January 29, 2013

Politico’s ‘Quiet Liberal Plans for Entitlements’ Are Predominantly Tax Increases, Redistributions of Wealth

The front-page title at the Politico for David Nather’s lengthy write-up on Democrats’ alleged ideas for doing something about runaway entitlement programs is “The quiet liberal plan for entitlements; There are some ideas for reining in spending that have been blessed by the left.” That gives readers the impression that the left might actually have something specific and potentially palatable in mind.

No such luck. The actual title at Nather’s write-up, however, pluralizes “plan” — “The quiet liberal plans for entitlements.” Its itemization of the supposedly brilliant ideas for reform liberals have in mind are dominated by tax increases and income redistribution measures which fail to structurally reform anything.

I’ll focus only on the items Nather identified relating to Social Security (numbered tags added by me):

Ask liberals about GOP demands to rein in Social Security and Medicare spending, and many say this: no way.

But the truth is, there are a number of ideas to do just that already sitting on the shelves of influential liberal think tanks around Washington.

They wouldn’t add up to a massive overhaul of the system, and Democrats are trying to push the biggest Medicare savings off the table — and they don’t want to touch Medicaid at all.

Even so, the ideas that already have been blessed by groups on the left could allow President Barack Obama to get the discussion on entitlements going without infuriating his base.

Here are the highlights of the Democratic entitlement reform menu:

Social Security: ‘Chained CPI’
(Ten-Year) Savings: $112 billion [1]

… Social Security: Lift cap on taxable earnings
Revenues: $500 billion or more [2]

Social Security: Change the benefit formula
Savings: Would close half of Social Security shortfall

Another big item on the liberals’ agenda would be to change the way Social Security is distributed — giving more to low-income seniors and less to high-income seniors. [3]

Idea [1] is only a tweak, but at least it’s progress, and a legitimate reform. But Nather notes that it also has fierce opposition from many core Democrat constituencies, making it more of a pipe dream than anything resembing an idea with a chance of seeing the light of day.

Idea [2] is nothing but a huge tax increase (more than likely without any additional retirement benefits for people who are socked with the extra taxes.

Idea [3] makes Social Security even more redistributionist than it already is. The “Your Retirement Benefit: How It Is Figured” page at Social Security’s web site shows how skewed benefits already are to lower-income workers (go to Step 5 after clicking to open up the “Estimating your Social Security retirement benefit”; annual amounts added by me to enhance understanding):

a. Multiply the first $791 (in Average

inflation-adjusted Monthly Earnings, or $9,492 in

average annual earnings) in Step 4 by 90%. $__________________

b. Multiply the amount in Step 4 over $791 and
less than or equal to $4,768 (or between $9,492
and $57,216 in average annual earnings) by 32%. $__________________

c. Multiply the amount in Step 4 over $4,768
(or $57,216 in average annual earnings) by 15%. $__________________

The sum of items a, b, and c represent the monthly (annual) benefit at Full Retirement Age (currently 66).

Here’s an example: If a person’s average inflation-adjusted annual earnings during their work career was $30,000 ($2,500 per month), their Social Security benefit at Full Retirement Age would be:

90% x $9,492 plus 32% x $20,508 =
$8,543 plus $6,563 =
$15,106 per year ($1,259 per month)

This person will be receiving a benefit of roughly 50% of their average career earnings.

Another example: The same calclation done on someone with average annual earnings of $90,000 ($7,500 per month) yields the following benefit:

90% x $9,492 plus 32% x $47,724 plus 15% x $32,784 =
$8,543 plus $15,272 + $4,918 =
$28,733 ($2,394 per month)

This person will be receiving a benefit of roughly 32% of their average career earnings, even though they paid three times as much into the Social Security system during their working career as the first person illustrated who is getting 50% of his or earning back in monthly benefits. You can’t get much more “progressive” (i.e., income-redistributing) than that.

Keep in mind that since benefits aren’t taxable unless one has a fair amount of income from other sources, that first 90% tier is the rough equivalent, depending on where you live, of 100% income replacement. Yet Democrats clearly want to skew things even further.

Items [2] and [3], which as far as the left is concerned are the places where the real money is, are simply more of the same: tax, spend, and redistribute.

David Nather really didn’t have anything new to report.

Cross-posted at NewsBusters.org.

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