Why Is President Obama So Anxious to Cut Social Security?

[dajoki]

Why Is President Obama So Anxious to Cut Social Security?
by Dean Baker | August 23, 2011 - 9:22am
http://www.smirkingchimp.com/node/38048

On his tour of the Midwest last week, President Obama again indicated his interest in cutting Social Security. He repeated a proposal that his administration first put forward in the debt ceiling negotiations: he wants to cut the annual cost of living adjustment by 0.3 percentage points.

This cut may sound small, but it adds up over time. A person in their 70s who had been getting benefits for ten years would see a reduction of 3 percent. By the time they were in their 80s, the cut would be 6 percent. And if they lived into their 90s, their benefit would be more than 9 percent lower as a result of President Obama's proposal.

For an average retiree who can expect to get benefits for 20 years, President Obama's plan would cut their lifetime Social Security benefits by roughly 3 percent. By comparison, his much feared tax increases on the rich would reduce the after-tax income of someone earning $300,000 a year by just 0.5 percent. In this case, a beneficiary who will be mostly dependent on their Social Security income in retirement will take about six times as large a hit relative to their income under President Obama's plan to cut Social Security than a couple earning $300,000 would from his plan to raise their taxes.

This cut to Social Security seems especially inappropriate since the near retirees who would feel the full impact of this cut have just seen most of their wealth destroyed by the collapse of the housing bubble and the plunge in the stock market. The typical near retiree (ages 55-64) has just $170,000 in net wealth, including the equity in their home.

This means that if they used every last penny in their 401(k) and other savings, they would have just about enough money to pay off the mortgage on a typical home. This would leave them 100 percent dependent on Social Security for their income. And of course, half of near retirees have less than this amount, meaning that they will not even be able to pay off the mortgage on a typical home. But apparently President Obama feels that these people need to make greater sacrifices.

<<snip>>

[indurancevile]

1. knr

[SammyWinstonJack]

2. Vote for him after trying to pull this crap?

What, am I crazy? :shrug:

[LiberalFighter]

3. We need transparency on who is counseling Obama to do this.

[dajoki]

13. Absolutely n/t

[frebrd]

4. He doesn't plan on ever being dependent on SS benefits. eom

[mckara]

5. What is the Problem with Adjusting the Age of Eligibility?

Life expectancy has changed drastically since 1935 and it was impossible to predict the Baby Boom generation in wake of the Depression and years before the Second World War. Extraordinary circumstances should be addressed with some flexibility.

[B Calm]

9. Life expectancy is the same. Infant mortality rate is higher giving the

impression that people are living longer.

[mckara]

15. Do You Have a Reference?

I don't dispute your inclusion of less infant mortality than 1935, except for recently, infant mortality has been getting worse while life expectancy continues to rise, throwing a wrench in the logic of your argument. Given the totality of improvements in health care for the last 75 years, it seems very unlikely that only one variable has been changing.

The temporary bulge of SS recipients caused by the Baby Boom should be addressed with changes that will relieve stress to the system. We could raise taxes, or raise the eligibility age. Either one seems acceptable to me, but, as you know, I am not king. Changes will come with Congressional action. We will see which option has the most popular support.

[B Calm]

20. Raising the eligibility age might be alright for you, but I'm 61 yrs old

and my body is tired from a life of hard work. Maybe you have worked in an air conditioned office all your life, ??

Social Security is solvent and is running almost a three trillion dollar surplus. So why in heavens name do you want to raise the damn age for eligibility? Us baby boomers paid extra into Social Security for years just to address the baby boom retirement. Oh and we already raised the SS eligibility age.

I see people my age and younger every day in the newspaper obituary. Do a google search on infant mortality and how it's raising the life expectancy.

[Selatius]

16. It depends on how you view Social Security. If you view it as just an expense, raise the ...

retirement age. If you view it as a program with the main goal of reducing human misery, you would probably favor keeping the retirement age unchanged, or, as some countries have, lowered the retirement age.

[Yo_Mama]

17. The full retirement age has been increased to 67

And lord knows FICA taxes have been increased. Total SS tax is 12.4%. Originally it was 3%.

When you actually look at the numbers, most people retiring on SS in 2020 WILL have paid enough on their earnings considering the employee and employer share to allocate to their benefits. As a pool, that is. Because the way SS works, it is a lottery. For every person living into their 90s, there are many who die before ever taking benefits or after only a few years of benefits.

Because the two year deferral of full SS benefits is added to the front end, it affects the benefits of vastly more people.

Most people have bought into a lie about SS, which is that retirees get out vastly more than they paid in. This won't be true for the vast majority of future retirees, not when you consider contributions as a pool and withdrawals as a pool.

