Since President Obama released his budget last month, I’ve heard from constituents throughout the Central Coast with comments and concerns, especially about one specific provision: the President’s inclusion of the Republican proposal to change how Social Security cost of living adjustments are made by using a benefit calculation called “chained CPI.”
The President has said he would only be willing to consider this change in conjunction with a balanced plan of revenue increases and other spending cuts to bring our deficit in line. While I appreciate his willingness to once again go the extra mile in an effort to find compromise, this proposed change to Social Security is just a bad idea.
First, Social Security is not the cause of our record deficits. In fact, excess Social Security taxes have been used to cover the actual size of the deficit for years.
Second, and most importantly, switching to chained CPI would actually lead to benefit cuts for seniors, persons with disabilities, and veterans on the Central Coast and around the country. There is no reason to cut benefits in a program that millions depend on when that program—Social Security—is not responsible for our deficit.
Proponents of switching to chained CPI claim that it’s a more accurate way to calculate cost of living because it takes into account consumers’ decisions to substitute similar but cheaper products when prices change. For example, rising prices of beef may cause consumers to switch to chicken, pork or to forego eating meat altogether to save money.
But there is a huge debate about whether “chained CPI” is more accurate for seniors. In fact, many economists believe we currently understate seniors’ cost of living because the elderly spend a much higher percentage of their incomes on utilities, housing and, of course, health care. These expenses are much harder, if not impossible, to substitute for than food. In addition, health care costs, a large share of the average senior’s budget, regularly increase faster than other products and services.
Since its inception, Social Security has lifted millions of seniors out of poverty, allowing them to live independently and with dignity. While Social Security has been a wildly successful anti-poverty program—it’s helped reduce the poverty rate for the elderly to less than 10 percent—its benefits are not especially generous. In fact, the average Social Security benefit is about $13,000 per year. And for seniors on the lower half of the economic ladder, Social Security benefits represent 80 percent of their total income.
It is also unsettling that proposals to cut Social Security benefits are happening while most Americans face more uncertainty in planning for retirement. Many financial planners used to talk about retirement savings as a “three-legged stool,” with the legs representing pension benefits, private savings like 401(k)s and IRAs, and Social Security benefits. But the reality today is that two of the three legs on the stool are increasingly less sturdy.
For example, far fewer employers offer defined benefit pension plans today, opting instead to offer 401(k) plans. In 1980, approximately 40 percent of private-sector workers had a guaranteed pension from their employer. But by 2006, that figure had fallen to just 15 percent.
And while 42 percent of American workers today are covered by a 401(k) plan, the average value of a private retirement plan for a person nearing retirement is only $30,000, which experts say is not nearly enough.
In addition, unlike pensions and Social Security, private savings like IRAs and 401(k) plans carry substantial risks. That includes savers not starting early enough either because they didn’t make enough money or faced other important financial challenges in life. And IRAs and 401(k) plans are also subject to the vagaries of the stock market, as we have seen during this past half dozen years as financial markets melted down and took retirement savings with it.
This challenge makes Social Security more, not less, essential for retirees and those nearing retirement. And this is especially true for women, who live longer and frequently have fewer savings because they don’t earn as much as men and often move in and out of the workforce to raise and care for their families.
We need to bring our deficit under control, but cutting Social Security benefits is the wrong way to go. Social Security is a lifeline for millions of seniors at or near retirement. There are better ways to address our deficits than by weakening that lifeline.
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Lois Capps represents California's 23rd District, including Santa Barbara, in the U.S. Congress