Looting Social Security
By William Greider
http://www.thenation.com/doc/20090302/greider/print
This article appeared in the March 2, 2009 edition of The Nation.
February 11, 2009
Governing elites in Washington and Wall Street have devised a fiendishly clever
"grand bargain" they want
President Obama to embrace in the name of "fiscal responsibility." The
government, they argue, having spent
billions on bailing out the banks, can recover its costs by looting the Social
Security system. They are also
targeting Medicare and Medicaid. The pitch sounds preposterous to millions of
ordinary working people anxious
about their economic security and worried about their retirement years. But an
impressive armada is lined up
to push the idea--Washington's leading think tanks, the prestige media,
tax-exempt foundations, skillful
propagandists posing as economic experts and a self-righteous billionaire
spending his fortune to save the
nation from the elderly.
These players are promoting a tricky way to whack Social Security benefits, but
to do it behind closed doors
so the public cannot see what's happening or figure out which politicians to
blame. The essential transaction
would amount to misappropriating the trillions in Social Security taxes that
workers have paid to finance
their retirement benefits. This swindle is portrayed as "fiscal reform." In
fact, it's the political
equivalent of bait-and-switch fraud.
Defending Social Security sounds like yesterday's issue--the fight people won
when they defeated George W.
Bush's attempt to privatize the system in 2005. But the financial establishment
has pushed it back on the
table, claiming that the current crisis requires "responsible" leaders to take
action. Will Obama take the
bait? Surely not. The new president has been clear and consistent about Social
Security, as a candidate and
since his election. The program's financing is basically sound, he has
explained, and can be assured far into
the future by making only modest adjustments.
But Obama is also playing footsie with the conservative advocates of
"entitlement reform" (their euphemism for
cutting benefits). The president wants the corporate establishment's support on
many other important matters,
and he recently promised to hold a "fiscal responsibility summit" to examine the
long-term costs of
entitlements. That forum could set the trap for a "bipartisan compromise" that
may become difficult for Obama
to resist, given the burgeoning deficit. If he resists, he will be denounced as
an old-fashioned free-spending
liberal. The advocates are urging both parties to hold hands and take the leap
together, authorizing big
benefits cuts in a circuitous way that allows them to dodge the public's blame.
In my new book, Come Home,
America, I make the point: "When official America talks of 'bipartisan
compromise,' it usually means the
people are about to get screwed."
The Social Security fight could become a defining test for "new politics" in the
Obama era. Will Americans at
large step up and make themselves heard, not to attack Obama but to protect his
presidency from the political
forces aligned with Wall Street interests? This fight can be won if people
everywhere raise a mighty
din--hands off our Social Security money!--and do it now, before the deal gains
momentum. Popular outrage can
overwhelm the insiders and put members of Congress on notice: a vote to gut
Social Security will kill your
career. By organizing and agitating, people blocked Bush's attempt to privatize
Social Security. Imagine if he
had succeeded--their retirement money would have disappeared in the collapsing
stock market.
To understand the mechanics of this attempted swindle, you have to roll back
twenty-five years, to the time
the game of bait and switch began, under Ronald Reagan. The Gipper's great
legislative victory in
1981--enacting massive tax cuts for corporations and upper-income
ranks--launched the era of swollen federal
budget deficits. But their economic impact was offset by the huge tax increase
that Congress imposed on
working people in 1983: the payroll tax rate supporting Social Security--the
weekly FICA deduction--was raised
substantially, supposedly to create a nest egg for when the baby boom generation
reached retirement age. A
blue-ribbon commission chaired by Alan Greenspan worked out the terms, then both
parties signed on. Since
there was no partisan fight, the press portrayed the massive tax increase as a
noncontroversial "good
government" reform.
Ever since, working Americans have paid higher taxes on their labor wages--12.4
percent, split between
employees and employers. As a result, the Social Security system has accumulated
a vast surplus--now around
$2.5 trillion and growing. This is the money pot the establishment wants to
grab, claiming the government can
no longer afford to keep the promise it made to workers twenty-five years ago.
Actually, the government has already spent their money. Every year the Treasury
has borrowed the surplus
revenue collected by Social Security and spent the money on other
purposes--whatever presidents and Congress
decide, including more tax cuts for monied interests. The Social Security
surplus thus makes the federal
deficits seem smaller than they are--around $200 billion a year smaller. Each
time the government dipped into
the Social Security trust fund this way, it issued a legal obligation to pay
back the money with interest
whenever Social Security needed it to pay benefits.
That moment of reckoning is approaching. Uncle Sam owes these trillions to
Social Security retirees and has to
pay it back or look like just another deadbeat. That risk is the only "crisis"
facing Social Security. It is
the real reason powerful interests are so anxious to cut benefits. Social
Security is not broke--not even
close. It can sustain its obligations for roughly forty years, according to the
Congressional Budget Office,
even if nothing is changed. Even reports by the system's conservative trustees
say it has no problem until
2041 (that report is signed by former Treasury Secretary Henry Paulson, the guy
who bailed out the bankers).
