Why Obama Wants Cuts In Social Security Benefits

The name of the Social Security System has always been "Old Age, Survivors' and Disability Insurance." This is what it was designed to be, and this is what it still remains: an insurance plan, not an investment plan.
04/09/2013 10:23 am ET Updated Jun 08, 2013
President Barack Obama speaks at the University of Hartford in Hartford, Conn., Monday, April 8, 2013. Obama, with relatives
President Barack Obama speaks at the University of Hartford in Hartford, Conn., Monday, April 8, 2013. Obama, with relatives of those killed in the shooting at Connecticut's Sandy Hook Elementary School behind him, argued in his speech that lawmakers have an obligation to the children killed and other victims of gun violence to act on his proposals. (AP Photo/Susan Walsh)

There are other ways of dealing with the coming "baby boomers" demographic bulge - the increase in the number of Social Security recipients - than to have the bottom 99% of wage-earners fund the financial solution to it, as President Obama proposes, and as he hopes that congressional Republicans will support.

Currently, no income that a person makes above $113,700 is being taxed by Social Security. That's a huge proportion of America's total personal income - and it's an increasing proportion, now that America has (according to the CIA) higher economic inequality than any other industrialized nation, comparable only to backward African and Latin American countries. For the year 2010, the top 1% of Americans received 93% of the income gains - the largest-ever top-1% gains-share. Economic inequality is soaring under Obama faster than under any previous president. In fact: "The top 1% captured 121% of the income gains in the first two years of the recovery." What the data show is that for the first time ever on record, all income gains went only to the top 1%. The bottom 99% lost 0.4% in income during Obama's economic recovery from Bush's crash. The bottom 99% were even a bit worse off now than they were under Bush's crash. But the top 1% were 21% better-off now than they were when Obama took office. So: above $113,700 is where the money increasingly is going to be.

The argument for exempting earnings above $113,700 is that rich people don't need to participate in the benefits of SS, and so they supposedly shouldn't have to pay for its costs, either. However, SS is not, and it never actually was, an investment plan (in which such an argument would have real bearing); it is, and has always been, instead an insurance plan - specifically, an insurance policy for everyone, the benefits of which, upon retirement, are designed to go disproportionately to retirees who are not so fortunate as to be in the top 1%. In fact, the chief beneficiaries of SS are Americans who retire poor. Those are the neediest retirees, and the benefits from SS have always been intended to be based far more upon a person's need when retiring, than they are upon a person's contributions (insurance premiums) during that given individual's working years.

Neither Barack Obama, nor the Republicans in Congress, want this crucial reality about Social Security to be known, and so SS is discussed in the mainstream press as if it were instead an investment plan. But the name of the Social Security System has always been "Old Age, Survivors' and Disability Insurance." This is what it was designed to be, and this is what it still remains: an insurance plan, not an investment plan. The moneys going into it are insurance premiums; they are not investments.

The reason that Republicans don't want this reality to become publicly known is that Democrats started SS, and that Democrats had (until Obama) protected SS as being an insurance plan instead of an investment plan - which Republicans want to transform it into. Wall Street wants to get its hands on this money, so that they can earn sales and other commissions on more individuals' retirement investments. George W. Bush thus wanted to privatize Social Security, to make it into a private investment plan, so as to help the people who largely had funded his political career.

Obama has a different end in mind: he wants to reduce SS benefits in order to fund his continuing Wall Street bailouts. Already, the Wall Street bailouts have cost the U.S. Government trillions of dollars, with more than one-and-one-half trillion dollars not yet paid back to the government. Furthermore, the bailouts continue: the Federal Reserve Bank of New York, which Timothy Geithner used to run, continues to purchase $40 billion each month of mega-bank-generated mortgage backed securities that Wall Street has transferred to Fannie Mae and Freddie Mac, so that the ongoing Wall Street bailouts continue (via F&F to the N.Y. Fed) at the rate of $480 billion annually. We are far from being done bailing out the megabanks in order to transfer the aristocracy's 2008 investment losses onto the general public. Obama has had this problem on his mind since before he entered the White House.

On 16 January 2009, four days before becoming President, the editors of the Washington Post reported that the then President-Elect Obama told them that "it is impossible to separate the country's financial ills from the long-term need to rein in health-care costs, stabilize Social Security and prevent the Medicare program from bankrupting the government. 'This, by the way, is where there are going to be very difficult choices and issues of sacrifice and responsibility and duty,' he said." As President, he has not demanded any "sacrifice and responsibility and duty" from the top executives in, and from the stockholders in, and from the bondholders in, the Wall Street firms that taxpayers are still bailing out. He wants to get this money instead from the public: SS, and M and M.

However, President Obama says that he wants congressional Republicans to agree to hike top-end tax-rates as part of his budget deal. He knows that if he were to say outright to the public "I want to take money out of your retirement insurance so as to be able to fund the too-big-to-fail (TBTF) mega-banks' regular non-'emergency' $83 billion+ annual subsidy to Wall Street from the public, plus the continuing annual amount of the 'emergency' Wall Street bailouts, currently running at $480 billion each year," then very few people (except on Wall Street) would support his proposals to cut Social Security, Medicare, and Medicaid. So: he doesn't say that; he doesn't put it that way.

He will need to have at least the support of a few Democratic Senators and Congressmen; and, if he were to put this matter honestly, then he knows that his proposal wouldn't stand any chance at all.

Obama is the oddest Republican ever to call himself a "Democrat," but only Democrats in Congress will be able to decide whether to remain with him, and to destroy their Party. Finally, congressional Democrats will have to make a choice between Wall Street and the Democratic Party - but only if enough congressional Republicans will first accept Obama's deal (not very likely).

This is the biggest gamble of Obama's career, and the probability of his winning this one seems small, as of right now. Both Republicans and Democrats in Congress seem to have little enthusiasm for Obama's deal.

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