Tag Archives: debt

The Battle to Save Social Security

The establishment consensus is accurately summarized by Martin Feldstein, “Preventing an explosion of the national debt requires slowing the growth of the benefits of middle-class retirees.” But the truth is the opposite: the middle class and poor need more help than ever.

David Callahan has written here at Policyshop that cutting Social Security is the wrong culprit in the deficit debate and is more important than ever with over 4 million seniors are living in poverty. Duncan Black argues in USA Today that, “The majority of people nearing retirement will not have sufficient funds to retire with anything resembling economic security and comfort.”

There has been a disturbing spike in poverty among the elderly, reports the Philadelphia Inquirer,

Poverty among the elderly is growing. And deep or extreme poverty – defined by the government as a single person earning $5,700 a year or less – has taken a jump that even experts find astonishing.

For men over age 65 nationwide, the rate of deep poverty increased 23 percent between 2011 and 2012, according to analysis by the National Women’s Law Center, a nonprofit advocacy group. For women, it went up 18 percent. Overall, that means a total of 442,000 elderly men and 733,000 elderly women were living in deep poverty in America in 2012, the center’s figures show.

A report by the New America Foundation, co-written by Demos analyst Robert Hiltonsmith, finds that,

This consensus [that Social Security must be cut] is not only misconceived in its diagnosis but also mistaken in its prescriptions and potentially disastrous in its consequences. Retirement security is often thought of as three-legged ‘stool’ consisting of Social Security, employer retirement plans, and private savings. Social Security has been far more stable and successful than the other two legs of the stool. The reliance on these other legs of the system has resulted in a retirement security crisis for most Americans, shifting costs and risks onto individuals, even as the benefits of these programs go overwhelmingly to upper-income earners.

The report argues for a new universal flat benefit called Social Security Part B that would supplement the current Social Security system to be paid from general federal revenues. The program would be a guaranteed minimum income for seniors. Social Security Part A would resemble the current system and pay out according to wages. This would replace the confusing mess of private but tax-favoured supplements that seniors rely on today.

Concerns about the inadequacy of Social Security are finally reaching the public discussion. Sen. Tom Harkin has introduced a bill that would use a new inflation measure to calculate Social Security benefits. The new measure (called the CPI-E) would more accurately take into account the fact that seniors spend more money on medical goods.

Sen. Sherrod Brown is joining Harkin’s fight to increase Social Security benefits: “Senator Sherrod Brown is joining the push to expand Social Security, and he’s making a startling argument: Dems should go on offense on entitlements, rather than let Republicans and Beltway fiscal scolds frame the discussion as one over how much benefits should be cut, not one over whether they should be cut at all.”  He wants Democrats to go on the offensive, fighting for seniors who are finding out that their pensions are weaker than they thought.

He is joined by Bernie Sanders, who is on the budget committee working to eliminate the sequestration. Sanders writes in USA Today, “We must not cut Social Security, Medicare or Medicaid… Let’s be clear: Social Security is not an entitlement program. It is an earned income benefit that has been enormously successful in cutting the rate of senior poverty.”

Although the push-back against the “Very Serious People,” is welcome, it may appear surprising that it took so long to mobilize politicians in support of such a popular program. The political explanation for the backwards debate about Social Security is simple. Wealthy citizens have entirely divergent opinions for the average citizen and Congress is far more likely to listen to the former than the latter.  Larry Bartels, Benjamin Page and write in a 2013 paper on inequality and political preferences, “There was also a tendency for the wealthiest respondents to tilt even more than the less wealthy toward cutting back Social Security specifically.” Even while the Washington establishment discuss cutting social security, 75 percent of Americans favor discussing increasing benefits.

The explanation is simple: the wealthiest Americans don’t rely on Social Security (see chart).

