Social Security: The Coming Cave-in
Far-reaching legislation to avert a Jan. 1 income-tax increase for millions won overwhelming support in a Senate test vote on Monday, propelled by an uneasy and unusual alliance between the White House and lawmakers in both parties. - Obama-GOP Tax Bill Clears Senate Hurdle With Ease, Associated Press, December 13, 2010Social Security: The Coming Cave-in
December 12, 2010Huffington Post - If you think the Democratic base is mad at Obama now for making a craven deal with Republicans that continues tax breaks for the richest Americans and adds new ones for their heirs through a big cut in the estate tax, just wait a few weeks until Obama caves on Social Security.
How will this occur? The deficit commission appointed by the President has called for an increase in the retirement age, as well as other cuts in benefits over time. And the deal that Obama made with the Republicans just gave deficit hawks new ammunition by increasing the projected deficit by nearly $900 billion over a decade. Social Security will be in the cross-hairs.
The deficit commission has tried to camouflage these cuts by emphasizing that Social Security benefits for the very poor would not be reduced, and might even be increased. But in the commission's proposal, the cuts would affect middle-class retirees. Larry Summers, who is stepping down as Obama's economic chief, has refused to rule out cuts.
Social Security has also been softened up by the element of the tax deal that temporarily cuts payroll taxes. Supposedly, the trust funds will be made whole by a transfer from general government funds. But this increases the deficit.
So Obama has created a kind of pincer attack on Social Security:
- One arm is the deficit commission, which has created the blueprint.
- The other is the tax-cut deal, which increases the deficit, adding to the artificial hysteria that Social Security is going broke.
According to columnist Charles Krauthammer, writing in Friday's Washington Post,
"Barack Obama won the great tax-cut showdown of 2010."The New York Times' resident right-wing pundit, David Brooks, also writing Friday, was peddling the same line:
Really? How did he do that? It sure looked like he got rolled.
"The President negotiated the biggest stimulus in American history, larger than the 814 $billion 2009 stimulus package."
"The fact is, Obama and the Democrats have had an excellent week," Brooks wrote. "The White House negotiators did an outstanding job for their side."When the right congratulates Obama for winning, you know he is losing. For starters, the proposed compromise isn't much of an economic stimulus. If the deal passes Congress, taxpayers will be paying the same income tax rates in 2011 and 2012 as in 2010. No stimulus there.
The only real stimulus is the temporary cut in Social Security taxes, the extension of unemployment insurance, plus a few minor tax breaks for regular people, totaling about $200 billion. That's a little more than one percent of a $15 trillion economy. Pretty puny, certainly a lot smaller than the inadequate stimulus of February 2009 when the recession was only beginning to deepen.
Except for the extension of unemployment insurance, which should be done out of common decency, most of the "stimulus" is pure Republican ideology -- stimulate the economy by cutting taxes. If that had worked, the huge tax cuts of the Bush years would have kept the economy out of recession.
There is not a nickel of public investment or direct job creation in this proposed deal. And it is well recognized by economists that in a recession, temporary tax cuts, especially tax cuts tilted to the rich, provide far less bang for the buck than public investment.
If Obama had fought for a deal that restored Clinton-era tax rates on the richest two percent of the population, and used the revenue for direct investment and job creation, that would have been a stimulus worth celebrating. And doubtless, commentators like Krauthammer and Brooks would be condemning it.
Because the Congressional Budget Office assumed that all the Bush tax cuts would expire on December 31, 2010, the tax-cut deal creates a new budgetary reality. Suddenly, the ten-year deficit will be almost $900 billion larger than projected.
This, in turn, will give new ammunition to the deficit hawks. And here is where Obama has set up Social Security to take the hit, unless he drastically shifts ground.
The supposed crisis of Social Security is a phony. Social Security is financed by payroll taxes. Reduce unemployment, increase wages, and the crisis disappears. Even with only modestly better unemployment rates and wage growth, the modest projected shortfall could be eliminated by eliminating the cap on income subject to tax.
A Democratic president with strong progressive principles and political nerve would have taken his party into the mid-term election pledging never to cut Social Security and daring Republicans to take a similar pledge. Instead, Obama appointed a deficit commission with a majority of appointees wanting to cut the Democrats' signature program -- thus blurring party differences on the Democrats' biggest political winner.
Obama also signaled Democrats in Congress that he might well include Social Security cuts as part of a grand deficit-reduction deal. If that occurs, the civil war in the Democratic Party will only deepen.
Coda: The other day, I was part of a conversation in which the question came up: If Democrats in Congress do hold their noses and vote for the tax-cut deal in order to prevent unemployment benefits from being cut off on Christmas, what might they ask of Obama in return? There is not a great deal that he can deliver legislatively, unless he decides to get serious about wielding his veto pen.
