Obama floating Social Security cuts

Pithy commentary from fenway: "My own view is that the Democrats are doomed in 2014 if they take this deal. Anyone who doesn’t think the GOP will campaign on “Obama cut your Social Security” has not been paying attention. ... I continue to think none of this would have happened if Obama had pushed for a sufficient stimulus in early 2009." - promoted by Bob_Neer

After refusing (fortunately) to consider raising the Medicare eligibility age, the news emerging from DC is that President Obama is offering cuts to Social Security in the hopes of reaching a deal with John Boehner before the end of December.

Obama’s proposal reportedly is:

  • Bush tax cuts expire only for those making over about $400,000, but that group has deductions capped at 28% of income. No change for those with taxable income between $250K and $400K.
  • Unemployment benefits extended
  • Payroll tax cut not extended.
  • Some new spending on infrastructure.

The downside is that the “chained CPI” would be adopted for Social Security and some other federal benefits. That means inflation will be calculated differently and benefits will rise more slowly. Estimates are that someone retiring next year would have Social Security payments about 6% lower by age 85. The longer you live, the bigger the gap between what you’d get under this deal and what you’d get under current law.

Paul Krugman (who has been right about basically everything) pronounces himself torn on this deal in two blog posts. As he understands it, treatment of dividends and capital gains also would revert to the pre-Bush era (dividends taxed as ordinary income, capital gains tax rising from 15% to 20%). Without that, Krugman says, the deal’s a non-starter for him. He nonetheless describes the Social Security cuts as “cruel and stupid,” but far less so than raising the Medicare age.

Krugman helpfully points out that a benefit of the deal is that it gets the unemployment extension (which Obama says must be in any deal) and provides for infrastructure spending. If Obama simply lets the Bush tax cuts expire with no deal, there might be pressure on the House GOP to pass a middle class tax cut in 2013, but Obama’s far less likely to get the unemployment, infrastructure, and payroll tax extension. That does change the calculus somewhat. Nonetheless, he pronounces himself very much on the fence, and completely opposed if (a) Obama cedes any more; or (b) the deal does not restore pre-Bush treatment of capital gains and dividends.

Further concessions seem likely since Obama is Obama, and Boehner is saying no for the moment. Obama calls the deal balanced. He calculates that the deal would raise $1.2 trillion in new revenues over 10 years, while cutting $1.2 trillion in spending. Of that figure, $122 billion (or 10 percent) comes from the Social Security cuts, and $290 billion from reduced interest payments on the national debt. Boehner disregards entirely the interest savings, calling the proposal a step in the right direction but still “unbalanced,” with $1.3 trillion in new revenue but only $930 billion in spending cuts. He wants more.

Oh, and there would only be a short-term debt ceiling resolution, so we can look forward to that again. Some are saying the White House has resolved not to cave on the debt ceiling ever again, so it doesn’t matter if it comes up again and may actually make the GOP look bad, like Gingrich in 1995. We’ll see. My guess: that’s when we’ll get the Medicare age raised.

Opinion at Daily Kos and other liberal sites is strongly against the deal, as are AARP, Move On and Americans for Tax Fairness. On the right the Norquist and Tea Party types are apoplectic as well. My own view is that the Democrats are doomed in 2014 if they take this deal. Anyone who doesn’t think the GOP will campaign on “Obama cut your Social Security” has not been paying attention.

I’ve never liked the payroll tax cut so I don’t see its expiration as such a bad thing in the long term, though it will hurt the economy some in the short term. I was livid in late 2010 when Obama pushed that as the only form of stimulus he could get. While it puts extra cash in the pocket of strapped consumers, it creates a Social Security funding problem where none really existed. Given the misinformation on that issue, and Obama’s repeated hints of willingness to cut (Simpson Bowles, debt ceiling holdup, etc.), I see the payroll tax cut as a Trojan Horse. I fully expect, in ten years, to hear all about the huge funding shortfall and how it means we need massive cuts.

