Congressional leadership is moving forward on legislation to reform Social Security — including benefit cuts favored by Federal Reserve Chairman Alan Greenspan. Despite polls showing that Americans overwhelmingly oppose individual accounts, President Bush, the House, and Senate leadership are continuing to press on in the face of opposition from Democrats and some Republican moderates.
Recently President Bush proposed a plan supported by Alan Greenspan, that would cut initial benefits for future high and middle-earning workers while keeping the benefits of lower earners at their current promised level. This plan is not well understood and, if enacted, will likely result in cuts in Cost-of-Living Adjustments (COLAs) for current retirees as well. As this issue goes to press, the House is expected to have a bill in June and the Senate before August.
Most Americans do not yet understand the scope of these changes or why the COLA would be cut. Put simply, legislation containing the plan would need to specify which Consumer Price Index (CPI) would be used to calculate Social Security benefits. TSCL believes this would almost certainly be the more slowly growing "chained" CPI advocated by Fed Chairman Greenspan.
According to The Wall Street Journal, the White House contacted the Bureau of Labor Statistics late last year for information on the "chained" CPI and its relevance for indexing government programs and taxes. Greenspan has for the past eight years repeatedly urged Congress to adopt the more slowly-growing index, than the index that is currently used to calculate COLAs, saying that the current COLA overstates inflation and thus "overpays" seniors.
TSCL studies have found that had the chained CPI been used to calculate COLAs in recent years the annual COLA would have been cut by about 14%. While that may not sound like much, the financial impact of a more slowly-growing COLA is cumulative in nature, having its deepest impact when retirees are older and more likely to have high-cost health care needs. For example, if the government had adopted the chained CPI to calculate COLAs in 2001, a senior who retired at age 65 with an average monthly benefit of $852 would, by age 85, receive an estimated $74 per month or $866 a year less in benefits.
TSCL is fighting these cuts. The president and many proponents of private accounts under Social Security have repeatedly promised that the benefits of current retirees would not be touched. TSCL believes that current COLAs are too low because they do not accurately reflect the portion of income Social Security recipients must spend on health care, and we support legislation that would provide a higher, more fair COLA. For Congress to adopt an even more slowly growing CPI to index Social Security benefits would be reneging on the promise not to cut benefits for current retirees, because it would cut COLAs.
Sources: Testimony of Alan Greenspan Before the Senate Committee on Aging, March 15, 2005. "Social Security: Looking Back, Looking Ahead," Karlyn Bowman, Roll Call, Wednesday, May 4, 2005. "House GOP Eye Social Security Draft," The Associated Press, April 29, 2005. Testimony of Alan Greenspan on The Consumer Price Index Before the Senate Committee on Finance, January 30, 1997. "2005 Chained CPI Study, Retiree With Average Benefit $852," Mary Johnson for TSCL, February 14, 2005.
June 2005
