In case you're feeling a bit confused about how exactly the Obama and Romney campaigns differ on their plans for Social Security, don't worry: it's probably just a sign you've been paying attention during the debates.
During his low-wattage performance in Denver, the president chagrined his supporters by suggesting that he and Romney would take similar approaches to keeping Social Security solvent. The campaign quickly began walking that statement back, and by last night, Joe Biden was railing against the GOP ticket for supporting the Bush administration's plan to privatize the program. Paul Ryan demurred, arguing that Romney just wanted to curtail retirement payments for higher earners.
Now feel free to forget most of that. Here's what appears to be the actual divide, made simple: Obama wants to raise taxes in order to keep Social Security afloat while reducing some benefits. Romney doesn't want to raise taxes, which means he would have to cut more benefits. Sounds familiar, no?
Social Security is expected to tumble into insolvency by 2033. The program already sends more to beneficiaries than it takes in via payroll taxes, but for the time being, the Treasury is covering the deficit by paying back money it borrowed from the program. When those funds run dry in two decades, we'll be dealing with a serious shortfall.
Neither Romney nor Obama has released a detailed plan for fixing this problem. But they've each said enough to give us a rough sketch of their intentions.
So far, the president has laid a few basic ground rules for any Social Security plan he would approve. Most importantly, he says it shouldn't "slash" benefits in the long run, or cut them at all benefits for current retirees.
Vowing not to "slash" a program isn't quite the same as vowing not to tinker with it. But presumably, it does mean Obama would look for more revenue to keep Social Security running at full steam. That's in keeping with what he's suggested in the past. In 2008 -- feels like eons ago, huh? -- Obama supported a plan that would fix Social Security's finances in part by raising taxes on households making more than $250,000 a year. Currently, Americans pay payroll taxes on wages up to $110,1000 a year. Obama didn't want to remove that cap completely, but instead wanted earners in the top income brackets to pay between 2 and 4 percent more.
In September, Obama told an AARP rally that he'd consider reviving the idea, or at least something like it. Per the Huffington Post's Sam Stein:
"You know, I do think that looking at changing the cap is an important aspect of putting Social Security on a more stable footing," Obama said, via satellite feed. "And what I've said is, is that I'm willing to work with Republicans and examine all their ideas, but what I'm not going to do, as a matter of principle, is to slash benefits or privatize Social Security and suddenly turn it over to Wall Street -- because we saw what could happen back in 2008 and 2009 when the stock market crashed, and we are still recovering from that."
Soon after, campaign adviser David Axelrod also suggested, albeit far from definitively, that tax hikes would be part of the administration's ideal compromise.
"[T]he approach has to be a balanced one," Axelrod told MSNBC's "Morning Joe." "We've had discussions in the past. And the question is, can you raise the cap some? Right now Social Security cuts off at a lower point. Can you raise the cap so people in the upper incomes are paying a little more into the program? And do you adjust the growth of the program? That's a discussion worth having. But again, we have to approach it in a balanced way. We're not going to cut our way to prosperity. We're not going to cut our way to more secure entitlement programs -- Social Security and Medicare. We have to have a balance."
That pledge to seek a "balanced" approach has some on the left, such as Vermont Senator Bernie Sanders, very worried. They believe Obama might agree to change the way the government calculates cost of living adjustments for seniors. Currently, payments rise with the consumer price index, or the CPI, which is the government's main measure of inflation. But as Stein notes, during the 2010 debt ceiling negotiations with House Republicans, Obama offered to change the formula to start using the chained CPI instead. The chained CPI assumes that when prices on one sort of good rise, consumers will start buying something similar, but cheaper. So if a frost in Florida makes oranges extremely expensive, it might act as if people will buy apples instead. In the end, switching measures would crimp benefit growth, but not as severely as some other potential reforms.
Obama hinted that he'd support changing the inflation formula at a town hall event in 2011, and the proposal may have been what he was referring to when he said during his recent debate that he would "tweak" the program much as Ronald Reagan did in his grand compromise with house Democrats in 1983.
The Reagan reforms also raised the retirement age for Social Security, from 65 to 67. Obama hasn't endorsed that idea, although it was suggested as part the Bowles-Simpson deficit reduction plan.
Raising the retirement age is, however, at the center of the Romney plan, which would also pare back benefits for higher earners. Here was Paul Ryan's explanation Thursday night:
What we're saying is no changes for anybody 55 and above. And then the kinds of changes we're talking about for younger people like myself is don't increase the benefits for wealthy people as fast as everybody else. Slowly raise the retirement age over time. It wouldn't get to the age of 70 until the year 2103 according to the actuaries.
Without a detailed plan, it's difficult to say exactly what the impact on seniors would be. But MIT economist Peter Diamond and former Obama budget director Peter Orszag have compared the Romney outline to legislation introduced by Senate Republicans, which also raised the retirement age to 70 while slimming down payments to the top 60 percent of earners. As they note, the impact on many retirees would be dramatic:
These two steps would eliminate the long-term deficit in Social Security, according to the official analysis of the plan done by the Office of the Chief Actuary at Social Security. But they would do so by substantially reducing benefits, even for middle earners. According to the analysis, a medium earner (someone bringing in about $45,000 a year today) retiring in 2050 at age 65 would receive 32 percent less in annual benefits than under the current formula. By 2080, the reduction would amount to almost 40 percent.
A high earner (someone with income of about $70,000 currently) retiring in 2050 would get 40 percent less and, by 2080, almost 50 percent.
Although the plan is designed to appear progressive, it would likely end up hitting the rich and poor alike -- just in different ways. Well-to-do retirees would see their benefits cut directly. Lower-income Americans would receive less from the program because they just don't survive as long. As Mother Jones' Kevin Drum has noted, over the last three decades, wealthier people's lives have gotten a lot longer, but poor people's haven't. As a result, it's the bottom half of earners who stand to lose most if the retirement age were to rise.
You may have noticed that I haven't mentioned privatization yet. That's because, if you take the Romney campaign at its word, it's not on the table. Both Romney and Ryan have embraced the idea in the past. Ryan sponsored his own bill to create private accounts in 2004 and included the concept in his 2010 budget manifesto, the "Roadmap for America's Future." In his book No Apology, meanwhile, Romney advocates adding private retirement accounts on top of traditional social security. But at the vice presidential debate, Ryan insisted that private accounts weren't part of the campaign's agenda. Make of it what you will.