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A Project of The Annenberg Public Policy Center

Social Security Scare in Louisiana

Louisiana Sen. Mary Landrieu makes misleading claims in a TV ad about Rep. Bill Cassidy’s support for a nonbinding budget resolution that recommended changes to the Social Security system:

  • The ad says Cassidy voted to cut Social Security benefits “to pay for a tax break for millionaires like himself.” But the proposal would have slowed Social Security spending to prolong the life of its trust funds — not to finance tax cuts.
  • The ad also leaves the false impression that Cassidy voted to raise the retirement age to 70 for people “retiring soon.” The plan recommended gradually increasing the retirement age, beginning with those born in 1962. Those people, who will turn 52 years old this year, are not nearing retirement.

The Louisiana Senate race is one of a few in the 2014 cycle that may help decide control of the U.S. Senate. Landrieu, a three-term senator, has been targeted for defeat since her first narrow victory in 1996, but she was able to win by 6 percentage points in the 2008 general election and 3.4 percentage points in a 2002 general election runoff. Public polling so far this year shows Landrieu and Cassidy are in a statistical dead heat.

Cutting Benefits to Pay for Tax Cuts?

Landrieu’s latest ad, “Hard Job,” features an electrician named Mike Nauck who says he is “retiring soon” and is worried about Cassidy’s support for changes to Social Security.

Mary Landrieu TV Ad: ‘Hard Job’

Mike Nauck: Being an electrician is a hard job for someone my age. I’ve had a spinal fusion and had burns on 40 percent of my body. I’m retiring soon and I’ll need Social Security. But Bill Cassidy voted in Congress to raise the retirement age to 70. And cut benefits to pay for a tax break for millionaires like himself. Someone like me can’t work that long.

Mary Landrieu: I’m Mary Landrieu and I approve this message because no retiree should suffer to pay for a millionaire’s tax cut.

The claims that Cassidy voted to raise the retirement age and cut Social Security benefits are accurate. But his votes did not cut benefits to pay for tax cuts, and the gradual increase in the retirement age would not apply to Nauck or anyone “retiring soon.”

Both claims refer to Cassidy’s votes over the years for the Republican Study Committee’s budget resolutions, most recently for fiscal year 2015. The RSC’s conservative budget blueprint was offered by Rep. Rob Woodall of Georgia as an amendment to the budget resolution supported by House Republican leaders and drafted by Rep. Paul Ryan, chairman of the House Budget Committee. Woodall’s amendment failed on April 10.

The first thing to know is this: Budget resolutions are nonbinding. They provide guidance to Congress as it drafts annual spending bills, but they do not carry the force of law. The policy changes recommended in budget resolutions cannot become law without separate legislation passed by both chambers of Congress and signed into law by the president.

Now, let’s look at the claim that Cassidy voted to “cut [Social Security] benefits to pay for a tax break for millionaires like himself.”

It is true that the RSC budget resolution for fiscal 2015 would have reduced Social Security benefits by changing the method of calculating cost-of-living increases and raising the retirement age.

The RSC proposed switching to the so-called chained consumer price index, or chained CPI, which, as we wrote, would produce slightly smaller cost-of-living increases for retirees on Social Security. (President Obama proposed the same thing in his budget for fiscal year 2014, but he dropped it in his budget proposal this year.)

However, the savings would not go “to pay for a millionaire’s tax cut,” as Landrieu says in the ad. The slower rate of spending from the Social Security trust funds would prolong the life of the funds and improve the program’s finances.

The Landrieu campaign says in a backup document to support its claim that the policy language of the Woodall amendment makes “no proposal to reinvest [Social Security] savings into the [Social Security] Trust Fund.” That’s not so. The amendment calls on Congress “to make Social Security sustainably solvent” and says the budget resolution “assumes these reforms will contain the following” two things: “a more accurate measure for calculating cost of living adjustments,” and an increase in the retirement age (which we will explore in depth later). The details would be worked out in the legislation that would be needed to implement such changes.

In a separate budget document, the Republican Study Committee estimates that the changes in retirement age and cost-of-living increases “would save $137 billion over ten years, and more importantly, according to the Social Security Trustees 2013 report, would solve about 20 percent of Social Security’s long-range actuarial balance.”

The Landrieu campaign also makes the argument that the RSC budget resolution assumes the entire $137 billion in Social Security savings over 10 years will be used to reduce the deficit, citing a budget table (on page 6) that shows the Social Security savings being applied to “deficit improvement.” Those savings, the Landrieu campaign says, is being used to fund a budget that includes tax cuts for the wealthy — therefore, the Republican plan would have cut Social Security benefits to pay for tax cuts.

But that’s nothing new. That’s how federal budgets work. The federal government in the past has borrowed Social Security tax revenues to fund the government, and the Republican plan would not change that.

