Social Security: Will Obama Cave?

AP Photo/Charles Dharapak

President Barack Obama looks toward reporters shouting questions at him regarding the fiscal cliff as he walks to the White House after attending a holiday party for the National Security Council.

Once again, President Obama seems to be on the verge of folding a winning hand.

Widely leaked reports indicate that the president and House Speaker John Boehner are making a fiscal deal that includes hiking tax rates back to the pre-Bush levels with a threshold of $400,000 rather than the original $250,000, and cutting present Social Security benefits.

Obama, the reports say, will now settle for as little as $1.2 trillion in tax increases on the rich rather than the $1.6 trillion that he had originally sought. The difference, in effect, will come out of the pockets of workers, retirees, the young, and the poor.

Especially foolish is the cut in Social Security benefits, disguised as a change in the cost-of-living adjustment formula. Before getting to the arcane details of the formula, here’s the bottom line. The proposed change will save only $122 billion over ten years, but it will significantly cut benefits for the elderly.

Because the cut is in the form of a change in the Consumer Price Index (CPI), the longer you live, the more is the total cut. On average, the cut is about 3 percent a year, but if you live twenty years after you start drawing benefits (the average), that adds up to over ten thousand dollars.

Put this in the context of the reliance of the elderly on Social Security. More than 70 percent of all recipients depend on Social Security for more than half their income. The average Social Security benefit is less than $15,000 a year, and in recent years all of the cost-of-living adjustments and more have gone to defray the annual increases in Medicare premiums and other health costs.

One interesting detail in Obama’s apparent cave-in on Social Security is the role played by some prominent liberals, notably Robert Greenstein of the Center on Budget and Policy Priorities (CBPP).

The proposed change involves a shift to something called the Chained CPI. Supposedly, when the price of something goes up, people substitute cheaper products. The application of the Chained CPI to the elderly (who are already scrimping) is problematic—more on that in a moment—but Greenstein has had kind words for disguised cuts in Social Security via the Chained CPI.

In a piece last February, Greenstein and colleagues wrote that a shift to the Chained CPI would be acceptable if it protected longtime Social Security recipients and those receiving disability benefits via Supplemental Security Assistance. The respected Greenstein’s support provides crucially important political cover for Obama’s cave-in. 

Why does the CBPP, which exists to defend social programs, accept this disguised cut?

There seem to be four major reasons. First, Greenstein’s operating principle is that programs for the poor, above all, need to be protected. Second, Greenstein has long been of the belief that making progress on deficit reduction helps safeguard programs for the poor. Third, Greenstein is always eager to remain a player—and providing this support to a beleaguered White House makes him a player par excellence. Finally, Greenstein also likes to stay on good terms with both the budget-balance crowd and the liberals. 

But this is one of those times when you need to decide which side you are on. 

I have a lot of admiration for the role Greenstein has played over the years. But on this crucial issue, I think his calculation is just plain wrong. Look at budget politics over the past decade. Joining the call for deficit reduction has hardly saved programs for the poor. Discretionary domestic spending, from which programs for the poor come, is at its lowest share of GDP since the Eisenhower years. 

The siren call of the austerity lobby is that Social Security spending is “crowding out” other social spending. But that doesn’t hold up either. Even in today’s weak economy, Social Security is in surplus. If we got back to full employment with decent wage growth, increased payroll tax receipts would keep Social Security in surplus indefinitely.

The other tactical error here is to allow the White House and Speaker John Boehner to play off ordinary Social Security recipients, many millions of who are just above the poverty line, against the very poor. Greenstein’s thinking seems to be that it’s okay to sacrifice other near-poor elderly if that conserves money for the poorest.

But it’s unconscionable to cut Social Security at all when then president is proposing to reduce the proposed taxes on the wealthiest by $400 billion—more than three times the savings of the planned cuts in Social Security.

