By Matthew Rothschild on Dec 3, 2008
Barack Obama’s choice to head the budget office is on record favoring a reduction in Social Security benefits.
On Tuesday, Obama picked Peter Orszag to direct the Office of Management and Budget (OMB). Orszag believes that Social Security benefits should be cut back to help balance the Social Security Trust Fund over the next 75 years.
He spells out his views in a paper he wrote with Peter A. Diamond for the Brookings Institute back in 2005, called “Saving Social Security: The Diamond-Orszag Plan.”
In it, they call for “a reduction in benefits, which would apply to all workers age 59 and younger.”
The younger you are, the more you’ll get hurt.
“The reduction in benefits for a 45-year-old average earner is less than 1 percent,” the plan says. “For a 35-year-old, less than 5 percent; and for a 25-year-old, less than 9 percent. Reductions are smaller for lower earners, and larger for higher ones.”
In the paper, Orszag and Diamond come out strongly against replacing part of Social Security with individual accounts, which Republicans have proposed. The authors call this “a grave mistake.”
But Orszag and Diamond say that there is no free lunch in making sure Social Security remains solvent. So they propose cutting benefits and raising Social Security taxes.
The Social Security Trust Fund’s reserves are projected to run out in 2041. At that point, the system will be bringing in less than it is committed to paying out.
But the consequence of that may be exaggerated.
“It’s not exactly the end of the world,” write Dean Baker and Mark Weisbrot in Social Security: The Phony Crisis.
“For one thing, the Social Security system would be far from ‘broke.' While it would indeed be short of revenue to maintain promised benefits, it would still be able to pay retirees higher real benefits than they are receiving today. And the nation has managed obligations of this size in the past: the financing gap would be roughly equal to the amount by which we increased military spending between 1976 and 1986 (a period in which we were not, incidentally, at war).”
When Barack Obama announced his OMB choice, he said we “have to be willing to shed the spending we don’t need.”
Some of that spending may be on Social Security, if Peter Orszag has any say over the matter. And he’s in a position to have a big say.