These are highly disappointing days for the Democratic Party. I continue to think none of this would have happened if Obama had pushed for a sufficient stimulus in early 2009.



Discuss

41 Comments . Leave a comment below.
  1. This is good news, if handlled well

    That is a big “if” sure enough.

    I said, some time ago, that the administration needed to do something to make it CRYSTAL clear to everyone, everywhere, that the big bite out of January’s first paycheck is the fault of the House Republicans, and only the House Republicans.

    So, in quick succession, Obama was on every news show making an effort to avert the “fiscal cliff” crisis. No doubt this proposal is made with the knowledge that Boehner can’t accept it until after he is re-elected as speaker in January. Boehner has, just a day after the proposal, torpedoed it.

    I hope that the adminitration gets its spin machine going to make sure that this lands right, and then waits to renew the talks in January. They better have their spin machine ready, because otherwise it will be Dems who tank the economy, even though they say the budget deficit isn’t a “real” issue at all, in order to raise a rather tiny amount of additional revenue that won’t really make that much of a dent in the deficit/debt anyway.

  2. Seems okay to me

    If this is talking tough in order to strengthen the President’s hand at the bargaining table, fine. But if people are really going to freak out about a change in how we calculate cost-of-living adjustments for social security, when as I understand it the difference for an average life-span senior would amount to 3% of benefits and when it’s up for debate whether the chained CPI provides a better measure of cost of living changes than the CPI now used–well, get a grip, I say! Yes, I realize that social security does not have an imminent funding problem, but this is a negotiation, right?

    • Why cut Social Security?

      I’m no SS expert, but the AARP says that the cuts would be the worst for the oldest people. This seems to make sense – because over the course of, say, 20 years, small cuts add up to a big difference. They claim that as someone reaches 92, the reduction would amount to 1/12 of their annual benefit. To get a good perspective on how that would work in today’s dollars, if this was done 30 years ago, a 92-year old person would get annual benefits of $27,643 instead of $30,156. Although someone 92 years old isn’t likely spending as much discretionary money as someone 65, coupled with medical spending this will likely result in annual household budgetary cuts each year. That is the very definition of misery.

      Why is cutting money from really old people considered a better thing to do than taxing wealthy people a little bit more? Why is this even a target? Are 80-year-olds really living so high on the hog here? Is this a group with a lot of undeserved disposable income? Is this the best example of”waste” in the country’s spending?

      I realize this is a negotiation, but this seems like it is targeting a group which should not be targeted. I’d rather see a cap put on mortgage interest rate deductions because middle-aged Americans can more easily cope than seniors – but of course, I suppose that Republicans would oppose this because it isn’t aimed at the poor.

      The cynical part of me believes that this would be used as a wedge against Democrats in the future, as in “Remember, Democrats are the ones who cut your Social Security!” An even more cynical thought is that by making seniors more poor, this makes them want to “cut government spending!” even more.

      • And they said, three weeks ago,

        S.S. was off the table. Certainly it should be. It does not drive deficits at all (a net creditor to the general fund) and it’s wrong to punish broke people over 80 for the benefit of those who, after all their deductions, still have taxable income between 250K and 400K.

        Bad politics. There’s no doubt the GOP will run on this. It will make Obama the first Democratic President to cut S.S. benefits. Why offer it? Boehner’s been saying Obama has to identify the entitlement cuts he wants, so they can hang them on his neck like a political millstone. The right answer to that is, “No, you identify the cuts yourself.” It’s not, “OK, how about this?”

        If, a big if, you’re going to negotiate it away, make sure it’s perceived as being on them. He’s not doing this.

    • Ted, I don't see

      How it strengthens his hand at the table. They’re saying it’s not good enough. To get to yes he’ll give in even more, if his first four years can be used as a marker. He gets rolled pretty much every time.

      • Strengthening hand

        I mean that a left-wing freakout strengthens his hand. He can say to Boehner that he can’t sell it to his base.

        • Well, there I agree

          Let the freakout commence. I’m all for being unreasonable to the extreme to move the Overton window. Especially when the policy change proposed is destructive for no good reason.

