As Jed Graham noted in his 2010 book "A Well-Tailored Safety Net," Social Security actuaries have previously indicated just how much workers at various income levels would have to save as a percentage of their incomes over the course of a career to offset benefit cuts.Deborah tells us that Jed is her husband but he does have a good framework here. Whether my taxes will go up in the future or my benefits will go done, I’d like to know how much I’d have to decrease my lifetime consumption as a result and still end up with the same retirement portfolio. With this in mind, let’s read what Romney is proposing:
A close look reveals just how difficult it will be to close Social Security’s ballooning trust fund shortfall without new taxes, which he promises to avoid. It also shows that Romney’s approach will hit middle-income workers harder than the wealthiest, which may come as a surprise given his oft-repeated comment that he'll slow the growth rate of Social Security benefits for those with "higher incomes." As outlined, Romney’s plan closely resembles one proposed in 2006 by another Republican, former Utah Senator Robert Bennett. Both exempt people 55 and up, raise the retirement age to keep up with longevity gains (about one month every two years) and adopt some form of progressive price indexing that has benefits for the top grow only with inflation, while benefits for the lowest earners continue to reflect real wage gains. While Romney’s campaign hasn’t specified details when it comes to progressive price indexing, there isn’t much room for flexibility. Social Security Administration actuaries found that Bennett’s plan would cut promised benefits for a 22-year-old average earner -- someone making about $45,000 per year today -- by about 24 percent and a maximum-earner (making $110,000 and above) by about 35 percent. That seems progressive. But looks can be deceiving ... For an average earner, saving 1 percent of wages a year, investing it in Treasuries and cashing it in for an annuity would offset a 10.3 percent benefit cut. That means a $45,000 earner would have to save 2.3 percent of income, or $1,000 a year, to offset the 24 percent cut under the Bennett plan. Meanwhile, someone earning $110,000 would have to save 2.1 percent of pay to offset a 35 percent benefit cut (each 1 percent of pay saved can replace 16.8 percent of benefits for top earners). That means a $1 million earner, who pays Social Security taxes on only $1 of every $9 earned, would have to save just 0.23 percent of income to offset benefit cuts.That sounds like a regressive proposal to me. Now I’m sure Team Romney will try to deny all of this but Ms. Solomon should be congratulated on some excellent reporting.