Sometimes when you look at the hype on Social Security from the right, you wonder what in the world is going on in the heads of the hypers. Here's the way it tends to go:
1) Social Security is meant to be an insurance program that pays for itself.
2) Down the road in 20 or 30 years it is predicted by Social Security trustees (using prudently conservative estimates based on present valuing for infinity the obligations of the trust fund) that Social Security will be {pick your term: insolvent, bankrupt} and as a result , the program will, at that future date, be able to pay only about 75% of the benefits promised to retirees (which will, nonetheless, exceed the benefits that are currently being paid to retirees).
3) So therefore we should "save" Social Security by "reforming" it now : the way to do that reform is not by lifting the cap (so the rich pay into the program the same way everybody else does) but by cutting benefits so that the program starts paying less benefits today to retirees.
When you write it out in stark terms like that, it becomes strikingly clear how idiotic these "reforms" are and how unprincipled the purported "reformers" are. As Paul Krugman noted in an earlier New York Times opinion piece, Krugman, The Geezers Are All Right, New York Times, Opinion (June 2, 2013), they are proposing preemptively decimating benefits today because the program might reach a situation decades off where benefits would be partially reduced of necessity if nothing at all is done.
[I]t does look as if there will eventually be a shortfall, and the usual suspects insist that we must move right now to reduce scheduled benefits. But I’ve never understood the logic of this demand. The risk is that we might, at some point in the future, have to cut benefits; to avoid this risk of future benefit cuts, we are supposed to act pre-emptively by...cutting future benefits. What problem, exactly, are we solving here? Id.
This is not unlike policies of voluntary war--we'll suffer a great harm now (going to war, with the huge cost now in weaponry and lives and the huge cost in terms of long-term care of injured vets later) because we might have to suffer it in the future. As we found in Afghanistan and Iraq, that speculative concern is a very poor excuse for going to war: the result of overthrowing a dictator may be extraordinary costs to the overthrower and the overthrown people and the result may breed more enemies than it kills them. Preemptive war mostly aides warmongers in the military-industrial complex and the private companies (mercenaries and arms dealers) that make money off of war.
Similarly, preemptive reduction of benefits in a program that does not yet require it to "save" us from having to make reductions in the future (since they've already been made and caused even more suffering in the here and now) is absurd. It smacks of no reason other than:
(i) the real possibility of so fooling so many of the people so much of the time,
(ii) being able to gain "kudos" with the government-and tax-haters, and (likely the real purpose, these earlier just being gravy to the doing of it)
(iii) protecting the real clients who are the corporatist wealthy campaign donors who want to see these social welfare (they like to call them "entitlement") programs ended so that their own true "entitlement" programs --preferential capital gains rates; preferential "carried interest" taxation of compensation for service to private equity funds; preferential retirement programs; and preferential taxation of offshoring and Big Oil, Big Pharma, Big IP and similar industries--can continue unabated.
Remember that Social Security serves real needs. To arrive at a decision to cut benefits, just because it seems to be the politically expedient thing to do given the anti-tax furor stirred up by the likes of the Koch brothers and Grover Norquist and the Tea Party groups, is penny-wise and pound foolish--and smacks of class warfare. Do we really want to return to the pre-Social Security situation of a large population of seniors with too little to eat and nowhere to live? Continuing to reduce benefits when wages have been declining for most ordinary Americans (while the tiny number at the very top of the wage pyramid see their wages mushroom) would be disastrous. Just look at the story in the New York Times today about the near-crisis situation for most retirees, even with Social Security. Jeff Sommer, For Retirees, A Million-Dollar Illusion, New York Times (June 9, 2013), at BU-1.
"We're facing a crisis now, and it's going to get worse," said Alicia Munnell, director of the Center for Retirement Research at Boston College. "Most people haven't saved nearly enough, not even people who have put away $1 million."
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And if you're not close to being a millionaire--if you're starting, say, with $10,000 in financial assets--you've got very little flexibility indeed. Yet $10,890 is the median financial net worth of an American household today . . ..
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Social Security is going to be a major, and maybe primary, source of income for people, even for some of those close to the top." [quoting Edward N. Wolff, economics professor at NYU]
The "cut benefits" rhetoric is made even worse when "protecting future generations" is added as to the mix as a "principle" that is claimed to underlie Social Security, as in the following
4) And we should do this in the name of caring about future generations, who should not "on principle" be "paying more" to support their parents' or grandparents' generations.