          But I thought you were saying there was no reason to freak out since chained CPI is defensible and would cause only minor cuts. That is a different argument.

          • Both

            I meant both. By all means, let’s have a strategic freakout, like the Republicans do when negotiating. But then let’s use this as a chip if necessary to get the deal done.

            • My problem is

              that they’re just not related. A campaign of misinformation has led to the idea that Social Security is driving operating deficits. In reality it’s the opposite. It’s running a surplus and bailing out the operating budget.

              People can argue, as CMD did, that there aren’t really two separate funds for the general operating budget and Social Security. But they can’t have it both ways. If there’s no separate fund, there’s no “Social Security” crisis. It’s just part of the overall budget and all arguments about Social Security being “solvent” or not, now or in the future, should cease. It should be treated as part of the overall budget like any executive department.

              It’s clear to me, though, that’s not the case. And given that there’s no connection between Social Security and budget deficits, Social Security should not be cut as part of any deal to reduce budget deficits. (Which, by the way, is a dumb idea in this economy anyway.) Let’s have a separate discussion about how to ensure Social Security, solvent for the next 25 years under a conservative estimate, remains so indefinitely.

              • Okay

                I agree with you 100% about what should be the case. But that’s not the question, is it? You don’t win a negotiation like this by persuading the other side that you are right about your views and they are wrong about theirs.

                • Fine

                  The question is, then, are the extras (unemployment and infrastructure spending) worth the cost of this? Politically, in the short and long term, I don’t think so.

                  Short term, it will be put on him and the Democrats. Long term, it fuels the false narrative that Social Security is unsustainable and drives deficits. That’s a lie and needs to be called out, not validated.

                  Go over the fake cliff and use the bully pulpit and the power of public support to fight for the unemployment and infrastructure funds.

                • No

                  You win elections decisively and then drive the losing side into submission. Dubya won by 1-2% an claimed a broad “mandate” to privatize social security and nearly got it. The fact that the Dems stopped that helped them in 2006 in a lot of swing districts. Now we are wasting an opportunity to drown the tea party in a bathtub and opening ourselves up to attacks that we are no longer the party that defends Social Security. I expected this from Obama, not from Pelosi. I wouldn’t be surprised if Tip ONeil reanimated from his new mural and have his protege Pelosi a good scolding. Sometimes I feel that the death of ward politics killed our relationship to the working class as much as Vietnam or social issues.

              • Looking-glass world

                Everything about this manufactured “crisis” is topsy-turvy.

                You’re absolutely right that social security is unrelated to the deficit. Sadly, we live in a world where NOBODY has any clothes, and nobody will say so — a looking-glass world.

                The historical evidence is clear and compelling that “austerity” is the worst possible step a government can take in addressing an economy like ours — yet that’s all we hear about. Governments ARE NOT like households who need to balance their budget each year — yet nobody will say so. Deflation is far more devastating for consumers than inflation, and we are seeing signs of deflation all around us — yet nobody will say so.

                The right wing already flew us into the ground once. Through the heroic efforts of the sane people who remain (including Barack Obama), we managed to narrowly avoid utter collapse — and the suicidally self-destructive right wing has been gunning for Barack Obama ever since.

                So here we are again, denying climate change, producing as many combat weapons as modern factories can crank out while our schoolchildren die in oceans of blood, and doing everything in our power to destroy the bedrock of our modern society so that a handful of the very wealthy can maintain and expand their already crushing command of virtually ALL of our nation’s wealth.

                We live in a looking-glass world where those of us who ask for rational common-sense approaches like yours are dismissed as dangerous and unrealistic fools, while the ground again fills our windscreen as our “leaders” accelerate our power-dive.

                • One quibble

                  the suicidally self-destructive right wing

                  I assume you mean right-wing voters. In that case I agree. But right-wing politicians and big donors have been rewarded with control of the House and an ever-increasing share of our national wealth, as the President seems to feel compelled to buy into their false austerity and Social Security crisis premises. Nothing self-destructive for them.

