Off the Charts Blog | Center on Budget and Policy Priorities

Most future Social Security beneficiaries would experience a benefit cut averaging about 2 percent over the course of their retirement from the President’s proposal to adopt the chained Consumer Price Index (CPI) for computing Social Security’s cost-of-living adjustments, our brief report explains:

• For beneficiaries receiving an average benefit, the reduction would average 1-2 percent.

• For beneficiaries receiving smaller-than-average benefits, the reduction would be smaller, likely in the 0.5 percent to 1.5 percent range — except for beneficiaries poor enough to qualify also for Supplemental Security Income (SSI), who would be held harmless.

• For beneficiaries receiving higher-than-average benefits, the reduction would be larger, averaging 2 percent or slightly more.

The proposal includes features to mitigate its effects on low-income and older beneficiaries:  a benefit “bump” that phases in gradually between ages 76 and 85 (as well as a second increase between ages 95 and 104).  It also exempts means-tested programs — notably SSI for very poor seniors and people with disabilities — from the switch to the chained CPI.

The graph shows how the proposal would affect three illustrative future retirees. Shifting to the chained CPI would reduce annual cost-of-living adjustments (COLAs) by about 0.25 percentage points a year for all three, according to Congressional Budget Office projections.

The cumulative impact of this reduction would grow over time but would be offset by the benefit bumps beginning in a recipient’s 70s and 90s.

Current beneficiaries would suffer smaller losses than future beneficiaries at any given age.  Current beneficiaries now 69 or older receiving an average benefit would receive lower benefits than under current law for the first ten years, but generally would receive higher benefits than under current law in years after that.  After 15 years, the cumulative change in benefits for the average current beneficiary would be near zero.  Current beneficiaries receiving smaller-than-average benefits would come out ahead if they lived more than ten or 15 years.

The National Senior Citizens Law Center and Latinos for a Secure Retirement will host an event tomorrow to spotlight Supplemental Security Income (SSI) — an important but oft-ignored program that provides cash income to people who are disabled, blind, or elderly and have little income and few assets — and discuss ways to improve it.

President Nixon and Congress created SSI in 1972 to replace the matching grants to states that had created what the Social Security Administration (SSA) called a “crazy quilt” of aid to the aged, blind, and disabled.  SSI is distinct from the Old-Age, Survivors, and Disability Insurance (OASDI) programs commonly known as Social Security, though many SSI recipients have worked enough that they also collect Social Security and SSA runs both programs.

In December 2012, 8.3 million people collected SSI:  2.1 million people aged 65 or older, 4.9 million disabled adults aged 18-64, and 1.3 million severely disabled children under age 18.  Until the deep economic downturn generated a modest uptick, SSI participation had generally been flat or falling as a share of the population since at least the mid-1990s (see graph).

SSI benefits alone don’t lift recipients out of poverty; the maximum benefits for individuals and couples (when both spouses qualify) are about 74 percent and 83 percent of the poverty level, respectively.  But SSI is instrumental in reducing extreme poverty (incomes below half the poverty line).  SSI benefits are lower when recipients have other income (or live in a Medicaid facility or with relatives who provide support), so the average federal payment is $500 a month.

Improvements in SSI should aim to boost participation among eligible people and make benefit levels more adequate.  Possible reforms include raising the basic benefit, raising and indexing the badly outdated asset and income limits (the asset limits have been frozen since 1989), changing rules that discourage saving for retirement, and extending SSI eligibility for elderly or disabled refugees, a uniquely vulnerable group.

In last week’s post for the US News & World Report Economic Intelligence blog, I drew on CBPP analysis to argue that any further compromise on the budget from President Obama would endanger core guiding principles for deficit reduction.  Here’s the opening:

The deficit-reduction package President Obama included in his budget submission this week, like the Senate Democratic budget I discussed here a few weeks ago, is the kind of plan that should appeal to centrist pundits and budget analysts. But the President has gone about as far as he can go to try to compromise with Republicans if he wants to maintain the core principles that deficit reduction should be achieved through a balanced package of revenues and spending cuts and that it should not increase poverty or inequality.

You can read the whole post here.

News stories and bloggers continue to point to Hale County, Alabama, as the prototypical example of a place where many residents receive federal disability benefits.  But, Hale County is anything but typical.

We think that about one in five Hale County residents between 20 and 64 receives disability benefits from Social Security or Supplemental Security Income, based on data here and here. That’s far above the national average of about one in 16.  We’ve previously pointed out that disability receipt varies by geography.  Several facts make Hale County an outlier:

• An unusual age distribution.  Among Hale County’s working-age population, relatively few are under age 50, and large numbers are aged 50-64 (see chart).  The risk of disability rises sharply with age.  People are roughly twice as likely to be disabled at age 50 as at 40, and twice as likely to be disabled at 60 as at 50.  Hale’s demographics put its population squarely in those high-risk years.

• Low educational attainment.  Hale’s high-school completion rate, at 71 percent, is well below Alabama’s (81.9 percent) and even further below the national average (85.4 percent).  Limited education narrows the kind of work that people can do and their ability to move into other jobs when impairment strikes — which is why the law specifically directs the Social Security Administration to weigh vocational and educational factors for older workers when sifting through disability applications.

• A lopsided industry mix.  Compared with the nation as a whole — and even with Alabama — employment in Hale County heavily skews toward farming, forestry, fishing, and manufacturing.  As we’ve noted, areas with a blue-collar industry mix (such as this one) tend to have higher rates of disability receipt than more service-oriented economies, because the work is arduous and the skills often not transferable.  One of Hale County’s main industries, catfish processing, exemplifies the kind of slippery, noisy, and physically demanding work that would be impossible for someone with severe impairments to perform.

The Robert Wood Johnson Foundation ranks Hale 65th out of 67 counties in Alabama — and even further behind national norms — on a variety of health measures.  Hale’s statistics on premature death, lack of health insurance, the number of doctors and dentists per capita, motor vehicle crashes, and even access to safe drinking water are bleak.

These facts show not just how untypical Hale County is — but how important the disability programs are in providing a safety net for some of our most vulnerable citizens.

To complement our statement on the President’s fiscal year 2014 budget, we’ve issued a report on its key elements.  Here’s the opening:

The President’s 2014 budget is presented in two parts.  One part includes the package of deficit- reduction policies that the President included in his last offer to Speaker Boehner during the “fiscal cliff” negotiations in December 2012.  This package would reduce the deficit by $1.8 trillion over the next decade and go somewhat beyond stabilizing the debt as a share of the economy, setting it on a slight downward path.  When coupled with the deficit-reduction steps that the President and congressional leaders already have enacted, this package would bring total deficit reduction achieved to $4.5 trillion over the decade.

The Administration has said that Congress could consider this deficit-reduction offer separately from the other proposals in the President’s 2014 budget.

While much attention in the coming weeks will focus on the deficit-reduction package, the rest of the President’s budget includes important proposals that also deserve serious consideration.  These include proposals to expand access to high-quality early education, funding to upgrade the nation’s transportation infrastructure, and measures such as the “Pathways Back to Work” fund to help people struggling in today’s labor market to prepare for and find jobs.  Taken together, the proposals are fully paid for and actually reduce the deficit slightly.

Click here for the full report.