The best idea to emerge was this: Democrats should demand, in return for their aye votes, that Obama appoint Elizabeth Warren to chair the National Economic Council, to succeed the departing Larry Summers. Warren is the one senior administration official who has not stopped fighting to protect regular Americans. She is not a Ph.D economist, but neither was the man for whom the Council was created, its first head, Robert Rubin. Nor was Rubin's successor, Gene Sperling.
According to press reports, the man about to get the job is Roger Altman, an investment banker and former deputy to Rubin. Altman has been to the White House at least three times in recent weeks, and his appointment seems all teed up. Altman would continue the Wall Street dynasty around Obama -- the very gang whose reckless deregulation and speculation brought us the economic collapse whose damage is now being used to justify wrecking Social Security.
Getting Warren instead of Altman would almost justify voting for this stinker of a tax deal. Maybe Warren could even get Obama to think twice about the political and economic wisdom of throwing Social Security on the pyre of deficit reduction.
The Tax Deal and the Apocalypse
December 13, 2010Huffington Post - The proponents of the tax deal that President Obama and the Republicans negotiated last week have gotten out their TARP and Iraq War hysterics. All the important people are now telling us that if Congress doesn't approve the package, it will be the end of the world!
To be an important person in Washington these days requires a solid record of failure. That is why we have 25 million people unemployed, underemployed or out of the labor force altogether. And those who got us into this disaster are still overwhelmingly the ones calling the shots. So, people who want a realistic assessment of what the defeat of this tax package means for the economy may not want to rely on the usual suspects.
As I have noted before, the major risk of this deal is that it would undermine Social Security. The deal temporarily lowers the Social Security tax by 2 percentage points. In principle, the tax rate will go back to its current rate after the end of next year.
However, several prominent Republicans have already made it clear that they will call the expiration of this tax cut a tax increase. And they will point out that it is an extremely regressive tax increase that disproportionately hits low- and moderate-income workers.
At the end of the 2011, the unemployment rate is virtually certain to be well above 8.0 percent and quite likely above 9.0 percent. In this context, does anyone seriously believe that President Obama will refuse to go along with efforts by the Republicans in Congress to continue the tax cut beyond the scheduled deadline?
If the payroll tax is indefinitely lowered by 2.0 percentage points, then Social Security's finances will appear much more shaky. As it stands, Social Security is fully funded through the year 2037, but that doesn't keep the Washington Post and National Public Radio from running endless scare stories about the program's funding crisis.
If the payroll tax is permanently reduced by 2.0 percentage points, it would double the program's projected 75-year shortfall. This would give far more ammunition to the Social Security fear mongers.
While Obama's deal ostensibly provides for general revenue to be placed into the trust fund to make up the lost payroll tax revenue, there is little reason to believe that this funding would persist beyond the first year. Again, does anyone believe that President Obama will stand up for Social Security on this point?
In short, this deal is a very large first step toward cutting and/or privatizing Social Security. If the president wants to remove this risk, he can simply arrange to have the exact same tax cut given to workers from general revenue. There is no legitimate reason for the Republicans to reject this change in structure, unless their intent is to destroy Social Security.
It's really that simple. The structure of the deal would be changed unless the point is to undermine Social Security.
What about the threatened apocalypse if we don't do the deal? Well, the deal would provide a net stimulus to the economy and also give money to unemployed workers who really need it. Not getting this boost would be bad news.
But it is hard to stomach the whining from people who were too damned lazy or incompetent to think about the consequences of the collapse of an $8 trillion housing bubble. These workers are unemployed because the folks calling the shots messed up.
In other words, the reason that we have 25 million people unemployed or underemployed is that people like Ben Bernanke, Timothy Geithner and Larry Summers messed up royally on their jobs. Fortunately, for the folks on top, employment is not dependent on performance.
More to the point, this will not be our last chance to extend unemployment benefits or get additional stimulus. Unemployment benefits are hugely popular across the political spectrum. Even conservatives understand that the reason people are unemployed is because the economists messed up, not that the workers themselves lack the necessary skills or desire to work.
Congress will feel considerable pressure to extend benefits. In the same vein, the Republicans in Congress know that they will be evaluated in large part on the state of the economy in 2012. This means that they will have incentive to support additional stimulus, under whatever name they choose to give it.
In short, the train is not leaving the station. If this deal goes down, there will be other deals in the months ahead.
Remember, it was the Gingrich Congress that gave workers the first hike in the minimum wage in more than 15 years. They needed something to show for the 1996 elections. This Republican Congress is likely to feel the same pressure.
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