                  I had hoped, until perhaps the day Geithner was named, that the 2008 elections would bring about a new era in American politics. So far not so much. Now I’m hoping Obama is just the Democratic Nixon, getting the ball rolling, and the Democratic Reagan is still to come.

                  But what can you do when, even on a Democratic site, you have to argue to establish that Social Security benefits should not be cut to solve a deficit problem, when for 30 years it’s been payroll taxes on working stiffs subsidizing tax cuts for the people at the top?

                • So much so

                  The historical evidence is clear and compelling that “austerity” is the worst possible step a government can take in addressing an economy like ours — yet that’s all we hear about.

                  that the Washington Post, entirely erroneously, refers to the “fiscal cliff” as a “national debt crisis.” I’m not sure they even understand the problem is too little deficit spending a demand-sapped economy, not too much.

                  At least this Washington Post blog has it right: too much austerity, too soon.

  3. Why is SS even part of the equation?

    My understanding is that SS is accounted for completely separate from the general operating budget of the federal government. That is, taxes are collected separately and used only for SS. As such cutting spending on SS in no way cuts the deficit unless SS itself were running a deficit. Is there an actual fiscal connection here that I’m missing or is it just the GOP wants a pound of flesh from something important to Dems? This isn’t a game – real livelihoods are stake! Therefore, negotiating should never be done the premise that we should trade pain just because it feels good from a “compromise” standpoint.

    • Because it's been a long-term GOP objective to roll back the New Deal

      The whole point of “Starve the Beast” tax cuts is that they create a fiscal crisis that “necessitates” cuts in popular programs that would otherwise be unpalatable.

      • It's an objective

        Obama and his friends (Simpson-Bowles) have been OK signing onto themselves. Obama has offered cuts many times and cited this as the pain “folks on the left” will have to swallow, so as to prove he screws his own supporters as much as he does his enemies.

    • No need to re-run this debate

      Perhaps somervilletom can find the link.

      Yours is the “trust fund” view, and you state the position clearly enough.

      The contrary view notes that the money in the Social Security trust fund is used to buy treasury bonds. The bonds are sold by the government, and the revenues used in the general budget. Thus, the asset in the social security trust fund is the right to be repayment on the bonds from the government. To the extent there is a problem with the repayment of the debt, the trust fund has an issue like any other bond holder, and is therefore a general budget matter just like anything else in the budget.

      In other words, the contrary view is that the “trust fund” is an accounting fiction and spin mechanism adopted in the 1980s so that Social Security surpluses could be be used to make the Reagan deficits look smaller than they actually were.

      For decades now, the government has used excess social security collections to make the budget deficit appear smaller. Having done this, how can it not be that future social security shortfalls are somehow exempt from the general budget?

      • Makes no sense at all

        There is a clear accounting separation. If Bank of America lends me money for a mortgage, that does not mean there’s no difference between their operating budget and mine. If only that were so.

        Anyway, you have it backward, I think. The argument is that we have to cut benefits to provide for the possibility that the federal government will fail to honor its bond obligations to the fund? That’s absurd. Are other bondholders’ operations a “general budget matter” by that logic? China’s operating budget?

        And how does it become a “general budget matter” anyway? The federal government will announce it’s reneging on its bonds, but will now pay Social Security benefits out of general revenues anyway, thus hurting the general budget picture? Makes no sense. Most years that’s not even necessary; the payroll tax covers benefits. The “accounting fiction” applies only to treatment of surplus funds.

        • Well

          It isn’t like you and Bank of America, because you are not the same thing.

          It is more like you, and you. If you lend yourself $2,000, and use the money to buy a big screen TV, you do not have $2,000 plus a TV. You may say: of course I have $2,000! I lent it to me, and here is my IOU that I gave myself. But this is a fiction. You have spent $2,000 on a TV, and now you have a TV, and no $2000.

          In the same way, the government lent money to itself, and used the money to finance low tax rates for the last 20 years. It cannot now say: we have the money here in the trust fund, just as soon as we pay it back.