During the coming decade, however, the system will need to start drawing on its
reserve surpluses to pay for
benefits as boomers retire in greater numbers.
But if the government cuts the benefits first, it can push off repayment far
into the future, and possibly
forever. Otherwise, government has to borrow the money by selling government
bonds or extend the Social
Security tax to cover incomes above the current $107,000 ceiling. Obama endorses
the latter option.
Follow the bouncing ball: Washington first cuts taxes on the well-to-do, then
offsets the revenue loss by
raising taxes on the working class and tells folks it is saving their money for
future retirement. But
Washington spends the money on other stuff, so when workers need it for their
retirement, they are told,
Sorry, we can't afford it.
Federal budget analysts try to brush aside these facts by claiming the
government is merely "borrowing from
itself" when it dips into Social Security. But that is a substantive falsehood.
Government doesn't own this
money. It essentially acts as the fiduciary, holding this wealth in trust for
the "beneficial owners," the
people who paid the taxes. This is the bait and switch the establishment intends
to execute.
Peter Peterson, a Republican financier who made a fortune doing corporate
takeover deals at Wall Street's
Blackstone Group, is the Daddy Warbucks of the "fiscal responsibility" crusade.
He has campaigned for decades
against the dangers that old folks pose to the Republic. Now 82 and retired,
Peterson claims he will spend
nearly one-third of his $2.8 billion in wealth--he ranks 147 on the Forbes 400
list of richest
Americans--alerting the public to this threat (leave aside the fact that old
people have already paid for
their retirement or that Social Security's modest benefits are equivalent to
minimum-wage income). The major
media treat him adoringly. Most reporters are too lazy (or dim) to check out the
facts for themselves, so they
simply repeat what Peterson tells them about Social Security.
It is a frightful message. Peterson describes a "$53 trillion hole" in America's
fiscal condition--but the
claim assumes numerous artful fallacies. His most blatant distortion is lumping
Social Security, which is
self-funded and sound, with other entitlements like Medicare and Medicaid. Those
programs do face financial
crisis--not because the elderly and poor are greedily gaming the system but
because the medical-industrial
complex has the profit incentive to drive healthcare costs higher and higher.
Healthcare reform can solve the
financing problem only if it imposes cost controls on private players like the
insurance and pharmaceutical
industries.
Peterson is financing a media blitz. His tendentious
documentary--I.O.U.S.A.--opened in 400 theaters and was
broadcast on CNN with appropriate solemnity. Last September Peterson bought two
full pages in the New York
Times to urge the next president to create a "bipartisan fiscal responsibility
commission" once he was in
office (Peterson was for John McCain). This group of so-called experts would be
authorized to design the
reforms for Congress to enact. But Peterson does not want Congress to have a
full, freewheeling debate on the
particulars. The reform package, he suggests, should be submitted to a single
"up-or-down vote by Congress, as
is done with military base closings." That's one of the gimmicks intended to
give politicians cover and
protect them from their constituents. It is profoundly antidemocratic. But
that's the idea--save the
government from the unruly passions of citizens. Peterson's proposal also
resembles the notorious fast-track
provision, which for years enabled presidents to steamroll Congress on trade
agreements, no amendments
allowed.
Peterson's proposal would essentially dismantle the Social Security entitlement
enacted in the New Deal, much
as Bill Clinton repealed the right to welfare. Peterson has assembled
influential allies for this radical
step. They include a coalition of six major think tanks and four tax-exempt
foundations.
Their report--Taking Back Our Fiscal Future, issued jointly by the Brookings
Institution and the Heritage
Foundation--recommends that Congress put long-term budget caps on Social
Security and other entitlement
spending, which would automatically trigger benefits cuts if needed to stay
within the prescribed limits. The
same antidemocratic mechanisms--a commission of technocrats and limited
Congressional discretion--would shield
politicians from popular blowback.
The authors of this plan are sixteen economists from Brookings and Heritage,
joined by the American Enterprise
Institute, the Concord Coalition, the New America Foundation, the Progressive
Policy Institute and the Urban
Institute. "Our group covers the ideological spectrum," they claim. This too is
a falsehood. All these
organizations are corporate-friendly and dependent on big-money contributors. No
liberal or labor thinkers
need apply, though the group includes some formerly liberal economists like
Robert Reischauer, Alice Rivlin
and Isabel Sawhill.
The ugliest ploy in their campaign is the effort to provoke conflict between the
generations. "The automatic
funding of Social Security, Medicare and Medicaid impedes explicit consideration
of competing priorities and
threatens to squeeze out spending for young people," these economists declared.
Children, it is suggested, are
being shortchanged by their grandparents. This line of argument has attracted
financial support from some
leading foundations usually associated with liberal social concerns--Annie E.
