The Diamond-Orszag Plan Changes The Structure of Social Security
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):
“Workers who are 55 or older will experience no change in their benefits from those scheduled under current law. For younger workers with average earnings, our proposal involves a gradual reduction in benefits from those scheduled under current law. For example, the reduction in benefits for a 45-yearold average earner is less than 1 percent; for a 35-year-old, less than 5 percent; and for a 25-year-old, less than 9 percent. Reductions are smaller for lower earners, and larger for higher ones.
Our plan combines its gradual benefit reductions with a gradual increase in the payroll tax rate. The combined employer-employee payroll tax rate would rise from 12.4 percent today to 12.5 percent in 2015, 13.2 percent in 2035, 14.2 percent in 2055 and 15.4 percent in 2078; it would continue to rise slowly over time thereafter. This gradual increase in the payroll tax rate slows the decline in replacement rates for any given retirement age.”
I am not skilled in economics, nor am I an expert in Social Security. I am writing today because this administration has been carefully hiding its proposed Social Security and social programs changes and cuts and has frustrated all of our calls for transparency. In addition to disrespecting a democratic belief in an open dialogue, this hiding behavior has frightened and humiliated people who are counting on these programs.
In my opinion, not discussing these proposals openly has been a blatant act of class war waged by big money and big business against the rest of us.
I refuse to be accused of misrepresenting the D-O plan because, frankly, the President and Diamond and Orszag have hidden it. Regular Americans should not have to buy the D-O book at Amazon in order to find out how this administration wants to change the structure of Social Security. Whether they were hiding behind the Bowles-Simpson plan, or the Diamond-Orszag plan and or various configurations of each, they have managed to disregard the wishes of the American people who overwhelmingly do not want changes made to Social Security.