The Diamond-Orszag Plan Changes the Structure of Social Security

Obama's Diamond-Orszag plan: catfood is back on the menu

Most of the reactions to the President’s statement that Romney’s plan is similar to his plan to change Social Security have been to say that it is not true. I believed what Obama said, so I went to the news article about Diamond-Orszag plan which Obama linked to on his election website.  A link to the Diamond-Orszag paper here.

The plan involves benefit cuts and revenue increases. Social Security as a self-funding system, which never pays out more than it takes in. The D-O plan claims that Social Security has an actuarial deficit which will kick in way out in the future where accounting identities can be mathematically configured to paint a frightening picture. Despite recent use of the Social Security payroll tax as a piggybank for stimulus purposes, the myth of the conservation of Social Security revenues continues.

Our children and their children will get their Social Security benefits cut under this plan.  The D-O plan rationalizes that those generations will live longer, so they divide total revenues over more years of retirement, and like “Good Americans” inflict the pain of cuts without any empathy, priding themselves on the ability to make ‘difficult’ decisions.

Current workers will be asked to pay increased payroll taxes under the D-O plan. This would be reasonable if expected benefit levels were maintained for future recipients. Instead, The D-O plan won’t pay out benefits under the same formulas. They change the structure of future benefits. D-O reduces the benefits for younger persons and their progeny (<55 year olds):

Exit mobile version