A Rekindling Reform position statement (September 21, 2010*)
Congressional Republicans' all-out attack on recent health reform legislation is gaining wide notice. But less widely noticed is a developing assault that may well be a more profound threat to prospects for achieving health care for all. The future of health reform, Medicare, Social Security and other essential social supports is at risk in a massive political attack that is being launched in the name of reining in federal budget deficits and keeping entitlement spending at affordable levels. That campaign is, at root, an attempt to undermine the foundation of American social policy. Were the campaign against Social Security to succeed, the implications for health care policy would be dire.
In particular, the campaign contends that the Social Security trust fund is headed for insolvency, that it is unsustainable, and that, going forward, the drain on federal resources to fulfill Social Security obligations will generate ever bigger deficits. But Social Security is not to blame for the deficits, and any shortfall in the trust fund many years off can be avoided by minor adjustments that preserve the system's fundamental principles.
Social Insurance Why the Far Right Hates It
The target of the attack is not just the level of federal spending on Social Security (and potentially Medicare). The target is social insurance as such the very idea of a government-administered contributory program that entitles an entire population to a defined benefit.
Insurance is an arrangement that enables individuals to pool the economic risk of unanticipated events. Home owners usually buy insurance protection against fires and perhaps against floods. Automobile owners buy protection against liability arising from accidents. Ideally, insurance should also protect one against the loss of family income and the inability to meet basic needs when personal circumstances change leaving insufficient household income. The changes that people may face include disability, work accident, job loss, illness, forced retirement, and so on. Most people can't afford this sort of insurance in the commercial market and don't buy it. Social insurance covers such risks. It pools risk for an entire population. It aggregates premiums contributed by or on behalf of all members of that population. It is typically government-administered and provides statutorily guaranteed benefits. What we commonly refer to as the federal Social Security program provides old age, survivors and disability insurance. Workers and employers pay its premiums in the form of FICA payroll taxes (Federal Insurance Contributions Act). It has been suggested that, in the face of considerable economic disparities in our society, social insurance has been a "social glue" holding the society together.
Opponents of social insurance tend to be supporters of concentrated wealth. They oppose government programs that foster redistribution in the interest of fairness. They denounce "big government" and when in power they hobble government social programs by under-funding them. They insist that, unlike the private sector, government doesn't work, and they do everything in their power to cripple public services. They foster vast deficit spending on wars and on tax cuts for the rich so that they can argue that the resulting huge federal budget deficits make social welfare programs unaffordable. They have opposed Social Security from its very birth. The widespread popularity of Social Security and Medicare upsets them.
Health reform can advance further if we build greater public understanding and support of the social insurance framework that has undergirded American social policy since the 1930s and is the foundation of both Social Security and Medicare. Enemies of health reform know this. Advocates of further health reform surely need to take heed of it.
Blaming Social Security for Federal Budget Deficits
It is this foundation of American social policy that is under attack now by the billion-dollar-funded Peterson Foundation and in the comments of former Senator Alan Simpson, co-chair of the National Commission on Fiscal Responsibility and Reform created by President Obama. The Commission's assignment is to propose (1) how to reduce our country's growing budget deficits and (2) how to "improve the long-run fiscal outlook, including changes to address the growth of entitlement spending and the gap between revenues and expenditures of the Federal Government."
The federal deficits are quite real and are growing. Over time, outlays need to decrease and government revenues need to increase in ways that strengthen, rather than impede, job growth, education, and health care and that relieve the American people of the burdens of a mismanaged economy. And to "address the growth of entitlement spending" could take the form either of finding the needed revenues or of reducing the spending.
But the Right's propaganda deliberately confuses the Commission's two missions. It blames Social Security for hypothetical future federal deficits. However, the large, real current deficits stem from our spending on two wars with no effort to raise taxes to pay for them; from tax cuts for the rich; from skyrocketing systemic costs in health care; and from the economic tsunami, one of whose major contributing causes was the Bush administration's lax regulation of financial markets. Moreover, the massive propaganda onslaught that tries to associate deficits with social insurance programs ignores the efforts of the Bush administration to strangle these programs by deliberately permitting the federal deficit to grow. That strategy has a name; it is called "Starve the beast."
