Debt Ceiling Negotiations: Of Third Rails
As the debt ceiling chicken game gets closer to the wire (four weeks from… today?), the Obama Administration now proposes significant reforms (read “cuts”) to Medicare and Social Security. And even Eric Cantor seems to have “gone crazy” by considering closing tax loopholes. Desperate times/measures?
Rather than jump on the President for selling out once again, on this one, let’s acknowledge that his all-compromisy “third way” may be the only way to deal with the “third rail”… as critical as I have been of the President (largely but not exclusively because he sold me out– and many of his supporters– on “Guantanamo” and all of the imperial police state issues related thereto, and because Team Rubin/Summers/Geithner/Bernanke are fully responsible for the economic destruction of the modern world via unregulated “derivatives” and unlimited debt expansion) and the economically naive Obama kept them on), Medicare and Social Security need reform… contrary to what we are told, Social Security is insolvent now… the so-called trust fund is, indeed, an accounting fraud.
Well then… we needn’t worry too much about “the future” where only two workers must support each retiree… Social Security is insolvent now. General tax revenues subsidize the retirement program right now. Those crazies in the Tea Party, who sense “something must be done”… are right… just as, alarmingly, the only major politician (at least running for President) who happened to be right on the ’08 bailout is… Michele Bachmann.
Like it or not, Social Security is going to have to be means-tested, and otherwise carefully rationed, because it is presently not sustainable. Not even close. And Medicare (and its means-tested cousin, Medicaid) will have to change.
Of course, on that, American “health care” will have to change, in a systemically integrated way, starting with miserably low quality food (which is only nominally inexpensive… it’s insanely expensive counting its consequences, health, environmental, etc.), and our car-dependent life-style that, aside from its adverse environmental consequences, is also killing us. I’d like to know how our prescription drug addiction (something like 100,000 people die each year from taking prescription drugs as directed) compares to other countries… because I think the whole “micro” approach to medicine is driving the “macro” costs… and we have to consider radical change. But as with so many things, the implication that we can engage in any irresponsible lifestyle we like and then have pharmaceuticals bail us out is not only killing us, it is bankrupting our country… seems as psychically embedded as needing a car, even though that is mostly in our heads.
The President has suggested he wants to do “big things”… like it or not, restructuring (or even dramatically reducing) the signature social programs of presidents past may well be one of those “big things”… it doesn’t look like there’s much choice.
[Cross-posted to the talking dog blog.]
9 Responses to “Debt Ceiling Negotiations: Of Third Rails”
Those of us who know have tried and tried to enlighten the others about the unsustainability of the current entitlements, what the Trustees have said year after year about what’s to come (even when the more noteworthy details have been removed from the reports since Obama took over the White House and put Dems in charge of the federal executive), and how the federal budget will suffer fiscal problems because of entitlements (their deficits) long before the “trust fund” gimmick and Dem-exploited concept “runs out” [sic].
Your notes about the obvious — or what should be so goddamned obvious to everybody — not just the entitlements but demographic future problems with a rise in dependency ratios — are refreshing.
It’s particularly refreshing compared to the mindless deniers of problems with entitlements and mindless resisters of reform of any kind, or the pathetic people who whimper and sniff about how the entitlements are what the Democrats are known for, “the soul of the party,” et cetera, ad nauseum. Expect more of that…
DLS, me thinks your existence does not depend upon what little social security benefits you receive. There are people out there that need every penny they get… every penny they paid into the program.
A less hysterical take:
http://www.dailykos.com/story/2011/07/07/992060/-A-Non-Hysterical-Progressive-Analysis-of-so-called-Social-Security-Cuts-on-the-Table?via=siderec
To Break Deadlock Before Default:
There is a way forward out of stagflation without increasing deficits, tax cuts, tax increases or benefit cuts! It’s called “reflation,” proposed by economist Irving Fisher in the 1930’s. Our economy could be reflated with greenbacks, i.e., government – issued money created without debt. Panic asset crashes, deflations (1929, 2008) are worse than gradual recessions or bubble inflations. No Layoff Fairy awakens to the crash “Boom” to scatter pink slips on hapless employees. Business decision makers kill jobs, idling workplaces, causing worker skill depreciation, loss of homes and output, family pathologies. To choke off inflations interest rate hikes have no limit, but decreases to encourage reflation are limited to 0%. Consumer households lost $13 trillion in the panic. Washington can’t increase money’s velocity (exchange) even at near 0% interest by bailing out corporations. Republicans and Democrats have tried all each knows. It hasn’t worked enough. They have no breakout ideas.
