The Republic of T.

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Word To The Deficit Commission

A word of advice to the folks at the National Commission on Fiscal Responsibility and Reform: it may be time to "slow your roll" as, we used to say where I come from. Based on their own admissions, and Alan Simpson’s bedraggled look at the commission’s surprise press conference to announce their "chairman’s mark," it’s clear the commission is in too big of a rush to do justice to what they admit is a huge job.

They could start by really making Social Security separate from deficit reduction — as the commission’s co-chairs stressed that it is in their draft recommendations.

The commission has big plans for Social Security: a higher retirement age, lower cost of living increases, increasing the contribution ceiling, etc. No surprises there, but according to the co-chair’s draft recommendations, the plan would not count Social Security savings toward deficit reduction.

The plan would reduce Social Security benefits to most future retirees — low-income people would get a higher benefit — and it would subject higher levels of income to payroll taxes to ensure Social Security’s solvency for at least the next 75 years.

But the plan would not count any savings from Social Security toward meeting the overall deficit-reduction goal set by Mr. Obama, reflecting the chairmen’s sensitivity to liberal critics who have complained that Social Security should be fixed only for its own sake, not to balance the nation’s books.

That sounds like a good place to start. If Social Security doesn’t factor into the commission’s goals of deficit reduction, then Social Security shouldn’t be a part of the commission’s report or anything else that comes out of the commission.

The fiscal commission could lighten its own load and more effectively focus their efforts "like a laser beam" on deficit reduction by adopting a simple rule for their proceedings and their real final recommendations: Hands off Social Security.

But it sounds like the commission wrapped up its work too early, and without meeting its goals, as Steve Benen points out.

But it’s worth emphasizing a rather important detail: these recommendations are not the result of a commission consensus. On the contrary, they’re reportedly included in a draft published by the commission’s chairmen — former Clinton White House chief of staff Erskine Bowles, and former Wyoming Sen. Alan Simpson (R).

In other words, Simpson and Bowles have all kinds of ideas about raising the retirement age and cutting Medicare benefits, but that’s not the collective judgment of the commission they’ve led.

At this point, the two chairs still hope to get the support of 14 of the 18 members, but that appears to be a stretch, and it’s likely members won’t even vote at all. One also assumes the chairs would also love the White House to embrace their document, but I’m guessing that’s unlikely, too.

What’s the rush, exactly? Whatever one thinks about the fiscal commission — the reasons for its creation, and whether deficit reduction should be a high priority or not — the job it has taken on is too big for a commission only created in February of this year to have all wrapped up in November. I understand the holidays are coming, and just about everyone wants a break from what’s been an exhausting political year. But, seriously, isn’t this too important to rush?

But the commission needs to go back to the drawing board. Social Security is too important to too many Americans to be tossed into the commission’s basket when the draft report issued by the commission’s chairmen (without a consensus from the panel) places Social Security outside the scope the fiscal commission’s work. If we need to look at Social Security, it deserves more attention than the fiscal commission can really give it, anyway.

When you’ve bitten off more than you can chew, the solution is to spit some of it out. So, the commission should quietly remove Social Security from it’s plate.

Then, perhaps they can start over, and this time really give the deficit it’s full attention without the distraction of Social Security. America needs and deserves more than a rushed draft report; that is, if the deficit is important enough to rate more than the commission’s unfinished work and the chairmen’s draft proposals.

The commission needs to start again, with a narrow focus on deficit reduction and without the distraction of Social Security, and do the hard work of building a consensus and presenting solutions that all the members of the commission can stand behind.

Otherwise, what’s the point of a panel that tries to do work outside its scope, without finishing the work it was intended to do in the first place?

One Comment

    By Emeritus Professor of Mathematics, John M. Bachar, Jr.
    November 2010

    Starting with President George W. Bush, there has been an incessant effort by Wall Street, wealthy investors, bankers, conservative politicians, and others, to privatize the Social Security retirement system (official name: OASDI Trust Fund – Old-age and Survivors Insurance and Federal Disability Insurance Trust Fund). OASDI is the most successful government program in US history, but those who would privatize it pass out, knowingly or out of ignorance, a steady stream of misinformation, errors, or distortions of fact. Add to this group still others, who wish to “fix” the system they deem in “crisis”. Amongst the latter group is Alan Simpson (social security “is like a milk cow with 310 million tits”, and, on social security reform, “we’re trying to take care of the lesser people in society …”), co-chair of President Obama’s “National Commission on Fiscal Responsibility and Reform”, whose recent (11/10/2010) Co-Chairs Report would drastically cut retirement benefits and increase the retirement age to 69.
    Recently (August 2010), the Board of Trustees of OASDI released their annual report. For each of the 73 years of OASDI benefit payments, the annual contributions to the fund have EXCEEDED the benefit payments. Moreover, the OASDI Trust Fund assets at the end of 2009 are $2.54 trillion. The dollar level of the Trust Funds is projected to be drawn down beginning in 2025 until assets are exhausted in 2037. This is primarily due to an aging population. Over the course of the next 20 years, the cost of paying Social Security benefits will rise from its current 4.8 percent of G.D.P. to about 6 percent of G.D.P.