The fact is that Social Security has not added a dime to the federal deficit. Social Security's income is collected in the form of FICA taxes and lent to the federal Treasury in exchange for bonds. These loans have cushioned the federal budget. All of the Social Security benefit payments and operating costs are fully funded by the contributions of millions of American workers and their employers. The dedicated FICA tax continues to provide sufficient revenue to ensure that the program will remain fully funded for at least the next 29 years. From 2040 on, even if there are no new revenue sources, the program will be able to continue paying benefits but somewhat smaller ones than now scheduled. One projection of the reduced benefits is 75% of scheduled benefits.
The FICA contributions are linked to a government commitment to pay legislated Social Security benefits. Diverting the Social Security Trust Fund to fill holes in the federal budget would be a breach of faith and trust with millions of Americans.
Worst Case Scenarios for the Commission
Echoing arguments made by the Republican Party against enactment of Social Security in 1935, Commission co-chair Simpson believes that the government should be concerned only with relieving poverty, leaving others to fend for themselves. He and the Republicans would prefer to privatize Social Security, leaving to Wall Street the management of the FICA dollars.
The built-in universality of participation is a major strength of the Social Security program. It ensures the program of a broad base of political support support that is stronger the better the program's benefits. The Right wing of the Commission would prefer to end the program's universality by means-testing benefits and by letting people opt out. Yet, it is quite possible that, even were the Commission to reject Simpson's extreme positions, it would recommend "compromises" that would reduce Social Security benefits and thereby set a precedent for potential cutbacks in health programs.
We can expect proposals that would let individuals invest part of their Social Security accounts in the stock market as well as proposals for part of the Social Security Trust Fund to be invested in a stock index fund. We must reject those ideas on two grounds: (a) they introduce an element of gambling into Social Security, which would mean risking losses rather than just expecting gains; (b) they abandon the social insurance model, in which we all contribute to a fund held not by Wall Street but by the government, for our protection at a time of need.
Possible "compromise" proposals we can anticipate include raising the retirement age further, reducing the annual cost-of-living increases, and reducing benefit levels for new retirees. Even small changes like these can result in substantial cuts in benefits over time. Because of the recent major health reform legislation, Medicare is not a likely immediate target. But changes in Social Security could set the stage for later reductions in health programs, a most visible target because they comprise one-sixth of the economy. As the greatest source of increases in federal spending in the coming years, Medicare will stand out exposed and vulnerable.
Reforms: Reducing Government Deficits
Given that the Social Security Trust Fund's resources are irrelevant to solving federal budget deficit problems, the Commission needs to find other resources. Recalling Federal Reserve chairman Bernanke's comment that we need to go to where the money is, savings that the Commission could consider for bringing the budget into balance are ending the unpopular tax cuts for the rich, ending the unpopular and counterproductive wars in Iraq and Afghanistan, and reducing the bloated overall defense budget. And the Commission might well consider, as the Washington Post has disclosed, the huge waste of funds being spent in a badly coordinated intelligence effort fraught with redundant agencies that cannot communicate with each other and often duplicate each other's work.
Reforms: Increasing Social Security Revenues and Benefits
There is NO need to reduce Social Security benefits. But reforms to increase the program's revenues and expand its benefits are both necessary and practicable. New revenue streams would not only easily stabilize funding of Social Security's existing commitments far, far into the future but would also enable expansion of benefits.
There are three potential revenue streams that are natural extensions of Social Security's existing funding model: (1) Remove the FICA caps on taxable income. This year, taxable earned income for FICA contributions is capped at $106,800. The cap is adjusted annually in line with average wage trends. (2) Extend the FICA tax to investment income. (3) For some beneficiaries, part of their Social Security benefit is taxed; return that tax revenue to the Social Security Trust Fund.
