Protecting Social Security in Event of Financial Collapse

A recent and critical issue raised by Andrew Biggs in a Wall Street Journal column highlights the large jump in the projections of the Social Security shortfall since 2008. Biggs complains that progressives have responded to the economic collapse by proposing an increase in benefits that would make the shortfall even larger rather than supporting plans for eliminating the projected shortfall. Biggs' focus is exclusively on the solvency of the program, so the actions of progressives can only be understood against the larger economic context.

This is short sighted and absurd.

In fact, an expansion of benefits is a rational response to the economic collapse. Even more so because the collapse was 100 percent preventable and  one of the worst blunders in the history of economic policy-making. Nearly all of it could  have been prevented had two things happened: 1) Preserve the Glass-Steagall Act instead of repealing it in 1999, which allowed commercial banks to engage in investment banking, and 2) Regulate the credit default swaps  - a form of derivative - which took off in 2007-08. These derivatives were responsible for allowing low grade, risky bonds to be rated AAA thereby luring people into them. See e.g.

http://brane-space.blogspot.com/2014/02/lights-go-out-on-dismal-science-long.html

As a result of the credit collapse, many people nearing retirement saw their savings disappear as the stock market collapsed, house prices plummeted and they lost their jobs during their peak savings years. Thus, millions of workers had to draw down their savings to support their families at a point where they had planned to be accumulating wealth for retirement. In addition, due to the weakness of the labor market created by high unemployment, tens of millions of workers have been saddled with stagnant wages over the last six years when they could have expected to see real wage growth in the neighborhood of 1.0 percent annually had the economy continued on the path projected in 2008.

In short, the collapse vastly increased the need for Social Security, which is the basis for the response of progressives such as yours truly  We can't afford to impose any cuts, irrespective of type, because all will create even more financial havoc and economic stress. Biggs is correct that the cost of additional benefits will have to be covered at some point, but there is no obvious reason that it is necessary to come up with the full plan today. Part of the cost can be recovered by increasing the payroll cap as has been proposed by people across the political spectrum.

It is likely that we will need some increase in the payroll tax at some point, but there is little reason that the exact timing needs to be pinned down today. In the decade from 1980 to 1990 the payroll tax increased by over 2.0 percentage points. In spite of this hike, many conservatives tout the eighties as an economic golden age. It is difficult to see why it would be such a disaster if there were a comparable increase somewhere over the next three decades.

Workers care about their after-tax wages which are primarily determined by what they earn before taxes. Due to economic mismanagement and trade and regulatory policies that were designed to redistribute income upward, most workers have seen very little growth in before-tax wages over the last three decades. If they get an even share of the projected growth in compensation over the next three decades, then before tax compensation will be almost 60 percent higher in 2044 than it is today. It is understandable that progressives would be more focused on ensuring that workers get their fair share of economic growth than the risk that 3-4 percent of these gains might be taken back in tax increases to support their retirement.

Beyond Social Security, Medicare must not be cut either! Fix the Debt parasites have vowed  to expand the means testing of Medicare to lower middle income seniors. According to the Newsletter  of the National Committee to Preserve Social Security And Medicare:

"The proposal would shift billions of dollars in additional costs to beneficiaries by further expanding means testing for Medicare Parts B and D – until 25% of all beneficiaries are paying higher, income related premiums. A recent study found that this proposal would eventually impact individuals with annual incomes equivalent to $47,000 in today’s money.”


Let’s make it clear here that $47,000 /yr. is not a princely sum for an annual income, especially for seniors who – unlike younger folks- are burdened by additional health care costs including more medications, as well as the possibility of having to enter a nursing home for everything from a broken hip, to Alzheimers. The nursing homes are not cheap at $3,000 a month or more. Hence, this expanded means testing is nothing short of deplorable. The fact that the richest 1% will still make out like bandits while lower middle income seniors suffer is even more disgusting.


