What the tweakers have in mind for you

So how big are these so-called "tweaks"? Let's take them one at a time, keeping in mind that the average monthly retirement benefit under Social Security is $1,230, and most people have little or no other income in retirement. For single persons who do not own homes, benefits are 92 percent of net worth. Hello old people living alone in rental housing, we need you to tighten your belts!

1. Benefits are determined by applying cost-of-living changes to a worker's wages. Explaining exactly how here is boring and unnecessary. All you have to know is that a small change in a factor applied over many years adds up to a big change at the end. Imagine you received a gift of $1,000 at age 21, and you bought some kind of asset that accumulated interest indefinitely. If you made three percent interest after taxes, after 30 years you have $2,427. But suppose it is only two and a half percent? Doesn't sound like much, right? It's only half a percent. After 30 years you have $2,098, a fourteen percent reduction. Imagine living frugally, then needing another fourteen percent of frugal.

Proposals for reduced cost-of-living adjustments, sometimes referred to as a "diet COLA" by people whose own well-being will be unaffected, will be accompanied by arcane commentary to the effect that the factors currently in use are overstated. This commentary will be provided by economists cherry-picked for their advocacy of this view, and we will be told that "all economists" agree, which will of course be a lie. (See Dean Baker's Getting Prices Right: The Debate over the Accuracy of the Consumer Price Index.) And by the way, none of this discourse confronts the likelihood that prices of the things purchased by the elderly do not grow at the same rate as those for the population as a whole.

2. The second favored tweak is an increase in the retirement age. This reform is designed by people who work sitting on their ass. Now your humble correspondent plans to work until age 70, perhaps well over possible retirement age increases. But I'm sitting on my ass too. If I had to pick up Mitt Romney's garbage, I might look forward to an earlier retirement. In fact, I might positively require it. Distinguishing between me and the sanitation worker in practice would entail a complex and error-ridden bureaucratic process, and the current administration of Social Security and Medicare already leaves much to be desired. Try calling them some time. It's fun!

An increase in the retirement age might not look like much to someone just starting out, but it will look quite different to people in their 50's who do not find joy in their daily work. Moreover, a later retirement means less benefits. After all, retiring later doesn't mean you get to die later. A higher retirement age is a benefit cut. How big a cut, you will ask. But first, there is an additional malignant feature of this device: It has a bigger negative impact, the lower one's income. The reason is that those with lower income have shorter life spans on average, so their years of retirement benefits are reduced by a higher proportion than those with higher income. So it is unnecessary and unfair to boot.

It has been estimated that for the lowest 20 percent of couples, their wealth is reduced by 18 percent. The highest comparable income group has a reduction of eight percent. Any higher taxes on the rich or battery plants in Michigan will be cold comfort to those in benighted circumstances absorbing a retirement age tweak.

3. The third celebrated tweak is described as means-testing, which means reducing benefits for those with higher income. First we get regaled with tales of millionaires receiving needless benefits. The problem is that the definition of "rich" undergoes a dramatic transformation, between this sort of propaganda and actual proposals. The reason is that eliminating benefits of the really rich has a negligible effect on total program expenses. So "on Social Security rich" is going to be much less than "rich in the eyes of any fool."

We might note that Social Security is already means-tested -- benefits for those with higher incomes are taxed. If we were absolutely compelled to means-test, the income tax would be the logical tool, since it takes into account family size, other income, dependents, etc. Done on the Social Security side, however, means-testing benefits (= taxing benefits more) is a crude method of economizing. You all can guess why the income tax will not be used for means-testing. Don't make me do all the work here, people.

A long-standing objection to means-testing is political. By increasing the extent of means-testing, the program's universality is diminished and its political support weakened. Universal in this context means there is some systematic relationship between what you pay and what you get, hence the "insurance" part of the general designation "social insurance." Means-testing weakens the link between contributions and benefits. It increases the number of higher income persons who would just as soon have no program at all, since their accumulated foregone payroll taxes would exceed their benefits under the program. The political fallout would magnify the nascent over/under 55 conflict noted previously.

The bottom line is that for the majority of retirees with little or no savings, a benefit tweak IS a slash in benefits.

Because women tend to earn less than men, take more time out of the paid workforce, live longer, accumulate less savings, and receive smaller pensions, Social Security is especially important for them. Women constitute 56 percent of Social Security beneficiaries aged 62 and older and 68 percent of beneficiaries aged 85 and older.

Women pay 40 percent of Social Security payroll taxes but receive 49 percent of Social Security benefits. This is because women benefit disproportionately from the program’s inflation-protected benefits (because women tend to live longer), its progressive formula for computing benefits (because they tend to have lower earnings), and its benefits for non-working spouses and survivors.