Three more potential revenue streams are unrelated to the present funding model. They could help cover the needed increases in Social Security benefits. They can be adjusted over time to meet changing needs: (4) The Trust Fund should share in the increase of our country's capital during periods in which this capital is increasing: in years when the stock market advances, supplement the Social Security Trust Fund with a tax surcharge on unearned income. Don't levy the surtax when there has been no such advance. (5) The noted labor lawyer Thomas Geoghegan proposes restoring the estate tax and channeling the proceeds entirely into the Social Security Trust Fund. (6) A financial transactions tax collecting a small amount from each share traded on stock exchanges and a similar tax on bond market transactions can serve new revenue needs of Social Security and Medicare.
The Campaign to Defend and Strengthen Social Security
It is vital that the campaign to defend and advance Social Security begin now before the Commission co-led by Senator Simpson and Erskine Bowles begins entertaining compromises in lieu of outright rejection of the Republican positions. It is time to revive the Hands Off Social Security slogan that united so many in defeating the privatization efforts of the Bush administration.
Our country has developed a three-legged stool model of financial support for the elderly: Social Security, employer-provided pensions, and 401Ks and IRAs invested primarily in the stock market. But with pensions drying up and little likelihood they will recover in the foreseeable future and with the stock market uncertain at best, the only secure leg in this array is Social Security. Congress needs to face the fact that weakening Social Security benefits will devastate many beneficiaries as well as their families. Rather, Social Security benefits need to be increased substantially.
(1) Raise the Social Security benefit to 50% of the beneficiary's work income level up, in phases, from the current 39%. (This is a suggestion made by Thomas Geoghegan.)
(2) Eliminate the punitive 24-month waiting period for eligibility for disability benefits.
Many groups are joining the fight. Twenty-five key national organizations have formed the Strengthen Social Security coalition (http://www.strengthensocialsecurity.org/), which now has a New York State Coordinating Committee.
Women's organizations will be crucial in this fight to preserve Social Security since the largest group of beneficiaries is women, including many widows for whom it is the primary source of income in their old age. Unions are vital: employer pension programs are drying up and changing from defined benefit to defined contribution programs, eroding workers' income for their retirement years. Seniors' organizations are obviously essential. Organizations representing people with disabilities have a great stake in protecting existing benefits as well as increasing them and eliminating the 24-month waiting period.
One of the most disturbing results of the propaganda offensive linking Social Security to the deficit has been the spread of conviction among young people that these protections will not be there for them when they face retirement. We must find a way to turn their doubt into recognition that this need not happen and that they are entitled to the same protections that their parents and grandparents got. We have to help young people see this as a matter not only of intergenerational but also of societal distributive justice, and to see our country, the richest nation on this earth, as capable of allocating the necessary resources. The new information technology needs to be harnessed creatively to reach this critical age group and engage them in the campaign.
These issues need to be given prominence by progressives in the fall election. A major national effort needs to be launched to ask all candidates to Take the Pledge to defend and improve Social Security. Every candidate of every political party needs to be made aware of such a widening voter sentiment. Congressional committees and individual members of Congress should be urged to hold hearings before the Commission reports in December.
If we remain united, the compromises that some may be willing to negotiate with the likes of Senator Simpson will prove dead on arrival. And we will, once again, prevent the dismantling of Social Security and strengthen the foundation of social insurance that is its basis as well as that of Medicare. If we are to advance further in health reform, this victory is essential. A defeat will defer the dream of "Medicare for all" and similar aspirations even farther.
This website, www.rekindlingreform.org, will post news of actions being taken in the fight to defend and strengthen Social Security. Please let us know what you are doing. Please plan to organize a broad-based community coalition in your district to meet with your member of Congress and with other candidates for that office. Keep us informed and we will let others know.
*This statement was approved by the Rekindling Reform Steering Committee at its meeting of June 11, 2010 and modified over the course of the summer to take current developments into account. It is an outgrowth of an earlier consultative meeting with health reformers chaired by Leonard Rodberg and addressed by Dean Baker and Ted Marmor. We will update the statement as changing conditions warrant. Such changes will be reflected in the date that appears on page 1.
For valuable additional information, see:
1. William Greider's article in The Nation