No Deficit Reduction Plan? What Happens Now?

No Deficit Reduction Plan? What Happens Now?

TSCL Senior Petitions Help Fend Off COLA Cuts

The failure of the “Super Committee” to release a deficit reduction plan for a vote has Congress facing what some describe as “a ‘time bomb’ of its own making.” The failure set off a spending trigger that would automatically cut $1.2 trillion from government programs unless Congress reverses it before January 2013.

What happens next is still unclear, especially as the nation enters a presidential election year. Last fall Congress was flooded with senior advocates including TSCL fighting cuts to Social Security and Medicare. The TSCL legislative team made visits to almost every House office, delivering petitions promoting a fair and consistent COLA, protection of the Social Security Trust Fund, a stop to the pending Social Security Totalization Agreement with Mexico, and prompt enactment of Notch Reform.

Over a year ago the Congressional Budget Office (CBO) warned that waiting to put U.S. fiscal policy on a sustainable course would lead to higher levels of costly government debt and would sharply increase the levels of spending cuts or revenue increases needed to do so. The CBO estimated that by 2015 it would take a spending cut of 12.5% in benefits for all adults, or an increase of tax rates of 11% to stabilize the debt.

What would this mean for seniors now and in the future? To provide a perspective on this question, the National Academy of Social Insurance (NASI) released a simulation of future benefits showing how the recommendations of the National Commission on Fiscal Responsibility and Reform would lower Social Security benefits.

The Fiscal Commission proposed cutting Social Security three ways — raising the full benefit retirement age to 67, changing the benefit formula, and lowering the annual cost-of-living adjustment (COLA) for current and future retirees. The plan also would increase the maximum wage cap on earnings that are subject to Social Security, which is currently $110,100. Eighty percent of the proposal’s savings come from benefit cuts while one-fifth would come from new revenues from lifting the cap on taxable payroll. The higher revenues would be very gradually phased in over 40 years, but the benefit cuts would occur much sooner.

According to the NASI simulations, under the plan 41% of beneficiaries would experience a major benefit reduction of 20% or more from what they would receive under current law, 23% would have cuts of 10% - 19%, and 28% would have benefits cut by less than 10%.

The NASI analysis concludes by noting that Social Security benefits for new retirees and people retiring in the future are already being cut relative to those experienced by older seniors, due to the gradual increase in the full retirement age, changes that date from 1983. The Fiscal Commission plan would cut benefits further for 9 out of 10 seniors.

What you can do: Attend town hall meetings when your Members of Congress come to your area. TSCL believes that changes for Social Security, especially proposals to reduce the COLA, continue to loom for seniors. As this is an election year, it will be important to learn how the candidates stand on Social Security and what they would propose to ensure that benefits can be paid now and in the future. To contact your Congressman, click here.

Sources: “Debt Super Committee Might Turn Out To Be A Useful Failure,” Fahrenthold and Sonmez, The Washington Post, November 23, 2011. “Economic Impacts of Waiting to Resolve the Long-Term Budget Imbalance,” Congressional Budget Office, December 2010.