Source: “Income of the Population 55 or Older, 2010” Table 10.5

As Brown explains in The Washington Post, “ ‘The Serious People — with a capital S and a capital P — all have really good pensions and good health care and good salaries…Raise the cap. There are ways we can bring a lot of money into Social Security. Some Democrats are a bit cowed by the Serious People.’ ”

At the same time, new research finds that Social Security is failing minorities and redistributing wealth from high earners to low earners. Stuerele, Carasso and Cohen concluded in 2004 that “less educated, lower-income, and nonwhite groups benefit little or not at all from redistribution in the old age and survivors insurance (OASI) part of Social Security.” This can be partially explained by the fact that poor people and minorities often lack health insurance and suffer bouts of unemployment that decreases their benefits.

Although a complete overhaul of the system, like the one proposed by the New America Foundation/Demos study, would be ideal, minor reforms are more likely to be political successful. One possible reform is to raise the cap on the Social Security tax, currently at $250,000. This would require wealthy individuals to pay more into the system. The system could also develop a more progressive benefit scheme, increasing benefits for those with low lifetime earnings unlikely to have a private pension.

The conventional wisdom in D.C. is that SS is a threat to the deficit and needs cutting. But, as J.K. Galbraith wrote of conventional wisdom, “The conventional view serves to protect us from the painful job of thinking.” Today the conventional wisdom is that Social Security needs cutting. It needs expanding, and thanks to Senators Brown, Harkin and Sanders it may well be.

A Quick Primer on Why The Debt Ceiling Debate is Absolutely Insane

House Republicans originally shut down the government to defund the Affordable Care Act (because the 46 votes to repeal it and numerous efforts to under fund it have already failed). Now, they want a debt-ceiling increase to be tied to a “grand bargain” to reduce the federal. Both of these developments give us insight into the actual goals of Republicans. They don’t want to cut the deficit; they want to shrink government down to the size where the can drown it in the bathtub. And their not going to let reason, empathy or constitutional procedure stop them.

Let’s start with the plan to defund Obamacare or shut down the government. The premise here is that the ACA will represent and unprecedented government takeover of a private institution (read that twice, it’s wrong on three counts). But the new story is that the ACA will cause the federal debt to spiral out of control. This argument is even worse.

Dean Baker and Peter Rosnick have shown that if U.S. healthcare costs were in line with healthcare costs of other developed countries the U.S. federal deficit as a percentage of GDP would decrease over the next 80 years.

Healthcare costs are the most important driver of the deficit, and the Affordable Care Act represents a significant step towards reigning in healthcare costs. This isn’t just liberal propaganda, it’s the assertion of non-partisan groups like The Urban Institute, Kaiser Family Foundation and CBO. Certainly the recession has played a large role in the slowdown in healthcare cost growth, but the Affordable Care Act is also responsible, only three years after being signed into law.

 All of this is happening despite the fact that Republicans have constantly worked to undermine the program by rejecting Medicaid expansion, underfunding the program and refusing to set up healthcare exchanges. Threatening to defund the ACA to get deficit reduction is akin to closing gyms to reduce obesity. But that’s the catch: the GOP isn’t trying to reduce deficits (“they don’t matter,” said Dick Cheney) they’re trying to reverse Obama’s signature legislation. In their war to destroy Obamacare, Republicans are shutting down the government, denying millions of poor people Medicaid and fomenting a constitutional crisis. But the debt-ceiling hostage negotiations are even more absurd.

Republicans are also holding the debt ceiling hostage in exchange for an insane list of demands (essentially the Romney/Ryan presidential platform). The idea here is to force Obama to tackle the “out of control deficits” that are, well, already falling at the fastest rate in 60 years.

But the entire idea is absurd prima facie. The reason that most economists worry about high levels of federal debt are three-fold: the threat of default, a risk of high interest rates and the need for distortionary taxes. But a default on the debt would instantly bring about all the negative consequences. A default would instantly increase the interest rates at which the U.S. can borrow in the future as well as bringing about another recession. A recession would only push the federal debt higher by reducing tax revenues and increasing the number of workers relying on the social safety net.