    There are several easy structural changes that can be made to the OASDI taxation system that will easily provide for sufficient annual contributions and assets growth to take care of the retirement needs of the increasingly aging population, as well as the replacement of the existing 73-year old REGRESSIVE OASDI taxation system by a PROGRESSIVE one (see below), and without reducing retirement benefits nor increasing the retirement age. The detailed analysis of these structural changes is based on the data contained in the collection of US individual income tax returns for the 16 year period of 1993 through 2008. Regrettably, the “privatization” and “fix-it” groups discussed above are clueless about these facts.

    Every year since the1937 start of retirement/disability payments by OASDI, there has been a “cap” (it changes from year to year) on each person’s salary/wage earnings (=earned income) as well as an OASDI tax rate. This means each person pays a payroll tax (at the current OASDI tax rate) on all earned income up to the current cap, but not beyond. Furthermore, non-salary/wage income (=unearned income) is not, nor ever has been, taxed for OASDI purposes. The inherent nature of the taxation system used to acquire contributions to the OASDI Trust Fund is REGRESSIVE. This means that the percentage of gross income (= earned plus unearned income) paid into OASDI DECREASES as gross income INCREASES. The following examples will demonstrate this fact. (The current cap is about $100,000 and the current OASDI rate is 6.2%)
    Example 1. Earned income below $100,000, no unearned income: percentage of gross income (=$100,000) paid to OASDI equals 6.2%.
    Example 2. Earned income $200,000, no unearned income: percentage of gross income (=$200,000) paid to OASDI equals 3.1%.
    Example 3. Earned income $310,000, no unearned income: percentage of gross income (=$310,000) paid to OASDI equals 2.0%.
    Example 4. Earned income $500,000, $120,000 unearned income: percentage of gross income (=$620,000) paid to OASDI equals 1.0%.
    Example 5. Earned income $2.2 million, unearned income $4.0 million: percentage of gross income (=$6.2 million) paid to OASDI equals 0.1%.

    In calendar year 2008, tax returns listing a gross income of over $200 K (= only 3% of all tax returns) held 30% of all US gross income, yet less than 3% of the listed gross income was paid to OASDI; returns listing over $1 Million (= only 0.23% of all tax returns) held 13% of all US gross income, yet less than 0.6% of the listed gross income was paid to OASDI; finally, the $10 million and over Adjusted Gross Income class had an average gross income of $37 million, yet paid an average of less than 0.006% to OASDI!
    The tables below show the effect of five different progressive tax rate systems (applied to ALL INCOME, not merely to salary/wage income) for OASDI contributions. Typically, these systems LOWER the rate for OASDI payments for 85% of all tax returns (= below $100,000 annually) in comparison to the 6.2% rate now paid to OASDI. This is because the total income of these 85% consists almost entirely of salaries/wages, and everything below the salary/wage cap of $100,000 is taxed at 6.2% for OASDI contributions.
    Here is a brief description of the five tax rate systems. (Please note that there are INFINITELY many tax systems that can be devised; only five have been chosen).
    Keep in mind that all five systems tax ALL INCOME MINUS SOCIAL SECURITY BENEFITS, not merely salaries/wages below the cap on salaries/wages (currently about $100,000). Only salaries/wages were taxed for the past 73 years, and only the amount of salaries/wages below the cap level (which changes over time) are taxed. Currently, the tax rate on salaries/wages below $100,000 is 6.2%.
    Here is a description of tax rate system 1 (the others are all progressive as well).
    Tax rate system 1: 4% on all income below $30,000 (40.3% of all tax returns in 2008); 5% from $30,00 to $75,000 (24.6% of all tax returns in 2008); 6% from $75,000 to $200,000 (22.1% of all tax returns in 2008; currently, those from $100,000 to $200,000 pay as little as 3% to OASDI); 7% from $200,000 and up (13.0% of all tax returns in 2008; this group pays from below 3% to as little as 0.006% to OASDI).
    If these five systems had been used during the 16 year period of 1993 through 2008, the following results would have ensued:
    In addition to providing more than the annual retirement/disability needs produced under the existing regressive taxation system, the annual OASDI Trust Fund assets at the end of 2009, for each of the five systems analyzed, would have INCREASED from the current $2.52 trillion (2008) to:
    $3.47 trillion for tax-rate system 1; $4.17 trillion for tax-rate system 2; $4.27 trillion for tax-rate system 3; $4.41 trillion for tax-rate system 4; $4.83 trillion for tax-rate system 5.
    For those who may be interested in the details of the analysis, see the following two tables (request by email).