Wednesday, June 22, 2011

Republicans push for deep cuts in Social Security benefits

A group of Republicans (along with a few Conservative Democrats) are pushing for the passage of legislation that would result in deep cuts in Social Security benefits to retirees and a massive increase in unemployment.  Ironically, the cuts in Social Security could lead to the overfunding of Social Security in the long-term.  Many of these Republicans are demanding passage of this benefit-killing legislation as a condition for their vote to raise the debt ceiling.

The legislation these Republicans seek to pass is called the CAP Act.  The CAP Act (S. 245) would create hard caps on government spending, to be phased in over 10 years (2013–2022). In 2022 and subsequent years, the Act would cap spending at 20.6% of gross domestic product, based on the bill’s formula and assumptions. 

The Economic Policy Institute (EPI) ran the numbers.  EPI estimates that, if passed, the CAP Act (or a similar proposal for a Balanced Budget Amendment to the Constitution) would result in cuts in Social Security benefit payments to retirees of $2,000 to $9,000 per year for the medium Social Security recipient AND would lead to 250,000 to 450,000 additional job losses.

In summary, EPI says the CAP Act would very likely lead to the follow outcomes if enacted:

  • $882 billion in cuts to Social Security outlays over 2013-2021. In 2021, Social Security outlays would be cut 13.6% relative to what they would have been absent the act.
  • Significantly greater cuts over the long-term. By 2025 Social Security would be cut by between 21% and 36%, depending upon baseline assumptions on cost growth; by 2045, outlays would be cut by between 47% and 83.5%.
  • Deep cuts to benefits in response to lower spending levels. In 2017, we could expect the average Social Security benefit to drop by 10.1%, an almost $2,000 cut in benefits for a scaled medium earner; by 2036, the year the Social Security Trust Fund is expected to expire, the benefit cut could grow to a 37.5% cut, or $9,300 for this earner. For comparison, a cut of that size is a much deeper benefit cut than the estimated 23% reduction in benefits that would occur if no policy changes were made to close Social Security’s long-range funding gap.
  • Unnecessary cuts. Reductions of the magnitude required to meet the annual spending caps would leave Social Security overfunded over the long-term, with Social Security tax contributions exceeding benefits.
  • Lost jobs. Employment levels could suffer as a result of cuts. In 2013, the shock to aggregate demand from these cuts could lead to around over 250,000 jobs lost. In 2014, these cuts could lead to around 470,000 jobs lost.
  • Widespread impact on local economies. States and congressional districts would lose spending power with cuts to outlays—somewhere between $17 million and $124 million in 2013 (depending on their size and their demographic composition), with older populations losing proportionally more.

Why would Republicans want to cut Social Security benefits and risk a massive increase in unemployment?  Such cuts are necessary to fund the continuation of tax cuts for the wealthy and tax expenditures for large corporations.

No comments: