Yesterday, the president released his 2014 budget and, among some solid line items like additional infrastructure spending, universal preschool and reductions in tax breaks for Big Oil, he also proposed the truly stupid idea of linking Social Security cost-of-living-adjustments (COLAs) to something called "chained CPI" (chained consumer price index).
Briefly put, Social Security benefits are routinely hiked by a few percentage points each year based on inflation. Lately, those bumps have been scarce and more than a little weak, but adjustments based on chained CPI would be even weaker because the government would presume that as retail prices increase with inflation seniors will substitute lower-cost items. In other words, the government currently calculates benefits based on inflation, but with chained CPI, the government would calculate benefits based on an assumed consumer reaction to inflation (buying cheaper stuff). Consequently, Social Security benefits would be reduced to follow this assumption.
Yeah, it sucks. And the president, while attempting to play the role of the grown-up in the room and apparently taking responsible steps toward deficit reduction and Social Security salvation, is only managing to wrap his entire presidency around the big political third rail. It's not as huge as George W. Bush's second-term embrace of Social Security tinkering, but it's a bad move.
Not only is the idea a punitive one for seniors, but the president is also fueling a series of inside-D.C. myths. They are:
1) Social Security is broke! IEEE! This might, in fact, be biggest D.C. myth of all D.C. myths. It originated with Republican concern trolls who pretend to care about Social Security but, in reality, are trying to kill it. The strategy is to weaken it to the point of being unpopular and unsalvageable -- ripe for a private takeover or total shutdown. And so we get this on-going panic-button freakout that echoes through the complacent false equivalence press corp, and is ultimately fueled by Democrats like the president. But according to the Social Security trustees, the program will be capable of paying full benefits based on the current COLA formula for the next 20 years. Actually, the outlook is even better than that: the trustees also reported that Social Security will run a surplus until 2033. Can you imagine if any program in the federal government was projected to run a surplus for even half of that time? Budget hawks would crap their cages demanding immediate action to give back the taxpayers' money by slashing the program to the line. Furthermore, once 2033 rolls around, Social Security will be capable of paying 75 to 80 percent of total benefits in 2033 money, which, accounting for inflation, is more than Social Security recipients receive today.
2) We have to tinker with Social Security because of the deficit. Whenever deficit hawks suffer from one of these routine fits of apoplexy, they always manage to loop Social Security, Medicare and Medicaid cuts into the mix, along with cuts to minor spending areas like foreign aid. Put another way, a gaggle of super-wealthy politicians and pundits who will never really need Social Security are always way, way, waaaay too eager to dump these programs onto the chopping block. In a budget crisis that's ginned up by multi-millionaires, we should demand that they get in line first -- cut programs and spending on areas that effect the wealthiest Americans, including corporations, before anyone else is forced to pitch in.
3) We have to cut the deficit or else! Total nonsense. The deficit has dropped by nearly 48 percent (as a percentage of GDP). From the high water mark of $1.4 trillion in 2009, the deficit has steadily decreased to a projected $845 billion by the end of this year. The CBO projects that by the end of 2016, the deficit will have dropped to $433 billion, for a total of nearly a trillion dollars in deficit reduction in six years. But the economic recovery is still slow. Now isn't the time to be making further drastic cuts in government spending, and by continuing to talk about deficit reduction, the president only amplifies the false perception that the deficit is growing -- along with all of the usual idiotic conflation of the deficit and the national debt.
4) Raising the payroll tax rate or lifting the income cap is out of the question! The president is already widely accused of being a big tax-hiker by Republican opponents, so another two or three percent hike in the payroll tax (the FICA tax found on your paycheck stub) probably wouldn't make much of a difference on that front, nor would proposing that the income cap on the payroll tax rise from $113,000 to, say, $200,000 or higher. But I'm not sure I've ever heard anyone from the White House even hint at floating such a plan. Personally, I would entirely eliminate the income cap, which would allow Social Security to pay full benefits until 2087, but I'm clearly a tax-loving Euro-socialist. You know, like Ronald Reagan:
In 1983, for example, [Reagan] signed off on Social Security reform legislation that, among other things, accelerated an increase in the payroll tax rate, required that higher-income beneficiaries pay income tax on part of their benefits, and required the self-employed to pay the full payroll tax rate, rather than just the portion normally paid by employees.
Obviously in today's political climate, Reagan would've failed.
But here's the good news. Naturally we ought to keep a close eye on anyone who meddles with the program, but I seriously doubt the chained CPI proposal will pass. Any real plan to reinforce the stability of Social Security will happen gradually, imperceptibly and in private without a lot of hoopla. That's the reality of Social Security sausage-making. It's the way it's always been because the alternative is to commit political suicide -- the most recent example was Bush's disastrous privatization scheme in 2005.
So why not go for a plan like the one I outlined in item #4, or -- shocker -- the Reagan plan instead of floating this weird, jargony concept that's already been tagged as a benefit cut, the worst of all solutions? It's baffling, and it's impossible to defend the president on this one. Any upside, real or unreal, of being viewed as "the grownup in the room" will be far outweighed by supporting a cut in Social Security benefits. And now when Future Republican President X wants to slash benefits, he or she only needs to point to the prior endorsement of President Obama. Sadly, and irrespective of any political chess gambit he's setting up, he's contributing to this nefarious Social Security "insolvency" panic-mongering: a total myth and perhaps the biggest lie being foisted upon the American people today.
Cross-posted at The Daily Banter.
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