Why Social Security should be expanded

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Expand Social Security infographic via Democracy for America.

Click on Even when you do everything right, life happens for a case study by “Digby” on Hullabaloo.

Hat tip to Eschaton.

What not to do about Social Security

Recently the Institute for Policy Studies ran a comparison of how proposed reductions in Social Security benefits—raising the retirement age, and lowering cost of living adjustments by means of the Chained CPI—would affect a home health aide, 51-year-old Rhonda Straw, and corporate CEOs Stephen Hemsley of UnitedHealth Group, the largest U.S. health insurer, and Larry Merlo of CVS Caremark, the largest U.S. drug retailer.

Click on Inequality in the Social Security Debate for the full IPS article.

What to do about Social Security

Sometime within the next couple of decades, barring surprises, the Social Security trust fund will be exhausted.  That doesn’t mean there will be no money to pay Social Security benefits.  It means that the accumulated surplus funds earmarked to pay for the Baby Boom generation’s retirement will be exhausted, and payroll taxes won’t be enough to cover full benefits.

One way to deal with this is to raise the cap on payroll taxes, as proposed by Senator Bernie Sanders, an independent from Vermont.  Neither President Obama nor the Democratic and Republican leadership in Congress is considering this.  Instead, their method of heading off a future reduction in benefits is a present reduction in benefits, either through raising the retirement age or reducing cost-of-living increases by calculating them with the Chained CPI.

Obama sells GOP agenda to Democrats

The battle now going on in Washington over taxes and entitlements is a fixed fight.  Democratic and Republic leaders now agree that crucial safety net programs such as Social Security and Medicare would be cut.  The only question is whether reductions in entitlements will be accompanied by moderate tax increases on the upper-income brackets, as the Democrats propose, or not, as the Republicans insists.

I blame President Barack Obama more than I blame right-wing Republicans such as Rep. Paul Ryan.  It is obvious what Ryan’s objective is—to destroy the social safety net, minimize taxes on rich people and give free rein to corporations.  And his supporters are in full agreement with his objective.

Obama’s actions are the opposite of his rhetoric, and, unlike with Ryan, the opposite of what his core supporters want.   I oppose the whole right-wing corporatist coalition—Ryan, Scott Walker the Koch brothers, the American Legislative Exchange Council and all the rest.  But I feel betrayed by Obama.

When it comes to the Bill of Rights, President Obama lacks the courage to do what’s right in the face of public opinion.  But when it comes to going against the economic interests of his core supporters, he does possess the courage, as well as the political skill, to enact unpopular policies that are deeply wrong.

I forget who said that if Barack Obama is a liberal, he is an idiot, but that if he is a conservative, he is a genius.   I think he’s a genius.  Who else could have created a situation in which Democrats regard attacks on Social Security and Medicare as the moderate liberal position?

Social Security fund insolvent? running dry?

SOCIAL SECURITY CLOSER TO INSOLVENCY: Government says trust funds will run dry in 2033.

That was the headline over the lede [1] story this morning in my local newspaper, the Democrat and Chronicle.  Stephen Ohlemacher, the Associated Press reporter, began as follows:

Social Security is rushing even faster toward insolvency, driven by retiring baby boomers, a weak economy and politicians’ reluctance to take painful action to fix the huge retirement and disability program.

The trust funds that support Social Security will run dry in 2033—three years earlier than previously projected—the government said Monday.

There was no change in the year that Medicare’s hospital insurance fund is projected to run out of money.  It’s still 2024. … …

But then when you get to paragraph six, you learn what “running dry” means.

If the Social Security and Medicare funds ever become exhausted, the nation’s two biggest benefit programs would only collect enough money in payroll taxes to pay partial benefits.  Social Security could only cover about 75 percent of benefits, the trustees said in their annual report.  Medicare’s giant hospital fund could pay 87 percent of costs.

In other words, Social Security and Medicare will not have run out of money when the funds “run dry”.  The two programs will have used up the surplus in the Social Security and Medicare trust funds that were created by increasing payroll taxes during the Reagan administration, in anticipation of the retirement of the Baby Boom generation.  There are different ways this could be handled, including a moderate increase in the ceiling for payroll taxes.  But Social Security and Medicare will not be broke.