The government could spend greenbacks on employing people, in temporary cleanup work for income, in buying and renting “underwater” houses, even in saving Social Security and Medicare. Before complaining “That would be inflationary,” remember: government money without debt paid our army to fight the Revolutionary war and win unity and freedom in the Civil War. A controlled reflation, some lowering the value of our currency, helps all debtors (including the U.S.) The debtor gets to pay his/its nominal debt balances in cheaper dollars.
Shannon,
Perhaps you’re rushing to judge incorrectly as other people have, to make one or more judgments, in fact, which are irrelevant to the facts: The entitlement programs are unsustainable and they will strike federal finances greatly long before the bogus “trust funds” are exhausted. (Redeeming the “trust fund” bonds to pay deficits so as to pay benefits in full requires money to be found elsewhere, and note that Social Security is running deficits already, which means the problems have begun already, even if many wish to be ignorant about this, too.)
I’m in no way hard-hearted toward those who need the money and in fact (something you ignore at least here) I have stated more than once that benefits will likely be found with more people after Baby Boomers to be inadequate (a claim that can be made now — the whining demanding “expectations” BS is just that, but that doesn’t mean that there are legitimate arguments to be made that current benefits are inadequate). I’m the one on this site who has said that many may find the benefits (truly) inadequate, so do not make false accusations of hard-heartedness or worse about me in this regard. (I’ve also said, in fact, that reforming the benefit part of Social Security and skewing benefits even more highly toward the bottom might mean a higher minimum someday; I’ve also said that the ultimate future reform would be an identical minimum for everyone, and likely a higher one than is the case now.)
In fact, if you have read before you’d know that I’ve said before I have qualified for both Medicare and Social Security disability long, long before retirement age — now, any time I want it, in fact; I had qualified for these arguably as early as 2004. I have paid close attention to disability and it occurred to me at once (and it should be so for everyone) that anyone going on disability instantly gets an introduction to what life would be like on Social Security for retirement as well. That is to say, it’s not a situation of destitution, but at around $2,000 monthly it’s hardly a lavish lifestyle, particularly in an expensive metro area, where arguably it can argued there is such a thing as “functionally poor” (working or not) even if income is above the poverty level. (That’s no doubt why many assistance programs have limits at 125%, 150%, or in a recent case as high as 400% of the poverty level. The latter was sheer political opportunism, expanding greatly the class of the beneficiaries for political purposes, but still, the poverty level is laughably and cruelly low. It’s a digression to mention the need for modern poverty research, but this, too, is something I have written about numerous times, unlike the liberals on this site.)
Social Security never has been a “pension” [sic]. It has never been meant to be a sole source of retirement (or even disability, arguably) income. But obviously for many that’s all they will have. (And if you read on this site and pay attention, you know that I have said that many more Baby Boomers will become wholly or mainly dependent on Social Security than they think currently, and when they do become so dependent, the [in]adequacy issue will develop and grow.) So much nonsense about higher and higher benefits in the name of “dignity” in 1960s fashion is repellent to anyone with intelligence and a sense of propriety, and I’ve not hesitated to make that known before. But I’ve also been at the forefront of saying, more than (indeed, unlike) any liberal on this site, that there may be real questions about the adequacy of Social Security income, in what is likely a more conservative — and austere — future political and economic environment. (I also smartly raise questions about means testing, not just because of the moral paradox with it and the cruelty of the “Medicaid trap” and related “estate recovery” that would be applied to Social Security and Medicare, too, but because were Social Security and Medicare to become poor-oriented, yes, the public would begin to lose support for it or not like it. How do politicians as well as the public feel about Medicaid as opposed to Medicare, already?)
I’ve been affluent and I’ve been poor, and I know from experience as well as observation and good thinking about both what it’s like to be both. And, while my statements have been correct about the entitlements without any need for experience, I also have that experiential tie that yes, does make those programs more real to me than to most of you who can just sit back and complain or complain about the complaints. I know what I write about here, and I have experience and familiarity that embellish it.
Social Security has never been a “pension” [sic] nor intended to be one’s sole source of income in retirement (or even disability). But for many it is just that, the sole source of income, and I have been far from hard-hearted but been the only one saying that despite the emotive ratcheting-upward expectations and demands by some (trying to buy votes, or just avaricious), yes, benefits can be said arguably to be inadequate, and I say this concern will grow in the future once the Baby Boomers retire. (Implicit in this is that many more people will have Social Security as their only income.)