Instead it is earlier generations of retirees that got benefits out that were way above their contributions; the difference now is not lifespans, but the worker/retiree ratio. In short, it is a bad system design aggravated by financial misrule (spending the extra contributions).

Huh, I think I should make a spreadsheet and post some stuff to DU about this. People are buying into a myth.

[TheWraith]

6. He's not, but that doesn't stop anyone from lying through their teeth about it.

Since, after all, he has explicitly said over and over that they will NOT cut Social Security. But thank you for doing the GOP's job for them by spreading their talking points.

[dajoki]

7. Obama has said...

that EVERYTHING has to be on the table.

[TheWraith]

10. And he's also expressly said no cuts which hurt SS recipients.

Some people can't understand that "everything is on the table" is a empty politeness, intended to mollify people without actually committing to anything. It's hyperbole. Clearly "everything" is not on the table, since I don't think we're going to solve the debt problem by printing money, or by arresting and nationalizing the 100 richest people in the US, or by legalizing cocaine and making it a government-produced product.

[dajoki]

12. With his...

penchant for coddling the GOP and always talking about bipartisanship makes me not trust him. I hope you are correct, but I'm not counting on it.

[polmaven]

11. +1

This claim got old a long time ago, and is now ready to receive Social Security benefits itself. (Now, I will admit the president may say no to that particular idea)

[OHdem10]

8. Just a theory: Even Reagan was trying to privatize SS, then GWB

and they both felt the rage from the American People.
They drew back.

It is always being brought up. One theory is Wall St
has been lusting after SS Funds. Knowing that the
day would come when Boomers would start retiring
and pulling out their funds from WS, naturally the
gamblers wanted a fresh source of money.

Since both Parties worship at the same Altar, and
suddenly they do not want a crisis to go waste, give
WS what they have been demanding.

[dajoki]

14. Wall Street...

gets even richer and the rest of us are screwed.

[Yo_Mama]

18. No, it was because we weren't saving the excess

The fact is that the 83 adjustment depended on the ability of the federal government to save the excess contributions by paying down debt, and under GOP and Democratic administrations, it just hasn't summoned the will to do so.

[ProSense]

19. Here's the interesting part of Baker's commentary

<...>

And the date where this could be an issue is still relatively distant. The Congressional Budget Office just released new projections showing that the Social Security trust fund is fully solvent through the year 2038. Even after that date, the program would have enough money to pay 81 percent of scheduled benefits for the rest of the century. The folks who say that there will be nothing there for our children or grandchildren are just making it up or repeating the nonsense promulgated by some political hack.

Furthermore, this gap is not hard to close. Currently, the tax on the wages subject to the tax is capped at $107,000. The upward redistribution of income over the last three decades has caused a large share of wage income to escape taxation, as more money ends up in the pocket of CEOs and Wall Street types than ordinary workers. If all wage income were subject to the tax, then it would leave Social Security fully solvent for its 75-year planning period.

We could also go the route of increasing the tax on ordinary workers to cover the shortfall. After all, part of the story is that people are enjoying longer retirements, even if the wealthy have benefited much more from the increase in longevity than the typical worker. By 2040, average wages are projected to be 45 percent higher than today, adjusting for the impact of inflation. If just 5 percent of the projected wage growth over this period was used to finance Social Security, the program would be fully solvent for the rest of the century.

<...>

After 2038, there would be a 19 percent drop in benefits unless the tax adjustments Baker suggests are enacted. He even mentions why there is a shortfall.

One thing is certain, as long as Baker and others continue to point to a shortfall, there will be calls to strengthen Social Security and make it fully solvent. The other thing that's certain is no one who seeks to preserve the program wants the solution to come from a Republican administration and Congress.

Also, the President has said often that Social Security doesn't contribute to the debt.

Remarks by the President in a Town Hall Meeting in Cannon Falls, Minnesota

THE PRESIDENT: Well, Social Security -- here’s my commitment -- I don’t know about the other folks, but I’ll make a commitment as long as I’m President of the United States -- Social Security will not only be there for you, but it’s also going to be there for the next generation and the generation after that because it’s one of the most important social insurance programs that we have. (Applause.) And by the way, you pay into Social Security. They call it an entitlement, but it’s not an entitlement; you’re paying for it. It’s getting taken out of your paycheck.

So it is true that as the population gets older there’s going to be more and more pressure on the Social Security system. But the Social Security system is not the cause of our debt and deficit. (Applause.) So don’t let folks fool you by saying that in order to get a handle on our debt we’ve got to slash Social Security. There are some modest adjustments that can be made that will make it solvent for 75 years -- and that’s about as long as you can think ahead as a country.