          • Not the same thing

            Your example assumes, without establishing, that the trust fund and operating budget are the “same thing.” The $2,000 is gone, in the hands of the TV seller. Me #1 is out $2,000 (money spent on the TV) and the IOU to me #2 has, in theory a plus $2,000, is not enforceable. Social Security and the operating fund are legally separate entities with separate funding sources and separate books. That makes all the difference.

            It is quite easy to determine what came in via payroll tax, and they do it as a matter of course. That money goes to the S.S. fund. The surplus, if there is one, is used to buy Treasury bills. At arms’ length. Tracked and repayable with interest. It’s not just one lump of cash for both budgets.

            It’s more like if I owned a small restaurant and a small camera shop. If the camera shop runs a surplus, I lend that surplus to keep the restaurant afloat. I draw up papers, charge interest, the works. I keep very separate books because I don’t want any piercing of the corporate veil.

            Over the years the restaurant makes regular payments on the debt and the interest helps me run my camera shop. Sadly, it’s projected by my crack team of accountants that the camera shop will not be running a surplus in 25 years from now. It may start to lose a bit of money. The restaurant still will owe the camera shop the debts it signed on for, c’est normal. But it doesn’t become liable for making up the operating shortfall of the camera shop.

            Now my camera shop would be screwed if its major debtor, the restaurant goes belly-up. But in the Social Security case, the debtor is the federal government. Last summer we saw how crazed people were at the idea of any federal bond default, even for a few days. Default on the entirety of the debt owed the trust fund would be a big deal, politically and in the financial world. I don’t think default is a likely possibility.

            • I would add

              In other words, the contrary view is that the “trust fund” is an accounting fiction and spin mechanism adopted in the 1980s so that Social Security surpluses could be be used to make the Reagan deficits look smaller than they actually were.

              That it also doesn’t make sense to create a trust fund to obscure the deficits. I know the general budget borrowed from the trust fund and hasn’t counted those IOUs in its liabilities when reporting the deficit. So it has used SS as a means of masking the “true” deficit.

              But if you really wanted to obscure the fact that the deficits are worse than realized, wouldn’t it be better to eliminate all legal separation between the trust fund and operating budget altogether? You could still use the S.S. surpluses to cover other spending, but without paying interest and having an identifiable paper trail of IOUs.

          • NOT the same

            When you and I commit our “full power and faith” to fulfill our debt obligations, we do not have humanity’s most destructive arsenal of weapons and wealthiest economy to help us achieve that commitment.

            Governments are different from individuals, macro-economics is different from micro-economics, and the solutions to the relatively minor problems that face social security are not difficult.

            I suggest that marcus-graly is absolutely correct when he observes that this entire exercise is a tactic being used by the extreme right-wing to roll back the New Deal.

            • As long as interest rates on government debt remain low

              then you’re right. because in those circumstances, SS can obtain cash to pay benefits.

              But if that ever changes, then you’re toast. Then, the government has to print inflationary money to pay the bonds held by the “trust fund”– but since SS benefits are indexed to infaltion, there is no catching up.

              So this all works so long as the United States is special and is uniquely exempted from the fundamentals of economics that have encumbered governments throughout history, as it now is. If, however, one is concerned that “the American century” or near absolute hegemony will someday end, then one should be concerned that the “trust fund” is indeed ephemeral.

              That doesn’t make it a huge problem on the debt: Medicare and Medicaid will wreck us financially long before social security becomes more than a mild issue.

              But you cannot hold that social security “has no bearing on the national debt” which is the topic above, while simultaneously using the cash raised by social security to decrease the deficit, while simultaneously professing to be from the “reality based community.” Pretending that the social security “trust fund” is something like a huge pile of gold buried in Fort Knox (No Mr Bond, I expect you to die!) is ideological magical thinking and nothing more.

              • Not so bleak

                You paint an overly bleak picture of the future.

