Advancing a Free Society

In Defense of the Simpson-Bowles Social Security Plan: Part 2

Wednesday, March 2, 2011

This is the second of two pieces explaining why I have a more favorable view of the Simpson-Bowles Social Security plan than that expressed ina recent paper from the Center on Budget and Policy Priorities (CBPP). In the first installment, I listed instances where I mostly agreed with their analysis – sometimes agreeing with the policy criticism, sometimes not. In this piece, I give instances where I have disagreements with both the critical analysis and the policy conclusions.

To see the first part of this analysis, click here.

Criticism #4: The Plan “Relies Excessively on Benefit Cuts.”

I have a fundamental disagreement with some characterizations of Simpson-Bowles’s relative reliance on benefit cuts to achieve solvency. The statement was made that the lion’s share of the plan’s savings “comes from benefit cuts. The benefit provisions account for nearly two-thirds of the savings over the 75-year period and four-fifths of the savings in the 75th year.”

These figures are arrived at by dividing the plan’s provisions into revenue and benefit pieces, and then adding up the relative size of provisions in each category. I do not believe this method provides for a complete, accurate assessment of the plan’s total effects. The total reliance of Simpson-Bowles on benefit changes is much less.

The reason is that some plan provisions affect both revenues and benefit obligations. Raising the cap on taxable wages, for example, increases total system revenues, but it also increases total benefit obligations. So too does the plan’s provision to expand coverage to state and local workers. Simply listing these provisions as being on the revenue side does not capture their full effects.

Fortunately, a memorandum from the SSA Actuary has done most of this work for us. According to the memo (see Table 1d), roughly 46% of the plan’s net improvement in solvency over 75 years would be achieved through increased revenues, the remaining 54% from cost containment. This is merely an average over 75 years; it varies along the way. By the 2080s, roughly 65% of the annual improvement would be from cost containment. But in the program’s peak cost years in the 2030s, roughly56% of the improvement would come from increased revenues. This evolution over time can be more readily seen on the chart below.

This particular allocation may not be to everyone’s liking (again, I personally would prefer a plan that does more to slow cost growth). It is, however, a significantly smaller reliance on benefit changes than has been suggested. Simpson-Bowles charts a resolutely middle ground on the benefit-revenue spectrum.

In this respect, Simpson-Bowles contrasts significantly with the imbalanced proposal of the Bipartisan Policy Center, which would raise revenues by enough to resolve the entire Social Security shortfall (and would actually increase total cost obligations).

Continue reading Charles Blahous at e21