These observations can point to only one logical conclusion: Republicans aren’t actually worried about the deficit or debt. If they were, they would have accepted one of the many grand bargain offers that Obama put forward, one that would have reformed entitlements while raising revenues. But they’re not. Republicans are fighting an ideological war against government, the deficit is just a means to an end.

The Republicans are Winning

Seriously. I realize that most polls indicate that Americans are putting the blame on Republicans for the government shutdown (the fact that a single voter blames the Democrats or Obama already means the Republicans are winning). But in terms of actual politics, the Republicans are definitely winning – in fact, they have been for the last five years.

Obama has lost Waxman-Markey (climate change), Manchin-Toomey (gun control and the Gang of Eight (Immigration). Dodd-Frank (finance reform) has been dismantled and hasn’t even begun to correct the damage wrecked by Gramm-Leach-Bliley (which repealed Glass-Stegeall) and the Commodities Modernization Act (deregulating derivatives).

Remember that his healthcare reform was supposed to include a public option, universal Medicaid expansion and exclude the Cadillac tax. Ideally, of course, we would move to single-payer or socialized medicine, but this is America! We’re exceptional! Guess who said this in 2008: “ I mean, if a mandate was the solution, we can try that to solve homelessness by mandating everybody to buy a house.” Yeah, that’s right. Obama. His agenda has been so decimated that he’s literally having to pass of old moderate Republican ideas as genuine leftism, and he’s still being called a commie!

Obama has been negotiating with sociopaths for the last five years. He came in ready to bargain, but has instead met a party immune to compromise. Obama has gained literally nil in revenue, while spending has been cut drastically (and foolishly). Now, he’s being asked to give up his major (only?) legislative victory for absolutely nothing in return. In fact, the Democrats position right now is to beg for a “clean-CR” that would cut spending below Paul Ryan’s first budget and basically to the level he proposed for 2014. That’s right, the current Democratic position is to cut funding roughly to the level of what the psychotic Rand Acolyte/Republican “idea” man is asking for. Dear readers, let me restate this one more time. The Democratic position right now is to keep in place a law based around a Republican idea and cut spending below what Republicans wanted in 2010.

Not only that, but Republicans are holding the government hostage to reduce the deficit while the deficit is already falling. So why are they still fighting? Here’s one possible reason. But more likely it’s because, wait for it: Republicans aren’t really worried about debt. If they were, they wouldn’t be holding the debt ceiling hostage, since all of the negative effects that would come from high levels of debt (possible default, higher interest rates) are guaranteed if the U.S. defaults. Rather, the Republicans, in the words of Grover Norquist, “want to make government so small you can drown it in a bathtub.” Republicans aren’t really that concerned about spending, as long as it’s for rich farmers or connected defense contractors. They don’t want to pass legislation; they want to obstruct it, following Limbaugh’s advice: make him fail.

So how are they doing? Well, if the clean CR passes, spending in FY 2014 will be $217 billion below what President Obama requested and $19 billion more than what Paul Ryan requested. That sounds like a victory to me. Worse, here’s how many bills have been passed during the last 13 congresses. Republicans have essentially stopped Congress from doing it’s most basic jobs: passing bills and appropriating funds.

The Republican quest to cut spending and taxes while not actually doing anything hasn’t been stalled by the fact that they lost the presidency, the senate and got fewer votes in the House than the Democrats. They’ve so dramatically shifted the conversation that they are still winning.

The truth is, Republicans have been winning since the 80s and haven’t stopped. The Clinton/Obama domestic agenda is right of Nixon/Eisenhower. There is no left in America. Democrats would qualify as center-right in any other country, while the Republicans would constitute a fringe right-wing nationalist party that generally takes in 10% of unemployed alcoholic racists with free time to come up with crazy conspiracy theories. The Tea Party patriots would be bunkered underground prepping for a coming apocalypse. In America, they are a major national party, holding the government hostage for even more draconian spending cuts (and maybe some tax giveaways for their rich friends). As long as they keep gerrymandering districts, make sure blacks don’t get to vote and take a never-compromise position, Republicans will keep winning. I just wish they could stop whining.