                The government has the ability to move the payroll tax up and down. The government has the ability to remove the payroll tax ceiling. The government has the ability to move the retirement age. The government has the ability to enforce all these things.

                We are discussing the deficit, not the debt. The government also has the ability to move the DEFICIT up and down — Democrats reduce it, Republicans increase it.

                I have not asserted the arguments you conclude with. In particular, I make no claim that ” the social security “trust fund” is something like a huge pile of gold buried in Fort Knox”.

                I instead assert that there is no current issue with funding Social Security, and that several reasonable and not particularly painful alternatives exist for addressing its future funding issues. In spite of contemporary protestations to the contrary, the world did not end when the last substantive adjustment was made to Social Security in 1983.

                It does not need to end this time either, unless the GOP continues its apparent desire to commit national suicide rather than accommodate the reality of actual facts (and demographics).

                • Fair enough

                  The govt does have the ability to move the payroll tax up and down. But note how this works out in practice:

                  Social security “surplus” has been, for decades, put into the “trust fund.” It is then used to buy gov’t bonds, the proceeds of which have long been used as general revenue– that is, to reduce the deficit. The deficit that was created by (i) Democrats expanding various programs without looking for increased tax revenue to support that expansion; AND (ii) Republicans cutting the income tax– not the payroll tax– without looking for spending to cut in order to support the tax cut.

                  Thus, the deficits– and therefore the debt– has grown because they have been increased by both Dems and GOP, each using different methods.

                  Eventually, the iron laws of arithmetic will assert themselves. There will be an issue with the repayment of the debt held by the SS trust fund. It will be a medicare/social security problem– so they will raise the social security and medicare tax.

                  Viola! Big income tax cut for the baby boom paid for by GenX, Y, and Mil bearing an increased payroll tax.

                  If the dynamic of the last 40 years continues, then Democrats will, when possible, continue to increase spending without raising taxes proportionately, and GOP will continue to cut taxes without (save the occaisonal bullshit shot at the NEA or PBS) cutting any spending. That is a bad dynamic, long term, and is a reason for the existence of the issue. (Not necessarily the reason for FORCING the issue right now).

                  • Republican big spenders

                    The deficits fell during the Clinton years, and rose dramatically during recent Republican administrations. It was Republican George W. Bush who simultaneously started two wars and slashed taxes — don’t try and pretend that was a Democratic Party action.

                    Your claim that “Eventually, the iron laws of arithmetic will assert themselves” is simply FALSE, in macro-economic terms. The precipitating event you cite — “the repayment of the debt held by the SS trust fund” — never has to happen. The service on that debt, like the service on ALL national debt, will be paid. The federal government will NEVER default on its debt obligations (the crazy GOP extremists notwithstanding).

                    The idea that our multi-trillion-dollar national debt must somehow be paid is pure fiction. Individual households must pay off their debt. Governments are not held to the same constraint (which, by the way, is why the “Laffer Curve” and “Supply-Side economics” is such nonsense).

              • I really don't follow

                As long as interest rates on government debt remain low
                then you’re right. because in those circumstances, SS can obtain cash to pay benefits. But if that ever changes, then you’re toast. Then, the government has to print inflationary money to pay the bonds held by the “trust fund”– but since SS benefits are indexed to infaltion, there is no catching up.

                That seems to me not a problem with Social Security at all, but a problem relating to our failure to generate enough revenue for the general budget. I don’t see how Social Security “bears on the national debt” any differently from any other creditor willing to trust in T-bills. If the general fund didn’t borrow from S.S., it would (a) borrow the same money from someone else (often at higher interest); (b) raise general fund taxes to cover the shortfall; (c) cut some general fund spending.

                But the payment of benefits is not causing the national debt to get bigger. Your argument would make sense if the government were floating bonds to cover benefits. Then an rise in interest payable would be costly.

                But it’s the exact opposite. Social Security benefits are paid for by the payroll tax, which heretofore has been more than sufficient to cover benefits. And (as SomervilleTom points out) it can be tweaked when the day comes it’s not sufficient.

