1935-1968; on-budget from 1969-1985; off-budget from 1986-1990, for all purposes except computing the deficit; and off-budget for all purposes since 1990. Even before President Bush proposed “privatizing” Social Security, Republican lawmakers have been trying to appropriate these government-held funds.
There is a second, more compelling danger from the president’s proposal to change the COLA. Such a proposal only confuses and compounds Social Security’s long-range problem. Social Security is solvent for at least 20 years under current legislation, but the growing number of beneficiaries on the one hand, and the shrinking number of workers relative to Social Security beneficiaries will only continue to exacerbate Social Security’s long-range problems. Ever since its beginning, financing Social Security has been controversial, and over the years Congress has agreed to incremental changes in its financial and benefit structure, only to discover that additional incremental changes quickly are needed. President Obama’s willingness to include Social Security in debt negotiations simply re-opens longstanding funding disputes before there is sufficient intelligence available to guide a debate over the present nature of Social Security and how it must be financed.
We need to keep in mind that today Social Security provides financial benefit to more 50 million people, over 18 percent of the population, that only 70 percent of those beneficiaries are retired workers, that more children receive Social Security payments than children who receive public welfare, and that Social Security’s redistributive formula has kept 40 percent of the elderly who would otherwise be poor out of poverty. Social Security is no longer our grandmother’s retirement program. It has become a comprehensive social insurance program, and until this reality is seriously explored, politically expedient proposals like changing the COLA are useless and damage Social Security’s credibility. A changed CPI? Dangerous political candy.
Andrew Dobelstein, Ph.D.
Professor Emeritus Social Welfare
University of North Carolina at Chapel Hill