13) What is the ratio of benefit cuts to revenue increases in the Fiscal Commission’s Social Security reform plan? Why doesn’t it rely more/less heavily on benefit cuts or more/less heavily on revenue increases?
The Commission plan is a balanced plan that relies both on reductions in scheduled benefits and increases in scheduled revenues.
Those concerned that the plan relies on excessive benefit cuts should note the Commission plan calls for more revenues than previous bipartisan plans introduced in Congress. Much of the analysis suggesting the contrary looks at net effect of revenue provisions, which includes their effect on increasing benefits. Looking instead at cost and revenue rates, revenue increases make up 46 percent of the total reduction in the 75-year shortfall, and 35 percent of the reduction in the 75th year.
Those concerned that the plan relies too much on revenue need to recognize the short-fall that Social Security faces, and the difficulty in closing that gap with spending cuts alone. Like most Social Security plans, the Commission plan exempts current and near retirees from cuts and protects the most vulnerable among us. To accomplish this, the commission called for aggressive cost control for higher earners along with an increase in the retirement age. However, new revenues were still needed to close the gap – and this is particularly true over the medium term, since benefit changes tend to phase in slowly. These revenues came from a gradual increase in the amount of income subject to the payroll tax; and increase that would by 2050 allow the payroll tax to cover the same amount of income as it did in the 1980s.
Those concerned about the ratio of the Social Security plan should keep in mind the alternative to reaching consensus today. The do-nothing plan – a plan to leave Social Security alone – would lead to a 22 percent across the board benefit cuts in 2037. Or, alternatively, could force politicians to enact an equally massive tax hike weeks or months before the trust fund is exhausted. Continuing to wait to reform Social Security is a high risk gamble.