The NCPSSM Newsletter went on to note that this expanded means testing along with a chained CPI for Social Security, and possibly higher eligibility age for Medicare would:


“generate a tsunami of seniors living in poverty”


Setting the cuts in stark contrast to the wealthy tax payers, the Newsletter goes on:

"The benefit cut resulting from the chained CPI proposal alone would result in Social Security beneficiaries losing about 2 percent of their income, while the 2013 tax increase on wealthy Americans earning $500,000 results in a negligible 0.6 percent loss’


Process that difference! For the half million a year wealthy guy his piddling 0.6% loss is barely equal to the current cost of one share in his favorite hedge funds or a 1/10  kt blood diamond. For the senior it would equal a month's worth of blood pressure and diabetes meds and half his groceries. Do the rich Neoliberals who make up most of the Beltway's blabber set care? Of course not!

In other words, the confluence of benefits cuts is designed to increase inequality and poverty rates dramatically (already 15% of seniors live at or below the poverty line)

By contrast, the increase of Social Security benefits will not only protect it for seniors who need it, but also compensate them for lost wages in the wake of the 2008 meltdown - after which they were unable to get jobs.  Such an increase in Social Security payments can also be justified given how much congress has ransacked over the years - which I enumerate below:

The following data shows how much has been raided each year, the data from the same Trust Fund sources and GAO:

Year:  ................Amount raided

2011.................$67.0 billion

2010.................$87.0 billion

2009...............$137.0 billion

2008...............$180.2 billion

2007...............$186.0 billion

2006...............$185.5 billion

2005..............$173.5 billion

2004..............$151.1 billion

2003.............$155.6 billion

2002.............$159.0 billion

2001.............$163.0 billion

2000.............$151.8 billion
----------------------------

TOTAL:  $2.63 TRILLION

Thus increasing S.S. payments by 10% or so would be an excellent way to start paying that stolen money back to beneficiaries who deserve it.  The worker-to -beneficiary ratio is a red herring meant to deflect attention from the REAL problem which is the yearly raids on monies received from payroll taxes and intended to go to future beneficiaries! So long as these raids continue unabated, NO solution or "re-tooling" of the program will work, not raising payroll taxes, not making cuts, NOTHING!

But providing a significant Social Security increase would at least demonstrate to beneficiaries that their government is operating in good faith with their interests at heart.

An even more important immediate way to do that is to halt the shuttering of Social Security field offices. The Social Security Administration has been forced to close dozens of field offices around the country, thereby limiting access to seniors whose only way may be face-to-face appearance with administrators.   Meanwhile, the Senate Special Committee on Aging held a hearing two months ago after a bipartisan report showed Social Security has closed 64 field offices since 2010, the highest number of closures in a 5-year period in history. (Denver Post, June 19, ‘Agency closes field offices’, p. 18A)

 

Interestingly, as the article also points out (ibid.):

“The closings came as applications for retirement and disability benefits are soaring”.

In other words, those who want to kill S.S. via the back door  are adopting the exact same back-handed methods they did with injured vets seeking VA care. In that case, the miserable fuckers declined to approve $24b to expand VA facilities for care – thereby creating the recent crisis we beheld. According to the Post article, again echoing what’s gone on with vets seeking care in the VA system:

“Seniors seeking information and help from the agency are facing increasingly long waits, in person and on the phone.”

Blogger R. J. Eskow wrote in June on the Huffington Post that:  “many disabled and elderly Social Security recipients depend on field offices, and the workers in them.” And as Michael Hiltzik of the Los Angeles Times said, “They haven’t been able to cut benefits, so they’re doing the next best thing: making it hard for you to know what you’re due, and harder to get it when it comes due.”

The bottom line is, Americans came together to create the Social Security system to provide a basic, reliable foundation for retirement and disability. Closing field offices and making it more difficult to access benefits information is an attempt to dismantle that foundation.

 

But even before we try to get congress to increase Social Security payments we have to ensure those field offices remain open so that millions of people can access their benefits in the first place! The push to strengthen benefits and enhance them is pointless if the yearly raids on S.S. continue unabated and the Repos keep using budget cuts to shutter S.S. admin offices!