Late yesterday, as the terms of the deal were leaked, Greenstein’s name was widely dropped as a key supporter. I reached Greenstein by e-mail late last night to ask if he really supported the proposed deal, and this was his response:

We don’t have enough info yet.  The White House tells me they will be seeking all of the protections we have said are essential, but the White House and Boehner have not gotten yet to this part of the negotiations, and the White House offer does not spell out specific details on the protections.  We are withholding judgment until we see what the details of both the chained CPI proposal and the overall package look like.

In other words, if the deal protects the poorest, SSI recipients, and longtime Social Security beneficiaries, Greenstein is on board. Since the austerity lobby has always invoked the need to safeguard the very poorest, this looks like where the deal is heading.

This budget agreement is very dubious politics for Obama and the Democrats on several grounds. For starters, Social Security cuts, disguised or otherwise, should not be in this package at all. Politically, such a deal erases the bright line that is the Democrats’ single strongest distinction from Republicans: We defend Social Security; they are willing to sacrifice it. Further, the politics of allowing the struggling, not-quite-poor elderly to be played off against the very poor are just appalling.

One other set of enablers are those liberals who say that at least a disguised cut in Social Security is not quite as bad as raising the Medicare eligibility age, a Republican demand that Obama has rejected. This chorus includes the sainted Paul Krugman, another resolute liberal who ordinarily earns nothing but our thanks and appreciation. 

But saying that cutting Social Security is not quite as bad as cutting Medicare sets a pretty low bar. Neither should be cut.

What happens now? Progressives in and outside Congress need to shoot down this trial balloon. They need to keep the heat on Obama to consent to nothing of the sort.

About that “Chained CPI,” (since you asked):

The premise of the “Chained CPI” is that the standard CPI overstates inflation because people regularly substitute products when they are more expensive. If beef is too pricey, people switch to chicken. 

There are two fallacies in this premise as applied to seniors. Most seniors already live so close to the margin of poverty that they have already done all the easy substituting, unless we expect them to further downshift from chicken to cat food, or to choose between filling stomachs and filling prescriptions. 

Moreover, the CPI as applied to seniors understates the true impact of inflation, not overstates it. As several studies have shown, the cost of health care has been increasing at more than twice the general rate of inflation, and seniors spend a far larger share of their incomes on medical care than younger Americans do.

To add insult to injury, the current very low-interest environment and the theft of corporate pensions leave the elderly with depleted incomes. If anything, rather than chaining the elderly to reduced annual CPI adjustments, their cost-of-living adjustment should be increased.

This promises to be an epic showdown. We will soon learn what Obama, the progressive community, and congressional Democrats are made of.

 

Comments

It is also worth noting that switching to the chained CPI will almost certainly hurt poor people who are not seniors, EVEN IF the various conditions CBPP has said are necessary to protect low-income programs are part of the deal.

For example, the federal poverty line (FPL) is currently updated each year using the CPI-U. According to CRS more than 50 low-income programs use the FPL in some way for eligibility purposes. The largest of these, of course, is Medicaid, but there are plenty of other big ones. It's very hard to imagine that an explicit shift to the Chained CPI in Social Security and the tax code, wouldn't also result (either immediately or in the near term) to shift to the chained CPI to update the FPL. Using the chained CPI to update the FPL will reduce the number of poor people who are eligible for many of these programs and reduce benefits in many of these programs. However, as part of its "conditions" for adopting the chained CPI, CBPP has ONLY called for excluding SSI and vet's benefits.

In short, at least from their public statements on this issue, CBPP's conditions don't even meet their own standard of "protecting programs for the poor above all else."

More generally, shifting to the Chained CPI to update the federal poverty line will only exacerbate the extent to which the FPL has officially defined deprivation down since being adopted in the 1960s. Because the FPL has never been adjusted for increases in real median incomes since the 1960s, it has fallen from about 50 percent of median income in the 1960s to about 30 percent today.

