Response to M. Rohrs

[National Dialogue Moderator <moderator>]

I apologize for the delay in responding to you.

Many people have concerns about the effect on current benfeciaires
under various reform proposals.  It is an interesting aspect of
this debate that those generations who often oice the greatest
concerns about reform are the demographic groups that would be
least affected by most reforms under discussion.  The concern
expressed by seniors is appropriate given that this is matter of
great import;  but it would be beneficial to the nation if all
generations would emulate their involvement in public issues.

For the most part, changes to the Social Security program would
only impact the means of funding benefits for future retirees,
rather than have any substantial impact on current retirees.  But
in answer to your specific questions,  under our plan:

1) No, current retirees' benefit levels would not be affected.

2) No, we would not introduce means-testing.

3) No, we would not change the standard practice of taxing benefits
other than to return all of the revenue from benefit taxation to
the Social Security system.  Currently, 85% of Social Security
benefits are subject to taxation, which represents an across-the-board
estimate by SSA of the amount that would be taxed were it taxed
like other pension income.  (The original contributions were already
taxed once, but the "inside build-up" of the value of the "pension"
benefit has not been, and 85% is the actuarial estimate of that
value.) We have traditionally excluded from this taxation the Social
Security income of poorer seniors.  Your observation that higher-income
seniors already experience a lower rate of return than lower-income
seniors on their previous contributions, even without counting the
added benefit of keeping Social Security benefits for poorer seniors
tax free, is correct, and reflective of the progressivity of the
system that this tax-free income further increases.

It is also true that rates of return will be much lower for future
retirees than for current ones.  Under our proposal, we would focus
all of the costs of balancing the system on later birth cohorts,
who will experience a lower rate of return than current retirees.
We exempted current retirees from the cost of these changes, despite
their comparatively superior treatment, because unlike current
workers, they cannot easily adapt to any new costs.  At the same
time, however, we did not think it would be equitable to add
additional benefits to current retirees at the expense of the birth
cohorts who are already receiving a poorer deal and will bear the
entirety of the cost of balancing the system.

4) Our proposal would instruct BLS to make methodological improvements
in the measurement of the CPI.  The Boskin Commission that was
tasked by Congress to explore this subject located several reforms
that have yet to be implemented.  However, to the extent that such
reforms might reduce measures of CPI, current retirees would be
exempted from the effects of those changes.

In summary, our plan would have no impact on current retirees except
for one major one:

5) It would shore up the financing of the system that provides
their benefits and thereby remove political pressure for benefit
cuts.  Under current law, retirees experience the risk that action
might be taken to cut benefits rather than to increase taxes by
the extent necessary under pay-as-you-go.  Moreover, if no means
is built into the system to enable future workers -- entire
generations, rich and poor -- to experience anything other than a
miserable and negative return from the system, it is much more
likely that the benefit cuts that would be implemented, targeted
likely upon higher-income seniors, would produce a political backlash
and undermine the support that Social Security has always enjoyed.

This is the single most important effect upon seniors of Social
Security reform.  Their benefit levels will not be affected by any
major reform plan on the table, but they would clearly be jeopardized
by inaction.


    Senator Judd Gregg