                1. The payroll tax brings in more than needed to pay benefits.
                2. That surplus is used to buy government bonds. Those bonds, just like every other U.S. government bond sold, finance the deficit operations of the general operating fund.
                3. If the interest rate on the bonds rises sharply, it will cost the general fund more for debt service on the bonds. The same as it will cost more for debt service on all other bonds. That’s a problem for the general fund. It has nothing to do with Social Security benefits, which are paid for via payroll tax.

                To suggest that cuts are justified because the general fund has borrowed the surplus is to say, well, we’ve used payroll taxes paid by working stiffs for 30 years to subsidize general fund spending, rather than keep higher taxes on high earners. And having done so, the only solution is to make sure the working stiffs who paid more collect less in benefits too. That makes no sense.

                Social Security does not “decrease the deficit” in the real world. It only gives the general fund easier access to a creditor. The debt is legally owed and payable. Your “Fort Knox” statement suggests you think the government will default on those bonds. I don’t think so.

    • It still is running a surplus

      No S.S. deficit even now.

      Due to the downturn and payroll tax cut, the fund has taken in less in taxes than it’s paid out. But it also is collecting interest on all the T-bills it holds (all S.S. surplus must be invested in special issue Treasury bonds). When you count that revenue, it’s in the black. No deficits are projected for at least 20 years.

      Here is what they’re trying to accomplish. Until the issues arise in 25 years, by cutting benefits they’ll have even bigger surpluses. More cash available to buy more bonds. That gets us closer to a “balanced” budget without having to raise taxes on the rich back to what they were.

      Since 1983′s fix, they’ve been taxing workers more than needed and lending the extra to the general fund. Sometimes at lower interest rates than they’d pay to private bondholders. This is the source of Clinton’s “surplus,” exploited by Bush to give a tax cut to the top 1%. So it’s tax everyday wage earners, give the money to the top 1% with federal general fund as middleman.

      Though Reagan was clear in 1983 and 1984 that S.S. and the federal operating budget are wholly separate things, the GOP now claims S.S. is costing “taxpayers” because of the interest obligations. Under that theory any holder of federal bonds is a driver of federal budget woes.

      The hypocrisy is breathtaking; not only does the GOP spread the lie that S.S. is bankrupting the federal government, it tries to have it both ways. Town Hall claims Clinton’s surplus wasn’t really a surplus because, net of funds borrowed from S.S., he still had a deficit. If that’s so (and it is), why use the fake “surplus” to justify passing in 2001, and keeping now, a tax cut for the wealthy?

      • Payroll tax cut

        In clarification, the payroll tax cut didn’t actually reduce revenue to Social Security (believe it or not). Payroll tax was used as a mechanism to get the money in the hands of consumers faster; the shortfall in amounts paid to Social Security were made up by the Federal Government to the Trust Fund.

        That being said, the shortfall was made up by adding to the Federal deficit obviously. I lean towards CMD on the interpretation of the house of cards that is the Social Security trust fund myself. Speaking as myself through the lens of a pension actuary (my profession).

        One other thing overlooked in the Fiscal Cliff talks is the payroll tax cut was never going to be extended past 2012 (neither GOP or Obama administration had ever indicated to extend to 2013). So January 2013 is actually worse than is portrayed in the numerically challenged press as FICA tax goes back to 6.2% and the Bush tax cuts expire.

        • Thanks

          Didn’t know more funds were being transferred to cover the lost revenue.

          I don’t see it being a house of cards, because I don’t see default happening. And any future shortfalls (can’t cover expenses with payroll tax revenues) can be handled with relatively minor tweaks.

          As conceived in 1983, payroll tax was to extend up to the 84% percentile of income, I believe. As a greater share of income has flowed to the top, the payroll tax is assessed on a noticeably lower percentage of total wage income. There’s room to raise the cap, or a donut hole, or something other than claiming the program’s a driver of general operating budget woes.

          In any event that does nothing to make it one single budget. They are legally separate.

