Will Democrats Go Along With Social Security Cuts?
There is broad agreement across the political spectrum that the United States has a serious long-term debt problem. The economic meltdown of the last two years has certainly exacerbated that problem, but it was not a creation of Barack Obama’s presidency or even George W. Bush’s (though the debt skyrocketed under President Bush).
There is not, however, much agreement about how immediate of a problem the national debt is–for example in comparison to current unemployment levels–nor is there much agreement as to what ought to be done about it, i.e. what spending should be cut and/or what laws should be changed to increase government revenue. Unsurprisingly progressives favor cuts in military spending and increased taxation of wealthy individuals and corporations, whereas conservatives prefer cuts to what they deem “entitlements,” particularly Social Security, Medicare, and Medicaid.
All of these changes are possible–even Secretary of Defense Robert Gates and certain elements of the Tea Party movement have spoken of the necessity of cuts to military spending–but much of the recent discussion has centered around what to do about social welfare spending. The focal point for recent debate has arguably been the National Commission on Fiscal Responsibility and Reform, which President Obama established by executive order and tasked with identifying policies that will help the medium and long-term fiscal health of the country. While there are any number of recommendations that could come out of the commission, most of the talk has been about possible cuts to Social Security, particularly an increase in the retirement age.
Former Wyoming Senator Alan Simpson
That such proposals would be the focus is hardly surprising given the makeup of what some progressives have taken to calling the “Catfood Commission” (i.e., benefit cuts will force some, particularly the elderly, to eat cat food). While bipartisan and made up of people in and out of government, the Republican legislators appointed are more conservative than the Democrats are liberal. A number of the 18 total members, including some of the Democrats, have expressed a willingness to alter Social Security in the past and/or are fairly averse to any tax increases. In particular, former Republican Senator Alan Simpson is the commission co-chair and a longtime opponent of Social Security. The fact that Obama appointed someone with Simpson’s views understandably angered and puzzled progressives, but when Simpson said Social Security was “like a milk cow with 310 million tits!”, and when the White House pointedly refused to remove him from the commission, people were really not happy.
Before considering the likelihood of any significant changes to Social Security and the possible political effects, it’s worth it to quickly evaluate the overall health of Social Security as a program and what, if anything, needs to be done about it. Due to changes made in 1983–as recommended by another commission chaired by Alan Greenspan–Social Security has been running in the black for many years now, though that is changing. In that time it has built up $2.5 trillion in the Social Security Trust Fund. The fund is not akin to a savings account or the like, but rather holds U.S. Treasury Bonds which must be serviced out of general government revenue the same way we service debt from China or anyone else who buys T Bonds (they are a considered a safe investment since the U.S. government has never defaulted on its debt). In the next couple of decades, money from payroll taxes will no longer cover payments to those who receive Social Security benefits, and the Trust Fund will gradually be cashed out to make up for the shortfall before the fund itself is exhausted around 2037. There is nothing new or surprising about any of this, and indeed the whole point of the Trust Fund was to deal with the retirement of the baby boomers that is now underway.
After 2037 we will no longer be able to pay full benefits, and changes need to be made in order to avoid that. But as the Center on Budget and Policies Priorities notes, “The program’s shortfall is relatively modest, amounting to 0.7 percent of Gross Domestic Product (GDP) over the next 75 years (and 1.4 percent of GDP in 2084). A mix of tax increases and benefit modifications — carefully crafted to shield recipients of limited means, potentially make benefits more adequate for the neediest beneficiaries, and give ample notice to all participants — could put the program on a sound footing indefinitely.” They also point out, and this is something that cannot be emphasized enough, that “The 75-year Social Security shortfall is about the same size as the cost, over that period, of extending the 2001 and 2003 tax cuts for the richest 2 percent of Americans (those with incomes above $250,000 a year). Members of Congress cannot simultaneously claim that the tax cuts for people at the top are affordable while the Social Security shortfall constitutes a dire fiscal threat.”
So to the extent that Social Security is a problem it can be fixed–Medicare is a much more severe problem, and the two should not be lumped together–and what it ultimate comes down to are political choices. Social Security has paid for itself for decades and can continue to do so, and there are any number of ways to address debt issues other than paring back benefits. As Ezra Klein has argued, “if Social Security is proving a drag on the federal budget, then one option is make changes to Social Security, but another option is to make offsetting changes elsewhere in the federal budget….We spend much more on defense than we need to spend. We have an absurdly inefficient tax code that could raise more money while doing less to harm growth if we cleaned it out. We have a health-care system that’s about twice as expensive as the OECD average but isn’t delivering better results. Cutting and reforming these programs might be politically difficult, but we’d be doing ourselves good, rather than harm, if we could manage it. Comparatively, cutting and reforming in Social Security is politically difficult and does us harm.”
So what will actually happen? For the time being, nothing, at least until after the 2010 midterms, since no report will be forthcoming from the commission until after then (quite intentionally). But there are reasons to worry given the makeup of the commission and various signals being sent by the Obama administration. The Wall Street Journal reported that “the White House and the powerful senior group AARP appear open to a deal.” Writing in The Nation, William Greider suggested that “every savvy player in the capital knows what the president has in mind—whack Social Security benefits to lure Republicans into a grand deal on raising taxes.”
Even if the Obama administration is willing to go along with some sort of paring back of Social Security benefits, there is no guarantee at all that its allies in Congress would follow that lead. Senator Bernie Sanders, an independent who caucuses with the Democrats, has spoken out strongly against cuts, and a number of House Democrats are getting together a letter telling the administration that they “oppose any cuts to Social Security benefits, including raising the retirement age.” Admittedly, progressives in the House threatened to vote against health care reform if no public option was in the bill, but in the end they caved and supported the reform. The odds are quite good that the dynamic will not be the same with Social Security though, since it’s one thing to compromise on a new law that does some good from your perspective and quite another to accede to a decrease in social welfare benefits that already exist.
Politically speaking, it’s hard to see how the Obama administration would get much benefit from raising the retirement age, and perhaps this is the most likely reason why it will not happen. Social Security is incredibly popular as a program, and it might be difficult for the administration to counter the argument from liberal Democrats that there are other ways to deal with the shortfall beyond making people work longer before they retire. Perhaps even more important, for a supposed liberal like Obama to preside over cuts to the most important Democratic program in history would likely be utterly demoralizing to an already demoralized progressive base and could have real ramifications going forward, including for Obama’s re-election effort. Of course the Obama administration has been oddly willing to lash out at progressives–Exhibit A–but altering Social Security in a way that angers liberals might go too far. This issue will be largely on the back burner for the next couple of months as both parties go into high gear for the midterms, but not too long after the election we’ll probably see the largest national conversation about Social Security since President Bush proposed partial privatization in 2005, and it could well end up being a defining moment for Obama’s presidency.
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