Here’s how it currently works: Social Security payroll tax revenues first go to pay benefits to beneficiaries, and any excess revenue, if it exists, goes to fund general government operations. The Social Security trust funds receive special Treasury securities equal to the amount of the excess revenue spent by the government on other programs. The Old-Age and Survivors Insurance Trust Fund has assets of nearly $2.7 trillion, and the Disability Insurance Trust Fund has $90 billion in assets. That money, which includes principal plus interest, does not exist except on paper. It is all held in Treasury securities, so the federal government owes itself nearly $2.8 trillion.

It’s also questionable whether the RSC plan could spend the Social Security savings on anything. That assumes that there will be excess Social Security payroll tax revenue — known as “non-interest income” — after paying retirees their benefits. But Social Security has been running an “annual cash-flow deficit” since 2010, and the Social Security trustees in the annual 2014 report said the cash-flow deficit will worsen “throughout the 75-year projection period.”

Social Security trustees: Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010 and the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year projection period. The Trustees project that this annual cash-flow deficit will average about $77 billion between 2014 and 2018 before rising steeply as income growth slows to its sustainable trend rate after the economic recovery is complete while the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.

We asked Eugene Steuerle, an Urban Institute fellow who wrote the book “Retooling Social Security for the 21st Century,” about the RSC proposal. He noted that Social Security benefits would continue to rise under the RSC plan, albeit at a slower rate. He also said Social Security is “out of balance, which means it faces either tax increases or benefit cuts.” He said it is unfair to compare the RSC changes with the status quo, which is “unsustainable.”

Steuerle, Aug. 6: In the first place, Social Security benefits go up over time, so a reduction in a scheduled rate of growth of benefits is only a “cut” by setting up a particular “baseline” of growing benefits. Second, as you note, Social Security is out of balance, which means it faces either tax increases or benefit cuts (in scheduled growth) to bring it back into balance. Those who identify with what they would do cannot be fairly contrasted with those who leave unspecified what they would do, as if only the former would create losers relative to some unsustainable system.

As for the argument that RSC was paying for tax cuts by reducing Social Security benefits, Steuerle said: “Under this type of mix and match game, you could take any reduction anywhere, match it to any increase anywhere, ignore the rest of the budget (household or government), and say the reduction paid for the increase.”

The bottom line: The RSC plan would slow spending even as it continues to collect Social Security payroll taxes at the same rate — which would have the net effect of reducing that cash-flow deficit and prolonging the life of the trust funds.

Social Security Retirement Age

Nauck also says in the ad: “I’m retiring soon and I’ll need Social Security. But Bill Cassidy voted in Congress to raise the retirement age to 70. … Someone like me can’t work that long.”

It would be accurate to say that Cassidy supports raising the age for receiving full Social Security benefits from 67 years old to 70 years old. But it’s misleading to suggest that the RSC’s proposal would affect workers who are “retiring soon.”

Currently, workers born between 1943 and 1954 can retire with full Social Security benefits at age 66. Those born in 1955 or later must wait till age 67 to retire if they want to collect full benefits. The law gradually increasing the age from 65 years old to 67 years old for full retirement benefits was enacted in 1983 with bipartisan support and signed into law by President Ronald Reagan.

The RSC plan would continue the gradual increase in the full retirement age beyond 67 years old by two months per year, beginning with those born in 1962. “Under this plan, for individuals born in 1962 the [full] retirement age will be 67 years and two months,” the RSC budget says. “The full retirement age will reach 70 for individuals born in 1979 or later.”

So, when Nauck says “someone like me can’t work that long,” meaning to 70 years old, he is really talking about a person born in 1979 who will turn 35 years old this year. He is not talking about someone who is “retiring soon,” although that point may be lost on viewers.

Also, Nauck doesn’t make it clear but workers would not have to wait till 70 years old to retire under the RSC plan.

Currently, workers can retire at age 62, but not with full Social Security benefits. Those born before 1955 receive 75 percent of full benefits at age 62, and those born in 1955 or later receive 70 percent of benefits at age 62. The early retirement age would not change under the RSC plan, so future retirees would still be able to retire at 62. But their benefits would be reduced. How much they would receive in benefits would depend on how the law is written, RSC spokesman Martin Wattenbarger told us in an email.

“Under the RSC proposal, the early retirement age is assumed to stay at 62, but any early retirement benefit adjustment would have to be specified in legislation enacting the reform,” Wattenbarger wrote.

We take no position on the merits of the RSC’s proposed changes to Social Security. And, as we said, it would be accurate to say that Cassidy voted to support Social Security changes that would reduce benefits and increase the retirement age. But this ad goes too far when it says that the cuts in benefits would go “to pay for a millionaire’s tax cut,” and it leaves the false impression that those “retiring soon” would not be able to retire until they are 70 years old.

— Eugene Kiely