After State of the Union, Experts Tell Obama--Leave Social Security Unchained
WASHINGON, D.C.--Reaffirming his commitment to protect current and future generations who depend on Social Security, President Obama declared in Tuesday’s State of the Union address, “Our government shouldn’t make promises we cannot keep -- but we must keep the promises we’ve already made.”
The president is absolutely correct about this, as he is about the importance of investing in every child, in medical research, in job creation and in healthy and safe communities.
Indeed, we must keep the promise of old-age security that Americans have earned through hard work. The nation’s politicians should be held accountable to keep their word that they will not cut the Social Security benefits of older workers, retirees, people with disabilities and the children of deceased and disabled parents--something that would be especially harmful to many people in racial and ethnic communities.
Does Monday Statement Contradict Promise?
However, on Monday, White House Press Secretary Jay Carney signaled to reporters that the president, in his effort to reach a deficit-cutting bargain with congressional Republicans, is considering a seemingly minor change in Social Security--one that could affect the well being of millions.
For example, half of African American senior households and more than half of Latino senior households rely on Social Security for 90 percent of their income or more, compared with one-third of white senior households.
A change in Social Security that would most assuredly break the promise of policymakers is a proposal that has been discussed repeatedly in Washington as part of all of the talk about cutting the national deficit.
In his State of the Union speech, President Obama did not mention this proposal’s name – the “chained-CPI” – but in Monday’s press briefing, Carney said the White House is willing to put Social Security's annual cost of living adjustments (COLA), on the chopping block--even though doing so would not reduce the federal debt by a penny.
That’s because Social Security is barred by law from borrowing funds to cover its costs; it cannot add to the deficit and should not be part of deficit discussions at all. Why politicians – especially the president -- keep bringing it up is a question our policymakers have never answered convincingly.
For most Americans, the term “chained-CPI” (for Consumer Price Index) causes their eyes to glaze over. But, beware: What this technical-sounding name disguises is a benefit cut that would be especially cruel to ethnic elders.
Proposal Ignores Financial Struggles
The idea is to reduce the future cost of Social Security by using a stingier CPI formula. But the very purpose of adding the COLA to checks year-to-year is to keep Social Security benefits up with inflation, and maintain a decent standard of living for retirees, those with disabilities and, when a family breadwinner dies, his or her surviving spouse and children.
Using the chained-CPI would cut already modest Social Security benefits – $13,600 on average -- more each year. This cut would hit Social Security beneficiaries hardest in their 80s or older, or after years of disability when they are most likely to have exhausted their savings.
Social Security’s moderate benefits, especially compared with other counties, are vital to people with fixed or limited incomes. The current CPI index the government uses fails to measures the inflation seniors and those with disabilities experience because it does not adequately account for health care.
Most Americans assume that Medicare covers health costs, but as important as that program is, people 65 or older spend, on average, more than twice as much on health care as those ages 25-64, about 13 percent compared to 5 percent. Also, the current CPI calculation understates the cost of housing. You may own your home, but, for instance, be one roof-repair away from poverty.
So switching to the chained CPI would provide an even less accurate and less sustainable measure for people trying to make ends meet. And its impact would compound over time.
The chained-CPI would pull $112 billion directly out of the pockets of beneficiaries over the next 10 years and much more thereafter. A typical Social Security retiree would lose the equivalent of roughly $500 a year (in today’s dollars) at age 75 under the chained CPI, compared to the current formula; $1,000 in their 85th year and $1,500 at age 95.
This may not sound like a lot of money, but two-thirds of seniors depend on Social Security for half or more of their income. And one in three seniors rely on the program for at least 90 percent of their income.
The chained-CPI cut would translate into the cost of two weeks of food per month for a 95 year-old widow.
Ethnic Elders and Older Women
In fact, the growing impact would large in almost anyone’s book. Typically, over the years, the chained-CPI cut would amount to $4,600 by age 75, $13,900 by 85, and $28,000 for those fortunate enough to live to 95. How’s that for a Happy Birthday present?
Ethnic elders stand to lose the most because Social Security is usually a greater share of their retirement income. Even before the Great Recession, in 2007, the average household of color had just 16 percent of the wealth possessed by the average white household.
The impact of the chained-CPI would be especially harsh on older ethnic women because they are far more likely than other groups to work in low-wage professions. Also, they are less likely to have other sources of retirement income.
Astoundingly, more than four out of 10 single African American women or Latinas live below the poverty line [http://1.usa.gov/X6fAt7] today. And the proportion rises as these groups get older.
Because African American women have the lowest rates of marriage in the United States, they are far more vulnerable to poverty in old age. One out of six single women above the age of 65 live in poverty—triple the poverty rate of married women 65-plus.
Indeed, the chained CPI would drive a disproportionate number of ethnic seniors into poverty. Of the nearly 250,000 Social Security beneficiaries who would fall into poverty due to the chained CPI in 2050, over 160,000 are projected to be black or Latino, compared with about 60,000 whites.
In his State of the Union address, President Obama spoke of the importance of a “secure retirement.” To help make that aspiration a reality, policymakers should be talking about increasing, not decreasing Social Security. A good place to start is with a more, not less, accurate measure of inflation adjustments, so those modest pension amounts do not decline as more and more Americans reach very old age.
Daniel Marans is a policy analyst for Social Security Works, Washington D.C. Nancy J. Altman, author of The Battle for Social Security, and Eric Kingson, a professor at Syracuse University, are co-directors of Social Security Works. Widely respected as experts, Altman and Kingson both staffed the federal 1983 Greenspan Commission on Social Security reform.