Defending Social Security sounds
like yesterday's issue--the fight people won when they defeated
George W. Bush's attempt to privatize the system in 2005. But
the financial establishment has pushed it back on the table,
claiming that the current crisis requires
"responsible" leaders to take action. Will Obama take
the bait? Surely not. The new president has been clear and
consistent about Social Security, as a candidate and since his
election. The program's financing is basically sound, he has
explained, and can be assured far into the future by making only
modest adjustments.
But Obama is also playing footsie
with the conservative advocates of "entitlement
reform" (their euphemism for cutting benefits). The
president wants the corporate establishment's support on many
other important matters, and he recently promised to hold a
"fiscal responsibility summit" to examine the
long-term costs of entitlements. That forum could set the trap
for a "bipartisan compromise" that may become
difficult for Obama to resist, given the burgeoning deficit. If
he resists, he will be denounced as an old-fashioned
free-spending liberal. The advocates are urging both parties to
hold hands and take the leap together, authorizing big benefits
cuts in a circuitous way that allows them to dodge the public's
blame. In my new book, Come Home, America, I make the
point: "When official America talks of 'bipartisan
compromise,' it usually means the people are about to get
screwed."
The Social Security fight could
become a defining test for "new politics" in the Obama
era. Will Americans at large step up and make themselves heard,
not to attack Obama but to protect his presidency from the
political forces aligned with Wall Street interests? This fight
can be won if people everywhere raise a mighty din--hands off
our Social Security money!--and do it now, before the deal gains
momentum. Popular outrage can overwhelm the insiders and put
members of Congress on notice: a vote to gut Social Security
will kill your career. By organizing and agitating, people
blocked Bush's attempt to privatize Social Security. Imagine if
he had succeeded--their retirement money would have disappeared
in the collapsing stock market.
To understand the mechanics of this
attempted swindle, you have to roll back twenty-five years, to
the time the game of bait and switch began, under Ronald Reagan.
The Gipper's great legislative victory in 1981--enacting massive
tax cuts for corporations and upper-income ranks--launched the
era of swollen federal budget deficits. But their economic
impact was offset by the huge tax increase that Congress imposed
on working people in 1983: the payroll tax rate supporting
Social Security--the weekly FICA deduction--was raised
substantially, supposedly to create a nest egg for when the baby
boom generation reached retirement age. A blue-ribbon commission
chaired by Alan Greenspan worked out the terms, then both
parties signed on. Since there was no partisan fight, the press
portrayed the massive tax increase as a noncontroversial
"good government" reform.
Ever since, working Americans have
paid higher taxes on their labor wages--12.4 percent, split
between employees and employers. As a result, the Social
Security system has accumulated a vast surplus--now around $2.5
trillion and growing. This is the money pot the establishment
wants to grab, claiming the government can no longer afford to
keep the promise it made to workers twenty-five years ago.
Actually, the government has
already spent their money. Every year the Treasury has borrowed
the surplus revenue collected by Social Security and spent the
money on other purposes--whatever presidents and Congress
decide, including more tax cuts for monied interests. The Social
Security surplus thus makes the federal deficits seem smaller
than they are--around $200 billion a year smaller. Each time the
government dipped into the Social Security trust fund this way,
it issued a legal obligation to pay back the money with interest
whenever Social Security needed it to pay benefits.
That moment of reckoning is
approaching. Uncle Sam owes these trillions to Social Security
retirees and has to pay it back or look like just another
deadbeat. That risk is the only "crisis" facing Social
Security. It is the real reason powerful interests are so
anxious to cut benefits. Social Security is not broke--not even
close. It can sustain its obligations for roughly forty years,
according to the Congressional Budget Office, even if nothing is
changed. Even reports by the system's conservative trustees say
it has no problem until 2041 (that report is signed by former
Treasury Secretary Henry Paulson, the guy who bailed out the
bankers). During the coming decade, however, the system will
need to start drawing on its reserve surpluses to pay for
benefits as boomers retire in greater numbers.
But if the government cuts the
benefits first, it can push off repayment far into the future,
and possibly forever. Otherwise, government has to borrow the
money by selling government bonds or extend the Social Security
tax to cover incomes above the current $107,000 ceiling. Obama
endorses the latter option.