See, e.g., Robert Shiller's op-ed, Want to Fix Social Security? Use the Right Wrench,n New York Times (June 9, 2013), at BU 4 (claiming to be supporting a fundamental "principle" of Social Security that "one generation shouln't be more burdened than another"). The problem with claiming this principle as an underlying principle of Social Security is that the original legislation provided benefits to a slew of seniors who hadn't paid into it anywhere near what they would be getting out of it (even with the then-likely life expectancies) which was made possible, of course, by demographics that led to increasing numbers in the workplace.
And it isn't clear that there is any reason to consider it essential as an underlying principle now. If we have an economy in which there is sufficient resources to support increased benefits for an aging baby boomer population--even if that means that current workers should be more highly taxed than workers were 20 years ago--why not do so?
We know that we could increase the amount available by simply removing the payment amount cap on wages taxed, while continuing a payout cap based on a reasonable index --ideally, a more generous one than currently used. That just requires the really rich to participate in the insurance system in a way similar to everybody else. We could also make the system more intentionally redistributive, with significantly higher payments in the "bottom bracket" of paid-in amounts (to everybody) and rapidly descreasing payments in additional brackets of paid-in amounts. After all, most insurance is redistributive according to the degree of loss, with higher payments to those that suffer great losses made possible by the more or less consistent premiums paid by everybody, including those who suffer few losses.
n The footnote
I've put a footnote indicator at the Shiller article because there is a lot more about this Shiller op-ed worth pointing out. Shiller is a Yale economist--a profession that too often seems to be at the center of all discussion of tax policies but that tends to spend too much time trying to sound scientific (by reducing everything to equations) and thus missing the mark on truly understanding economies.
- Shiller's op-ed starts out talking about the "mere 20 years" when Social Security is predicted to run out of reserves and noting the proposals for addressing that problem.
- His second sentence states as near fact that "the public [is] apparently opposed both to tax increases and benefit cuts" to address the problem.
That raises red flags for me. I'm not convinced of the truth of the statement on increasing taxes. I consider it quite plausible that a survey in which the public was asked, in a reasonable framework, about increasing taxes to support Social Security benefits would yield a majority that favor removing the cap on wages to which the Social Security tax applies. If you gave people enough information, it might even be likely that a majority would support removing the preferential rates for capital gains and applying the Social Security tax to all income.
- He gets something right: "[t]he purpose of Social security is to help families."
This is something that many on the right tend to ignore when talking about Social Security--it's all treated as a matter of "personal responsibility" (the dislike for so-called "entitlements"--even though these entitlements are earned benefit programs and the push for privatization--as though that would automatically make people able to save enough to take care of themselves no matter their actual financial condition) and fiscal sanity (the tendency to emphasize the potential future shortfalls in benefit payouts as a justification for reducing benefits today, and the implication that otherwise we will face an unimaginably steep deficit, etc.). Very little is about the importance of a social safety net to ensure that our seniors (and children) are not left in dire circumstances, poverty-stricken in a rich country.
- He spends the first third of the article seemingly moving towards providing a solution to "the problem"--that if nothing is done, "the Trust Fund runs out in 2033" and the system would only be able to pay about 75% of promised benefits. He discusses the current indexing system, Obama's proposal (which would reduce benefits, stupidly), and then his "alternative" proposal--to index benefits to GDP, leading to increases in growth periods and potentially cutbacks in recessions.
- Then he admits that his "alternative" (offered as an alternative to suggestions for changing the index to address the problem of insolvency, since tax raises and benefit cuts are disliked by everyone) doesn't address "the identified problem" of potential future insolvency
- But he claims the change should be adopted because it would instead "support the principle that one generation shouldn't be more burdened than another."
This is said as though this "principle" is something everyone recognizes. But let's be clear--there is no per se reason that one generation should be less burdened than another. It depends on need and ability to pay.
As we came out of the Depression and WWII, the younger generation was quite clearly the one burdened with paying for the older generations who had contributed very little for the benefits they were receiving, appropriately so. Even if we end up with fewer workers supporting more baby boomers during the baby boomers retirement years, that's okay--especially if we are wise enough to remove the cap (as suggested above). There is no inherent injustice in that. The injustice would only come into play if the sacrifice asked of a later generation was so great that it outranked the offsetting sacrifice that would be asked of the earlier generation in cutting benefits. That is hard to measure, for sure, and not obviously true merely if later workers pay slightly more in taxes to support earlier workers.
Now, there may be some good reasons for changing the index to a dirrect correlation to GDP, as Shiller suggests. But the op-ed left me wishing he had just addressed that. All his cloaking of his proposal in language that would get the attention of those on the right--talk of insolvency, talk about tax increases not being on the table, talk about the current proposed solutions to the "problem" and his "alternative", which turns out not to be an alternative solution but an alternative indexing proposal that is being proposed for different reasons than the ones that underlie the proposals his is an alternative to--distracts from the meat of his article.
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