Correct me if I am wrong, but isn't one of the primary drivers of inflation the increasing cost of energy (in it's various forms)? If the 'Chained CPI' lives by the concept that the consumer will seek other, less-expensive alternatives...what can replace gasoline for the car or electricity or natural gas for the home? How about food costs? Switching to less expensive items will often require switching to less healthy, processed alternatives. Such a food shift would reduce quality of life and cause a cost shift to the healthcare system. The Democrats will completely lose me if they do not stick to their guns on the $250,000 income level and stay away from social security benefits.
I make about $120,000 per year. I would rather revert to pre-Bush tax rates for all rather than cave to the Republicans. We have a serious deficit and debt situation...reducing tax income generation as a negotiating tactic borders on the insane. Let the tax cuts expire then submit a new bill in the Senate to re-establish the tax cuts (or some level of tax cuts) to those under $250,000 income and restore expired unemployment benefits. Let the Republicans vote against it in the house to their peril. Re-establish full social security tax with-holdings. Expand income levels that can be taxed for social security and Medicare, if necessary. Raise the social security tax slightly to compensate for any future bumps in the road. Do not con us and do not try to manipulate us. We know that the social security fund is not the problem. We know that the Bush tax cuts were a huge contributing factor in past and current debt and deficit increases...especially the tax cuts for the wealthiest individuals. Policies changes need to reflect that reality that over the past several decades the economic status of middle income groups has decayed while the wealthy have substantially gained and this trend needs to be reversed...or our economy and society will fail.

This is not about Obama having "caved". This is HIS plan. Obama named Alan Simpson to the "catfood commission" did he not? Obama is the chief architect via the subsequent commission of the so-called "fiscal cliff" is he not?

This has been a set up all along, and it amazes me that so many are still so blind to the fact that Obama is busy triangulating for the benefit of the 1%.

Yes I just stated an OWS revealed truth that is still quite valid.

What is the surplus in the SS trust fund comprised of? The principal was lent to the Treasury over the years. The interest was credited as additional debt. Since 2010, to make up for the cash shortfall, interest has been redeemed with new general revenues, an immediate expense, and raising the deficit.
Is that what you call a surplus?
Don Levit

The GOP has told us for 30 years that government spending is mostly composed of waste, fraud, and abuse. So, cut taxes! But now that we are actually talking about spending cuts, the only thing that comes up is... drum roll please... Social Security! And this is necessary because we can't ask people to pay taxes in place during the 1990's. Even for the ultra-wealthy!

Seriously, I can't figure this out. Who in the hell runs this country?

In the dinner he had with conservative columnists on 10 January 2008, it is said that President-elect Obama told the assembly that he WANTED to "reform" Social Security and Medicare. I gather that he made clear that his meaning of "reform" was "cut." I've been expecting this for years. He almost got it in 2011, but luckily the Tea Party stopped him. Do we have to rely on the Tea Party again this yeat? I'm not sure we can rely on them. On the other hand, I was pretty sure he intended to attack Iran starting about March or April, so that he could be assured of reelection as a War President. That didn't come to pass, I'm not sure why. Maybe this is another illusion.B

The Social Security program has a $2.7 Trillion SURPLUS -- Obama must be told to leave Social Security alone.

It is unconscionable to trade away financial benefits -- to which America's elderly are legally and morally entitled -- just to spare America's super-wealthy from having to pay a bit more in taxes.

The Bush tax cuts -- that went mainly to the rich -- were put in place because President Clinton had left office with a federal budget SURPLUS.

Thanks to Bush's terrible actions and policies, Bush left office with a huge federal budget DEFICIT.

It is now time to restore tax rates on the rich to Clinton era levels.

That is just common sense.

But being common sense, Congress will undoubtedly not do it.

The short answer to the question, "Social Security: Will Obama Cave?" is yes, without doubt.

that is a good question! For me Obama is a really good president! Zahnarzt Schwabing

He almost got it in 2011, but luckily the Tea Party stopped him. Do we have to rely on the Tea Party again this yeat? I'm not sure we can rely on them. On the other hand, I was pretty sure he intended to attack Iran starting about March or April, so that he could be assured of reelection as a War President. That didn't come to pass, I'm not sure why. Maybe this is another illusion.B http://www.profischnell.de | http://www.profischnell.com | http://www.profi-fachuebersetzung.de | http://www.portedeurope.org

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