Casey, Charles Stewart Mott,
William and Flora Hewlett. Peterson has teamed up with the Pew Trust and has
also created front groups of
"concerned youth."
Trouble is, most young people did not buy this pitch when George W. Bush used it
to sell Social Security
privatization. Most kids seem to think Grandma is entitled to a decent
retirement. In fact, whacking Social
Security benefits, not to mention Medicaid, directly harms poor children. More
poor children live in families
dependent on Social Security checks than on welfare, economist Dean Baker points
out. If you cut Grandma's
Social Security benefits, you are directly making life worse for the poor kids
who live with her.
The assault sounds outrageous and bound to fail, but the conservative interests
may have Obama in a neat trap.
Their fog of scary propaganda makes it easier to distort the president's
position and blame him for any fiscal
disorders driven by the current financial collapse. He will be urged to "do the
right thing" for the country
and make the hard choices, regardless of petty political grievances (words and
phrases he has used himself).
Obama's fate may depend on informing the public--now, not later--so that people
are inoculated against these
artful lies.
The real crisis, in any case, is not Social Security but the colossal failure of
the private pension system.
Most people know this, either because their 401(k) account is pitifully
inadequate, or their company dumped
its pension plan, or the plummeting stock market devoured their savings. Obama
can protect himself with the
public by speaking candidly about this reality and proposing a forceful,
long-term solution. He should expand
the guarantees that ordinary people need to get their families through these
adverse times. Instead of taking
away old promises to people, the president should make some new ones. Healthcare
reform is obviously an
important imperative, but so is retirement security.
The solution to retirement insecurity is the creation of a national pension,
alongside Social Security, that
would be the bedrock social insurance. Improving Social Security benefits is one
step, but it cannot possibly
restore what so many middle-class families have lost. Tinkering with the 401(k)
would be doomed, because it is
basically a tax subsidy for the middle and upper classes, another way to avoid
taxes that failed utterly to
produce real savings [see Greider, "Riding Into the Sunset," June 27, 2005].
The new universal pension would be mainly self-financing--that is, funded by
mandatory savings--but the system
would operate as a government-supervised nonprofit, not manipulated by corporate
executives or Wall Street
firms. A national pension would combine the best qualities of defined-benefit
plans and individual accounts.
Each worker's pension would be individualized and portable, moving with job
changes, but the savings would be
pooled with others for diversified investment.
There is nothing radical about this approach. It follows the form of the
government's thrift savings plan for
civil servants and members of Congress, TIAA-CREF for college professors or
other union pension plans jointly
managed by labor and management trustees. The crucial difference is that since
the new universal pension would
be nonprofit, nobody would get to play self-interested games with the money that
employees are storing in it
for retirement. People could check their accumulated balance at any time.
Washington would set the performance standards and enforce proper behavior, but
the operations of retirement
programs could be widely decentralized among many private organizations or
sector by sector. Other nations,
like Australia, have proved this can be both democratic and reliable. Economist
Teresa Ghilarducci of the New
School has designed a promising and plausible plan (available at the Economic
Policy Institute's website,
epi.org, or in her book When I'm Sixty-Four: The Plot Against Pensions and the
Plan to Save Them). With
payroll savings of 5 percent and government-guaranteed returns on investment,
average workers could count on
pensions that would replace 70 percent of pre-retirement earnings when combined
with Social Security. Low-wage
earners could be subsidized by government to make up for inadequate pay. Private
retirement plans that collect
a higher percentage of pay and provide higher benefits could continue, so long
as they exceed the federal
standard. One great virtue of this approach is that nobody gets left behind,
dependent on charity, the
predatory instincts of the financial system or the magic of the marketplace.
Another great virtue is that a national pension would confront the country's
glaring economic weakness--the
collapse of national savings. As the economy digs out of its hole, restoring
household savings will be crucial
for ultimate recovery and for reduction of our dangerous dependence on foreign
capital. Obviously, any system
that adds a new payroll tax cannot be introduced at the depth of a recession,
but the work of constructing it
can begin right now, with the new system phased in gradually, as economic
conditions permit. Instead of
second-guessing the past and destroying its accomplishments, this reform would
look forward and create
conditions for a more promising future. Nobody gets a free lunch, and everybody
has to take personal
responsibility. But unlike what the governing elites are attempting, nobody gets
thrown over the side.
About William Greider
National affairs correspondent William Greider has been a political journalist
for more than thirty-five
years. A former Rolling Stone and Washington Post editor, he is the author of
the national bestsellers One
World, Ready or Not, Secrets of the Temple, Who Will Tell The People, The Soul
of Capitalism (Simon &
Schuster) and--due out in February from Rodale--Come Home, America. more...
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> By William Greider
> http://www.thenation.com/doc/20090302/greider/print
> This article appeared in the March 2, 2009 edition of The Nation.
> February 11, 2009