On the very day that a bleak jobs report showed how feeble the recovery is, the White House revealed that the president will propose a budget that features cuts in Social Security. This was designed to get Republicans to agree to negotiate a grand bargain on deficit reduction — or to prove that they are obstructing any deal.
House Speaker John Boehner’s reflexive reaction immediately revealed the political folly of the president’s ploy:
“If the president believes these modest entitlement savings are needed to help shore up these programs, there’s no reason they should be held hostage for more tax hikes.” (Emphasis added)
The exchange has Republicans salivating. Cutting Social Security becomes the president’s choice, not something extorted by Republicans. If Democrats stand for anything, it is defense of Social Security and Medicare, the United States’ most beloved and vital social programs, a proud legacy of the New Deal and the Great Society. The president’s negotiating ploy puts every Democrat supporting the president’s budget in a contested reelection race at peril in 2014. Democrats will face a flood of ads accusing them of wanting to cut Social Security and face the wrath of seniors who constitute a greater percentage of the vote in midterm elections.
If Democratic leaders Nancy Pelosi and Harry Reid have any sense, they will organize their entire caucuses and pledge to oppose any deal that cuts a dime from Social Security benefits.
The economics of the president’s proposal are even worse than the politics. The crisis we face in Social Security isn’t that the benefits are too generous; it is that more and more Americans lack the savings for a secure retirement. Decades of wage stagnation and the corporate rollback of pensions have sapped worker savings. The Wall Street wilding that produced the Great Recession savaged what little wealth workers had stored in the value of their homes when the housing bubble collapsed, as well as their 401(k)s and IRAs when the stock market imploded. Fifty-five percent of all workers have no retirement plan at work. Only about 15 percent of private-sector workers have traditional employer pensions with a guaranteed benefit.
Corporations used the turn to 401(k) individual savings accounts to drastically slash their retirement contributions. This hidden pay cut has had devastating effects. With wages not keeping up with costs, workers have been unable to save much on their own. Fifty-seven percent of workers report less than $25,000 in total savings other than the value of a home or a defined-benefit pension.
Many families are wracked by either the loss of a job or a medical crisis that upends their finances, exhausting their savings and forcing them to pay penalties to tap their retirement accounts. Yale political scientist Jacob Hacker has shown that more than one in five Americans lost at least a quarter of their available household income during the Great Recession.
Social Security’s austere payments — averaging $1,262 per month — replace only about 33 to 40 percent of annual earnings, when most experts argue retirees need about 70 percent of their income to maintain their living standards in retirement. Sixty percent of Americans receive at least two-thirds of their retirement income from Social Security, with the bottom 40 percent receiving 84 percent of theirs from Social Security.
Yes, we need to reform Social Security, but the reform should increase, not cut the income support that millions rely on. In an important political blueprint for sensible reform released by the New American Foundation, Michael Lind, Steven Hill, Robert Hiltonsmith and Joshua Freedman call for adding a supplement to Social Security that would guarantee all retirees about 60 percent of their average wage in retirement (similar to that of most other developed nations).
They would pay for the expanded benefit not by increasing the payroll tax rate but by eliminating tax breaks for the wealthy, particularly those now offered to private retirement plans that disproportionately benefit the wealthy (à la Mitt Romney’s famous $100 million IRA plan) They would also lift the payroll cap to make Social Security financially stable.
The authors argue that the United States would end up spending about the same percentage of gross domestic product on the overall retirement system, but with a much fairer distribution of support. This would also stabilize and improve the overall economy since the elderly will spend those extra dollars, giving a boost to aggregate demand.
The greatest power of a president is the power to set the agenda. He (or eventually she) is the great teacher, and Barack Obama is one of the most skilled. This president now could be informing Americans that deficits are plummeting and that we must address the human tragedy of mass unemployment. He could be rallying Americans to address the growing retirement crisis. He could focus attention on continuing to challenge the entrenched interests that drive up costs in our health system, the greatest source of our long-term debt concerns.
Instead he is fixated on more austerity, on a “grand bargain” that will include cuts to already inadequate Social Security payments. That is a lousy deal, not a grand bargain for most Americans.