The estimated date that Social Security and Medicare will exhaust their surpluses fluctuates a great deal from year to year, depending on changes in the current state of the economic and forecasts for the future.  By some past estimates, these funds should already have been exhausted.

There is a larger issue than the amount of Treasury bonds in the Social Security trust fund.   Financial assets are not wealth, whether they be Treasury bonds, corporate stocks or bank savings certificates.  They are claims on wealth.  The real wealth is the amount of goods and services that are produced in any given year.  If the working-age population is not producing enough to support themselves and us retirees as well, that is a problem, no matter what we have in our retirement accounts or the Social Security administration has in its trust fund.

The answer is to somehow get back to a high-wage, full-employment economy, where somebody in their 50s who loses their job is not unemployable.  We need both better productivity and a more widely-shared prosperity. If a quarter of the nation’s increase in wealth is flowing to the upper 1 percent of the population, as it is now, there is not much left over for 85-year-old widows who depend on Social Security.  And if productivity increases are not keeping up with the increase in the aging population, then there is less to go around.   Of course we can improve the demographic balance by increasing the number of working-age immigrants.

Click on Robert Greenstein for a sober statement on the Social Security trustees’ report by the founder and President of the Center on Budget and Policy Priorities.

Click on Paul Van de Water for a sober statement on the Medicare trustees’ report by a senior fellow for the Center on Budget and Policy Priorities.

Click on Let’s beef up Social Security benefits instead of cutting them for a column by economics writer Michael Hiltzik in the Los Angeles Times. [Added 4/25/12]

Why Social Security matters

Unlike tens of millions of Americans, I have all of the “three pillars of retirement” that, in theory, everybody is supposed to have.  I was lucky enough to work for a company, Gannett, that offered a pension to long-term employees.   I was lucky enough to be able to save and invest some money in my working years.  And, finally, like almost all Americans, I have Social Security.

But Gannett could fail, or it could be so financially straitened that it would reduce or abolish its pension payments.  I don’t have a contractual right to a pension.  I get it through the generosity of my former employer.   The pension is a fixed amount, so its buying power diminishes over time because of inflation.  In Rochester, there are more Eastman Kodak retirees than there are Kodak employees.  If Kodak goes bankrupt, which seems possible, they lose their pensions and Kodak’s generous health insurance.  This could happen with any company.

I have my savings invested in conservative Vanguard and T. Rowe Price mutual funds.   Although they fell in value during the 2008 stock market crash, and haven’t gained much since then, I still have a good financial cushion.  Knowing the history of the 1929 stock market crash, I am aware there is no absolute financial security.

But if worst comes to worst, I have Social Security, which is indexed to inflation and which gives me enough to live on, if not necessarily to live as I like, and I have Medicare, which guarantees a basic minimum of medical care.  All the proposals before Congress to “reform” Social Security and Medicare are proposals to take away this minimum economic security, if not for me, then for future generations.

A lot of misleading information is being spread about Social Security by people who should know better.  Here is what is important to remember.

• Social Security is not broke.  The Social Security trust fund has been building up a surplus, in the form of Treasury bonds, since the 1980s.  There is enough in the fund to pay full benefits for decades, and a small increase in payroll taxes could maintain full benefits for as long as it is possible to foresee.
• Although the fund is no longer taking in as much in taxes as it pays out in benefits, it is still in the black because of accumulated interest on these bonds.  These “government IOUs” are regarded as the world’s most secure investment by foreign investors.
• Medicare, with all its problems, provides medical care with greater efficiency and less overhead than any profit-seeking corporate health insurance plan.

There is no reason – none – to offer cuts in Social Security and Medicare as a bargaining chip to make millionaires and billionaires give up their tax breaks.   There is no conflict of interest between generations.   It is as much in the interest of the younger generation to have a secure minimum income when they grow old to work as it is for us 70-somethings.

Click on What the 2011 Trustees Report Shows About Social Security for analysis by the Center for Budget and Public Priorities.

Click on Not Even Corp Mgmt Believe Their Own Equity Return Assumptions for reasons why corporate retirees shouldn’t count on their pensions.

Tom Tomorrow on Social Security reform