Tuesday, December 21, 2010

Targeting Social Security

When President Obama recently negotiated with Senate Minority (that would be Minority- not Majority) Leader Mitch McConnell a tax deal the GOP probably thought it would be hard-pressed to get with a Republican President, a Republican House, and a Republican Senate, temporary reduction of the payroll tax was included.

Representative Rush Holt (D-NJ), who courageously voted against his President and the legislation, noted the "founders of Social Security succeeded in making the program not just an income redistribution program that puts a financial floor under working people but also a program of wage insurance accounts for which individual workers feel ownership." He warned the payroll tax cut would "put in jeopardy the long-term survival of Social Security" and explained

The negotiated tax cut agreement would include a reduction in an employee's contribution to Social Security from 6.2 percent to 4.2 percent of salary. This could have a beneficial stimulative economic effect. However, it also puts Social Security squarely in the middle of the debate over Bush tax rates for higher incomes and middle incomes, business expensing tax deductions, and the Alternative Minimum Tax. The White House says that the long term solvency of Social Security will not be affected because it will replace from the general treasury fund the $112 billion of revenue lost by the 2 percent tax reduction. But that is just the problem. In Social Security's history such a commingling of payroll taxes and money from the Treasury is unprecedented.

Social Security is not just another government program like the Park Service or the National Endowment of the Arts, with money given to it some years and taken from it other years, and it is not just a mechanism for stimulating the economy some years or balancing the budget other years. If it were, Social Security would not be long for this world.

The threat to Social Security is not limited to the recently enacted provision.

Recently, fiscal commission co-chairment Erskine Bowles and Alan Simpson, recognizing that their commission would reach no consensus, issued their own set of proposals which would include these cuts to Social Security:

- raise the retirement age to 69 by 2075;

- index benefits to the inflation rate, which normally would result in lower cost-of-living raises;

- "increase progressivity of benefit formula," a kind of means-testing.

Fortunately, they recommend also raising the Social Security contribution ceiling so that it captures 90%, rather than what is currently approximately 86%, of the total potential taxable wages wages.

Journalist and economist Robert Kuttner, in an opinion piece in Politico, notes

a scheme for the president to embrace much of the Bowles-Simpson plan — including cuts in Social Security. This is to be unveiled, according to well-placed sources, in the president’s State of the Union address.

The idea is to pre-empt an even more draconian set of budget cuts likely to be proposed by the incoming House Budget Committee chairman, Rep. Paul Ryan (R-Wis.), as a condition of extending the debt ceiling. This is expected to hit in April.
White House strategists believe this can also give Obama “credit” for getting serious about deficit reduction — now more urgent with the nearly $900 billion increase in the deficit via the tax cut deal.

Kuttner argues

For a Democratic president, this approach is bad economics and worse politics....

Consider what the right will do when Obama moves to cut Social Security. Republicans, with no sense of contradiction or hypocrisy, will whack Obama once for not being sufficiently serious about deficit reduction — then whack him again for cutting Social Security.

We don't have to imagine what the right will do. Kuttner makes a passing reference to Medicare. Early in the health care debate, the CBO estimated that the President's health care proposal would increase the deficit- and the GOP, and its talk-radio handlers, crowed. Later, Obama inserted cost-cutting provisions, including cuts in Medicare funding to hospitals and nursing homes- and the GOP turned around and attacked the President for "cutting Medicare." Although this was not part of the party's "death panel" fantasy, it helped legitimize, in voters' minds, that incendiary charge.

It matters not that Republicans have been trying to undermine the Social Security system, through privatization or otherwise, for years, just as they could condemn the Democratic Party for allegedly targeting Medicare when that has been a prime thrust of their party for years. Three years before moderate- moderate!- Republican George Herbert Walker Bush in 1961 would call Medicare "socialized medicine," Saint Reagan- years before he was canonized- charged proponents of Medicare with promoting "simply an excuse to bring about what they wanted all the time -- socialized medicine."

If Kuttner's prediction about the State of the Union address bears out, it will be another example of, in the words of Senator and Minnesota punter Al Franken, the President "punting on first down." Its impact would be severe, as Kuttner notes:

Republicans win three ways. They have a Democratic president doing their work for them, destroying the Democratic capacity to use affirmative government to address dire national problems and annihilating his own party.
And all this before they even take over the House

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