Catfood Commission’s Social Security “Expert” Alice Rivlin Makes A Huge Blunder

source http://fdlaction.firedoglake.com/2010/07/27/catfood-commissions-social-security-alice-rivlin-makes-a-huge-blunder/

Graphic by Twolf

Alice Rivlin's latest opinion piece on Social Security, "The Right Reason for Saving Social Security," makes the case for why she and the other members of the Catfood Commission are the wrong people for the job.

First, from whom does Social Security need "saving," other than from her and other self-proclaimed deficit hawks?    Rivlin acknowledges that the program can pay all benefits in full and on time for more than a quarter of a century and after that, in the unlikely event that Congress has not then acted, it could still pay three-quarters of all scheduled benefits for the foreseeable future and beyond.   Notwithstanding these facts, she argues that "The right reason for saving [sic] Social Security is to reassure all Americans."

Does Rivlin truly believe that a package of changes worked out behind closed doors by an unrepresentative group of white male multi-millionaires, will reassure the American people?  (With all due respect to Rivlin, 14 of 18 members of the Catfood Commission are white men.)  Not only does the Commission lack gender, racial, age, or economic diversity, it lacks a single commissioner or even a staff member whose primary area of expertise is Social Security and retirement income, rather than the budget.    She is probably the most knowledgeable member on the subject and her piece shows a failure to understand the basics.

Raising or eliminating the maximum amount on which contributions are assessed and benefits calculated is one of the most popular options around, but not only doesn't Rivlin mention it, she apparently doesn't even understand it.  Ironically, she gets her facts wrong in the part of her piece where she is explaining how the program works.  Here is what she says:

"Here is a quick refresher on how Social Security works. Workers and their employers pay Social Security taxes on their wages (up to a limit of $106,800 increased annually for inflation)…" (my emphasis.)

The limit is increased annually not by inflation but by the average increase in nationwide wages.  This is a crucial distinction.  In 1977, Congress explicitly increased the base to cover 90 percent of all wages nationwide and then indexed it to the increase in average wages so that Social Security would continue to cover 90 percent of all wages.  That is, when you add together the wages of all the CEOs on Wall Street, sales clerks, janitors, factory workers, and everyone else, the intent is that 90 percent of all those wages are taxed for Social Security purposes and are insured against loss.  The idea is that the ten percent left out – earned by about 6 percent of the work force – do not need to be insured against loss by a public program like Social Security.

But a funny thing happened to that 90 percent.  The last few decades showed huge increases in the earnings of CEOs and other top earners with stagnating wages for everyone else.  Consequently, when all those wages were averaged together, the wages of the highest earners increased by more than the average, and the percentage of covered wages slipped accordingly.  Today, only about 84 percent of wages are under the maximum.  That seemingly small slippage, from 90 percent to 84 percent, costs Social Security billions of dollars of lost revenue each year.  Gradually restoring the 90 percent is not only sound policy, but would go a long way to eliminating the projected deficit.

No wonder Rivlin didn't mention it.  She apparently doesn't understand how it works or even why it exists.  Rivlin is right about one thing, though.  The American people need to be reassured.  The best way to do that is for Rivlin and the other members of the Catfood Commission to announce that they will keep their hands off Social Security.  Since its enactment in 1935, Social Security legislation has always had the benefit of full hearings before the House Ways and Means Committee and the Senate Finance Committee; open mark-up sessions, and opportunity for amendment.  What will reassure the American people is for their elected officials to stop avoiding accountability and do their work in the open, where the American people can see what is going on.