Follow the bouncing ball:
Washington first cuts taxes on the well-to-do, then offsets the
revenue loss by raising taxes on the working class and tells
folks it is saving their money for future retirement. But
Washington spends the money on other stuff, so when workers need
it for their retirement, they are told, Sorry, we can't afford
it.
Federal budget analysts try to
brush aside these facts by claiming the government is merely
"borrowing from itself" when it dips into Social
Security. But that is a substantive falsehood. Government
doesn't own this money. It essentially acts as the
fiduciary, holding this wealth in trust for the "beneficial
owners," the people who paid the taxes. This is the bait
and switch the establishment intends to execute.
Peter Peterson, a Republican
financier who made a fortune doing corporate takeover deals at
Wall Street's Blackstone Group, is the Daddy Warbucks of the
"fiscal responsibility" crusade. He has campaigned for
decades against the dangers that old folks pose to the Republic.
Now 82 and retired, Peterson claims he will spend nearly
one-third of his $2.8 billion in wealth--he ranks 147 on the Forbes
400 list of richest Americans--alerting the public to this
threat (leave aside the fact that old people have already paid
for their retirement or that Social Security's modest benefits
are equivalent to minimum-wage income). The major media treat
him adoringly. Most reporters are too lazy (or dim) to check out
the facts for themselves, so they simply repeat what Peterson
tells them about Social Security.
It is a frightful message. Peterson
describes a "$53 trillion hole" in America's fiscal
condition--but the claim assumes numerous artful fallacies. His
most blatant distortion is lumping Social Security, which is
self-funded and sound, with other entitlements like Medicare and
Medicaid. Those programs do face financial crisis--not because
the elderly and poor are greedily gaming the system but because
the medical-industrial complex has the profit incentive to drive
healthcare costs higher and higher. Healthcare reform can solve
the financing problem only if it imposes cost controls on
private players like the insurance and pharmaceutical
industries.
Peterson is financing a media
blitz. His tendentious documentary--I.O.U.S.A.--opened in
400 theaters and was broadcast on CNN with appropriate
solemnity. Last September Peterson bought two full pages in the New
York Times to urge the next president to create a
"bipartisan fiscal responsibility commission" once he
was in office (Peterson was for John McCain). This group of
so-called experts would be authorized to design the reforms for
Congress to enact. But Peterson does not want Congress to have a
full, freewheeling debate on the particulars. The reform
package, he suggests, should be submitted to a single
"up-or-down vote by Congress, as is done with military base
closings." That's one of the gimmicks intended to give
politicians cover and protect them from their constituents. It
is profoundly antidemocratic. But that's the idea--save the
government from the unruly passions of citizens. Peterson's
proposal also resembles the notorious fast-track provision,
which for years enabled presidents to steamroll Congress on
trade agreements, no amendments allowed.
Peterson's proposal would
essentially dismantle the Social Security entitlement enacted in
the New Deal, much as Bill Clinton repealed the right to
welfare. Peterson has assembled influential allies for this
radical step. They include a coalition of six major think tanks
and four tax-exempt foundations.
Their report--Taking Back Our
Fiscal Future, issued jointly by the Brookings Institution
and the Heritage Foundation--recommends that Congress put
long-term budget caps on Social Security and other entitlement
spending, which would automatically trigger benefits cuts if
needed to stay within the prescribed limits. The same
antidemocratic mechanisms--a commission of technocrats and
limited Congressional discretion--would shield politicians from
popular blowback.
The authors of this plan are
sixteen economists from Brookings and Heritage, joined by the
American Enterprise Institute, the Concord Coalition, the New
America Foundation, the Progressive Policy Institute and the
Urban Institute. "Our group covers the ideological
spectrum," they claim. This too is a falsehood. All these
organizations are corporate-friendly and dependent on big-money
contributors. No liberal or labor thinkers need apply, though
the group includes some formerly liberal economists like Robert
Reischauer, Alice Rivlin and Isabel Sawhill.
The ugliest ploy in their campaign
is the effort to provoke conflict between the generations.
"The automatic funding of Social Security, Medicare and
Medicaid impedes explicit consideration of competing priorities
and threatens to squeeze out spending for young people,"
these economists declared. Children, it is suggested, are being
shortchanged by their grandparents. This line of argument has
attracted financial support from some leading foundations
usually associated with liberal social concerns--Annie E. Casey,
Charles Stewart Mott, William and Flora Hewlett. Peterson has
teamed up with the Pew Trust and has also created front groups
of "concerned youth."
