|
||||||||
What’s True and What`s False About The Social Security Notch Issue (Press Release) by Michael J. Zabko, Executive Director, TREA Senior Citizens League A proposal in Congress to remedy the Social Security "Notch" is drawing new attention to an issue that’s been under debate in Congress for almost 20 years. Recently, in the Holland Sentinel newspaper, allegations were made by a Social Security Administration official, Dave Roth, that the Notch crusade is "fueled by myths and misinformation," and that "it is perhaps time to bring more light and less heat to the ‘Notch’ debate." We agree. The "Notch" refers to a group of senior Americans who are affected by changes that were made in 1977 to the Social Security benefit formula. Because of a quirk in the way the formula was set up by Congress and the effects of double digit inflation during the Carter years, an estimated 12 million individuals receive lower Social Security benefits than those born before 1917 or after 1926. The average "Notch" baby receives approximately $1,000 per year less in benefits than the average retiree born outside the "Notch" years. One of the first areas of contention is the fact that the Social Security Administration and legislators in Congress do not agree on who is affected by the Notch problem. The Social Security Administration contends that the term "Notch" refers to the difference in Social Security benefits paid to people born 1917 through 1921, while the new proposal in Congress, sponsored by Representative Mark Neumann (R-WI) would apply to those born 1917 through 1926. Notch advocates who support the ten year period explain that when benefits for the retirees with average earnings are plotted on a chart they form a "V" with the deepest point falling for those born 1921. Benefits then begin to rise again for those born 1922 until at year 1926 they are about the same as those born 1916. Since the 1922-1926 group also receives lower benefits, Notch reform advocates contend they should be included in any legislative remedy to correct the Notch. Mr. Roth argues that those born 1910-1916 are "bonanza babies" and have received an unintended windfall. He makes the assertion that a "Notch" correction would theoretically extend this windfall. A closer look at the proposed bill however reveals that the "Notch Fairness Act " would give those born 1917 through 1926 a choice of receiving either an improved monthly benefit for a five-year period, or four annual lump-sum installments of $1,250 each for a total of $5,000. For "Notch" babies who have lost on the average $18,000 in benefits since they retired, this can hardly be called a windfall. A second cause of disagreement in the Notch debate is the findings of a 1994 commission, which studied the Social Security Notch issue. The Commission’s report concluded that "benefits paid to those in the ‘notch’ years are equitable, and no remedial legislation is in order." Opponents to reform, such as Mr. Roth, point to the fact that both the General Accounting Office and the American Association of Retired Persons (AARP) agreed. The evidence shows, however, that the commission was "weighted"— not one single member of the commission supported Notch reform. On the contrary, a number of members, including commission chairman Robert Myers, were on the record as opposing Notch reform prior to being appointed. AARP’s support for the Commission decision is also no indication of broader member support. AARP has at times taken surprising positions, such as supporting the Medicare Catastrophic Coverage Act in 1988. The Act proved so unpopular with seniors, angry at having to pay the entire cost of their new benefits, that it was hastily repealed in the next session of Congress. One of the most erroneous contentions, however, is the conclusion drawn by the Congressional Research Service in a July 15, 1992 report that, "Notch babies are part of a group that is receiving the highest benefits that have ever been paid or are projected to be paid over the life of the Social Security program." This is simply not supported by facts, because Notch babies cannot be lumped into a group with the earlier retirees. The 1977 Social Security Amendments made changes to the formula which is used to calculate the primary insurance amount on which the monthly benefit is based. Retirees born before and during 1916 have their benefits calculated in a different manner than those born after 1916. Those born prior to and during 1916 were required to use the old-law formula for determining benefits. Those persons on the other side of the dividing line, (i.e., those born after 1916) were not given the option to use the old-law benefit formula. They were required to use the new wage indexing formula or, if a higher benefit would result, a modified version of the old-law formula which did not allow the use of earnings after the year of attaining age 61 and did not provide for cost-of-living increases after 1978 and prior to the year the individual reached age 62. The report of the Senate Finance Committee on the 1977 amendments includes a table showing the projections out to 2050 of the benefits and replacement rates under their present law at the time and under the 1977 bill. The table in the report clearly indicates that there would be a substantial difference in benefit levels between the old and new systems within a short time after implementation. Finally, Mr. Roth argues that reserves of the Social Security Trust Fund should not be used to extend the unintended windfall to additional current retirees. We also agree. Representative Neumann’s bill, "The Notch Fairness Act, " would provide the estimated capped cost of $60 billion by offsetting cuts in pork and wasteful government spending. For more information about TREA Senior Citizens League and the Notch issue, send a business-sized, self-addressed envelope and $1 shipping and handling to: TREA Senior Citizens League, Dept. W810, 909 N. Washington St., #301, Alexandria, VA 22314.
| ||||||||
|
|
||||||||