  4. Bad policy, even worse politics

    60% of Americans oppose chained CPI. 74% support increased taxes starting at $250,000 of taxable income, not $400,000 as proposed.

    In the old days Dems couldn’t get things done for lack of public support. Now they can’t get things done even with public support.

  5. I've posted a petition on whitehouse.gov

    WE PETITION THE OBAMA ADMINISTRATION TO:
    not cut Social Security and/or Medicare to simply keep taxes low on the wealthiest Americans

    Went up last night, 600+ signatures so far. I’d be honored if any BMGers would sign on!

  6. This has to be a strategy

    because it certainly isn’t something that is widely supported among the electorate. I don’t know too many seniors who can afford a cut in benefits. They struggle so much as it is. I did hear that part of the deal was taxing dividends as earned income. That I completely support.

    • I agree with you

      that taxing dividends as earned income would be nice. I don’t know if it’s worth the fallout from this politically, or the pain inflicted on seniors over time.

      As for it being a strategy, I’m still waiting for any of Obama’s negotiations to move anything in a more progressive direction. It seems the best we can hope for is to keep drifting rightward at a slightly slower pace.

  7. Some sensible alternatives

    Here.

    I get that the House GOP will resist. But we need to get word out there on the options, other than cutting Social Security benefits (which most Americans, and certainly most Democrats, don’t want).

    • What would Harry do?

      “I am sick and tired of Democrats running away from our party, from Social Security and from the New Deal. When choosing between a fake Republican and a real one voters will always pick the real deal.”-Harry Truman.

      This is one of the most popular and successful programs in American history. It is the very definition of an active, fair and progressive government. Obama won re-election in part because of overwhelming rejection of Ryancare and Romneyomics.

      What would Harry do? Go over the cliff and dare the Republicans to defend tax hikes on the middle class. He would not sever the Democratic party’s most consistently popular program that made generations of Democrats for the sake of having common ground. He would replace his do nothing Congress with an ally. Obamas problem is he still thinks partisanship is evil and beneath him, and he feels he is above party too which is why he was such a lazy ad ineffective surrogate in 2010. He won the election, the Republicans may live in a fantasy world where Acorn and black panther stole it for him, but he shouldn’t. First President to be elected and re-elected with majority of popular vote since Eisenhower. Time to realize you never tack when the winds at your back.

      • I have been saying for 20 years

        We desperately need Harry Truman, in substance and style. Many voices out there are noting that Obama is trying to fold a winning hand (they reference FDR and LBJ, but Truman’s a great example too. Obama will lose all face, and all ability to do ANYTHING in his second term that’s worth doing, unless he breaks the GOP intransigence. That’s why, to me, the best news of the past 24 hours is that the Tea Party folks seem too dumb to take yes for an answer.

        The guy just won and a lot of people (like me) who were really disappointed in him became re-energized. Does he really want to start the second term pissing his own supporters off and cutting a deal that cuts benefits for old ladies, in a fully solvent program, rather than making people pay a little more tax on taxable income, after deductions, of $250,000 to $400,000. Because that’s what’s going on.

  8. It is better to be lucky than good

    I didn’t realize until a few moments ago that the House Republican’s “Plan B” — which was intended to be a “compromise” that the GOP could say was unreasonably refused by Dems/Obama, who would therefore be responsible for the trip over the cliff– flopped.

    After the election I said that I hoped Obama had some strategy to make sure that the GOP gets the blame for the cliff if it happens. I hoped that this social security compromise was a step in that direction, but there was no follow up at all, which is concerning in that it does indeed look more like an attempt to placate rather than an attempt to gain leverage.

    Passage of Plan B would therefore have been a huge weapon for the GOP to use against the seemingly inert White House and Senate Dems. Call your Senator, and ask him why he wants you to get shafted in your paycheck, just so he can raise some insignificant taxes!

    Now it can become exactly the opposite– if only– a very big if– the administration or Sen. Reid can rouse themselves from their perpetual crouch to actually use it.

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Sat 1 Nov 4:50 AM