President Obama's most recent fiscal cliff offer would cut Social Security benefits by changing how that program calculates cost-of-living increases. This is a bad idea, for reasons I'll get to. But the bigger problem is that Social Security doesn't have anything to do with current budget deficits and shouldn't be part of any fiscal deal.
Social Security was designed as a self-financing program funded by dedicated payroll taxes. While Social Security does have long-term financial problems, it's okay in the short run -- as in the next decade -- according to the most recent report by the Social Security and Medicare Boards of Trustees.
As the chart below shows, which was featured in Wonkblog, Social Security doesn't even make the list of the big drivers of government debt over the next seven years. Instead, the biggest factor are the Bush tax cuts. And, as I have noted repeatedly, only repealing those tax cuts for the wealthy would leave in place the bulk of the cuts and attendent revenues losses. Obama's plan also features only very modest additional defense cuts, and would keep the nation on track to spend an astonishing $8 trillion on security in the next decade -- more per year in inflation adjusted dollars than we spent during much of the Cold War.
Going after Social Security instead of more fully rolling back the Bush tax cuts and more deeply cuttting defense is like grabbing the wrong suspect while letting the real offenders walk free.
In any case, now is not the time for deficit reduction at all, given the still fragile economy. Congress should turn to this challenge once unemployment falls -- say, to under 6.5 percent. But if there is going to be deficit reduction, it should logically focus on tackling the near-term drivers of the deficit, not messing with Social Security.
Now, of course, Washington needs to change Social Security -- and sooner rather than later. This should be done separately and carefully, as Senators like Dick Durbin have suggested.
And when it is done, changes to Social Security's cost-of-living formula should certainly be an option in the mix. Obama's proposal would reportedly save $130 billion over the next decade, and this is real money to help put Social Security on a sounder footing. The respected liberal former Social Security Commissioner Robert Ball proposed a number of reform plans between the late 1990s and 2005 that included changes to the formula.
The downside is that all seniors would take a hit if this change were made. That's why any reform plan, Ball argued, should rely more on hitting affluent Americans by raising the payroll tax cap on earnings so that Social Security brings in more revenue.
More recently, the Simpson-Bowles Commission argued for trimming benefits for more affluent seniors as a way to save money. (The Commission also advocated substantially higher benefits for poor seniors.)
Whatever the exact approach, fixing Social Security is a separate problem for a separate time. Tossing in benefit cuts now is a gratuitious slap at the progressive base. The White House should drop this idea and get focused on what really matters.