Trouble is, most young people did
not buy this pitch when George W. Bush used it to sell Social
Security privatization. Most kids seem to think Grandma is
entitled to a decent retirement. In fact, whacking Social
Security benefits, not to mention Medicaid, directly harms poor
children. More poor children live in families dependent on
Social Security checks than on welfare, economist Dean Baker
points out. If you cut Grandma's Social Security benefits, you
are directly making life worse for the poor kids who live with
her.
The assault sounds outrageous and
bound to fail, but the conservative interests may have Obama in
a neat trap. Their fog of scary propaganda makes it easier to
distort the president's position and blame him for any fiscal
disorders driven by the current financial collapse. He will be
urged to "do the right thing" for the country and make
the hard choices, regardless of petty political grievances
(words and phrases he has used himself). Obama's fate may depend
on informing the public--now, not later--so that people are
inoculated against these artful lies.
The real crisis, in any case, is
not Social Security but the colossal failure of the private
pension system. Most people know this, either because their
401(k) account is pitifully inadequate, or their company dumped
its pension plan, or the plummeting stock market devoured their
savings. Obama can protect himself with the public by speaking
candidly about this reality and proposing a forceful, long-term
solution. He should expand the guarantees that ordinary people
need to get their families through these adverse times. Instead
of taking away old promises to people, the president should make
some new ones. Healthcare reform is obviously an important
imperative, but so is retirement security.
The solution to retirement
insecurity is the creation of a national pension, alongside
Social Security, that would be the bedrock social insurance.
Improving Social Security benefits is one step, but it cannot
possibly restore what so many middle-class families have lost.
Tinkering with the 401(k) would be doomed, because it is
basically a tax subsidy for the middle and upper classes,
another way to avoid taxes that failed utterly to produce real
savings [see Greider, "Riding
Into the Sunset," June 27, 2005].
The new universal pension would be
mainly self-financing--that is, funded by mandatory savings--but
the system would operate as a government-supervised nonprofit,
not manipulated by corporate executives or Wall Street firms. A
national pension would combine the best qualities of
defined-benefit plans and individual accounts. Each worker's
pension would be individualized and portable, moving with job
changes, but the savings would be pooled with others for
diversified investment.
There is nothing radical about this
approach. It follows the form of the government's thrift savings
plan for civil servants and members of Congress, TIAA-CREF for
college professors or other union pension plans jointly managed
by labor and management trustees. The crucial difference is that
since the new universal pension would be nonprofit, nobody would
get to play self-interested games with the money that employees
are storing in it for retirement. People could check their
accumulated balance at any time.
Washington would set the
performance standards and enforce proper behavior, but the
operations of retirement programs could be widely decentralized
among many private organizations or sector by sector. Other
nations, like Australia, have proved this can be both democratic
and reliable. Economist Teresa Ghilarducci of the New School has
designed a promising and plausible plan (available at the
Economic Policy Institute's website, epi.org, or in her book When
I'm Sixty-Four: The Plot Against Pensions and the Plan to Save
Them). With payroll savings of 5 percent and
government-guaranteed returns on investment, average workers
could count on pensions that would replace 70 percent of
pre-retirement earnings when combined with Social Security.
Low-wage earners could be subsidized by government to make up
for inadequate pay. Private retirement plans that collect a
higher percentage of pay and provide higher benefits could
continue, so long as they exceed the federal standard. One great
virtue of this approach is that nobody gets left behind,
dependent on charity, the predatory instincts of the financial
system or the magic of the marketplace.
Another great virtue is that a
national pension would confront the country's glaring economic
weakness--the collapse of national savings. As the economy digs
out of its hole, restoring household savings will be crucial for
ultimate recovery and for reduction of our dangerous dependence
on foreign capital. Obviously, any system that adds a new
payroll tax cannot be introduced at the depth of a recession,
but the work of constructing it can begin right now, with the
new system phased in gradually, as economic conditions permit.
Instead of second-guessing the past and destroying its
accomplishments, this reform would look forward and create
conditions for a more promising future. Nobody gets a free
lunch, and everybody has to take personal responsibility. But
unlike what the governing elites are attempting, nobody gets
thrown over the side.