* * *
What people get hardly relates to what they “paid into” Social Security. Typically after a few years, in fact, they get more than they ever paid. (The very first recipient, Ida Mae Fuller, was a special case; she had paid next to nothing “into” Social Security, but lived to 99 and received Social Security her entire retirement.) Social Security and Medicare are pay-as-you-go programs; the current money paid goes to current retirees. There is no shoe box in Baltimore with your name on it holding your “contributions” or “investments” [sic!]. The program is unsustainable; reform is essential and inevitable. Reform now will be less painful than reform later. This is or should be obvious.
To make S.S. and Medicare truly solvent, FICA taxes would have to be raised to around 25 per cent. That’s what it would take to ensure all future obligations were met by FICA (the part paid by FICA rather than out of general revenue, something many still insist on being ignorant about!). Changing these programs to be fully funded on a “mandatory” basis out of general revenue (mainly from income taxes) in no way solves any problem, though it would likely appeal to the stupid and others easily fooled.
If reform doesn’t happen now, reform later will have to be harsher.
* * *
Link 1: Ida Mae Fuller, what she paid, what she received from SS:
http://www.ssa.gov/history/idapayroll.html
Link 2: Social Security adequacy by comparing to SSI benefits:
http://www.ssa.gov/policy/docs/ssb/v67n3/v67n3p29.html
Link 3: Actuaries — S.S. adequacy vs. relation to taxes paid
http://www.actuary.org/pdf/socialsecurity/individual_jan04.pdf
Wow, an intelligent progressive (Zephyr’s reference). What another highly rare refreshing Change [tm] we could truly wish for more of.
Naturally, any reduction of future growth of expenditures is seen and called by certain (typically the Usual Suspects) as a “cut.” Common…
Counselor 1, some like Krugman have already argued for what you describe, but it would be terrible. It might not even buy the votes that some would expect it to buy.
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Shannon, you’ll probably find the following about Social Security of interest or amusement:
[National Academy of Social Insurance -- you know their views]
1. The people want Social Security, especially after the Slump:
http://www.nasi.org/sites/default/files/research/Economic_Crisis_Fuels_Support_for_Social_Security.pdf
2. Rescuing the program plus — adequate benefits and financing:
http://www.nasi.org/sites/default/files/research/Fixing_Social_Security.pdf
For those interested in more:
1. Here is a GAO report on Social Security adequacy. (It doesn’t have the obvious bias that National Academy of Social Insurance has.)
As you can see with the GAO report, if you didn’t encounter it before, the key concept to keep in mind so long as we don’t move to a basic minimum for everybody is the “replacement rate.” That is a good basic gauge not necessarily of adequacy or adequacy alone, but to give everyone a good idea of what they can expect when they retire. Activists will not limit themselves to replacement rate but compare benefits for those at the bottom with the poverty level, while the replacement rate will be useful in particular if benefits are to be reduced for the more affluent even more in the future (through means testing or benefit changes) than now.
If there will be benefit cuts in the future, how low can we go?
(“A moderate subsistence, not merely a minimal one,” or lower?)
http://www.gao.gov/new.items/d0262.pdf
2. A Senate report (2010) on Social Security solvency and adequacy:
http://aging.senate.gov/ss/ssreport2010.pdf
3. NASI (biased) on adequacy
Replacement rates in the USA are compared against those of other nations. Note that other nations such as in Europe have programs that are more unsustainable than ours, and face the future with demographics than will be worse than ours. It’s wrong to presume we should be like Europe in any case, but particularly so with public retirement benefits. It’s unrealistic to wish for us to be peers of Europe now, or in the future, though perhaps some movement closer toward the mean or median might be a goal activists might wish to push for.
With that caveat in mind (Europe is unrealistic here), good reading — and of course, note those current OECD averages for income replacement rates by retirement programs. If we can and we should reduce our corporate income taxes to the OECD average if not lower, we can try to shift our Social Security benefits closer to the OECD future average, possibly. (Note for the astute readers that we should consider the weighted average as well as the median and weighted median. Same for corporate and perhaps individual income tax, too, incidentally. “thought food”)
http://www.law.cornell.edu/socsec/course/readings/SS_Brief_025.pdf
For those who want to know more about poverty, there are three Area Poverty Research Centers that are good places you can start.
West Coast
http://depts.washington.edu/wcpc/
Wisconsin (Midwest emphasis)
http://www.irp.wisc.edu/
Kentucky (Southern emphasis)
http://www.ukcpr.org/
Food for thought