On his tour of the Midwest last week, President Obama again indicated his interest in cutting Social Security. He repeated a proposal that his administration first put forward in the debt ceiling negotiations: he wants to cut the annual cost of living adjustment by 0.3 percentage points.
This cut may sound small, but it adds up over time. A person in their 70s who had been getting benefits for ten years would see a reduction of 3 percent. By the time they were in their 80s, the cut would be 6 percent. And if they lived into their 90s, their benefit would be more than 9 percent lower as a result of President Obama's proposal.
For an average retiree who can expect to get benefits for 20 years, President Obama's plan would cut their lifetime Social Security benefits by roughly 3 percent. By comparison, his much feared tax increases on the rich would reduce the after-tax income of someone earning $300,000 a year by just 0.5 percent. In this case, a beneficiary who will be mostly dependent on their Social Security income in retirement will take about six times as large a hit relative to their income under President Obama's plan to cut Social Security than a couple earning $300,000 would from his plan to raise their taxes.
This cut to Social Security seems especially inappropriate since the near retirees who would feel the full impact of this cut have just seen most of their wealth destroyed by the collapse of the housing bubble and the plunge in the stock market. The typical near retiree (ages 55-64) has just $170,000 in net wealth, including the equity in their home.
This means that if they used every last penny in their 401(k) and other savings, they would have just about enough money to pay off the mortgage on a typical home. This would leave them 100 percent dependent on Social Security for their income. And of course, half of near retirees have less than this amount, meaning that they will not even be able to pay off the mortgage on a typical home. But apparently President Obama feels that these people need to make greater sacrifices.
The determination to cut Social Security is especially strange given the finances of the program. Under the law, Social Security is financed by the designated Social Security tax. It does not contribute to the deficit, since the law prohibits payments from being made if there is not money in the Social Security trust fund. That means that if the trust fund were drained, rather than contributing to the deficit, full benefits would not be paid.
6 comments:
Of course our President (hopefully soon to be Ex-President) will not have to suport himself on Social Security, we will be paying his salary until he is gone from this earth.
It's so they can force the new, bigger, better ponzi scheme on us....obamacare,,,,
Social Security and Medicare should be getting an increase not a cut. Medicaid should be done away with, especially if a person has not worked a day or their life or made an attempt to work.
Congress should not be paid when not in Washington 'working'. When they are out of the beltway they are off the clock and no paycheck should be cut. If the president and congress were paying in to Social Security like everyone else all this would stop and Social Security recipients would receive an increase EVERY year.
spin spin spin. the republicans want to end medicare and social security but you don't post about that.
Why should SS and Medicare get an increase, 11:32? We can't afford the programs as they exist today. We certainly can't afford the huge expense they will impose over the next couple decades. Obama is exactly right that some sort of adjustment needs to be made. He needs to go a lot further in shoring up the finances of this program. If he doesn't, as this article points out, when the SS tax doesn't cover payments, "full benefits won't be paid." What's better -- making the cost of living a little less generous of having everyone lose a huge portion of SS when the SS taxes can no longer pay for the program?
BTW, Congress and the President do pay into Social Security. Please, before you decide to write something on a topic, do a little research so you know what you're talking about.
making the cost of living a little less generous
I think I know what you meant but you didn't word it correctly.
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