Deficit Reduction and Old Age Policy

  “Martha Holstein, HMPRG’s co-director of the Center for Long-Term Care Reform, shares her perspective on the federal government’s response to the national budget deficit.”

Deficit Reduction and Old Age Policy

A few months ago, Health & Medicine (HMPRG), along with 60 other organizations and individuals, signed a petition opposing the appointment of a Congressional deficit reduction commission.  We did so because whatever decisions the commission made were to be subject to a “fast track” up or down vote in Congress.  We feared (and still fear) that the deficit reduction would go where the money was—Social Security and Medicare—without opportunities for amendment. It failed to garner the votes to pass.  In its stead the President has established the National Commission on Fiscal Responsibility and Reform by executive order. It will report to Congress in December 2010.  We regret that the President appointed as co-chairs two critics of Social Security—former Senator Alan Simpson and Erskine Bowles, former chief of staff in the Clinton administration. This post raises our concerns; we invite your commentary.

First, about deficit reduction—we accept the arguments of Nobel prize-winning economists like Paul Krugman and Joseph Stiglitz that it is bad policy to cut spending in order to reduce the deficit while trying to revive the economy.  More stimulus spending rather than less is needed at this time. A Gallup poll report on June 17, 2010 shows that 60% of Americans favor more spending to address unemployment.  We accept, however, that over the longer-term—if and when the economy gains further strength—the deficit will have to be addressed.  We thus regret that the President, whether for political, pragmatic, or other reasons, has decided to support deficit reduction at this time.

Second, and more to the point, we worry that in an atmosphere of crises poor decisions are often made. Entitlement programs, long the nemesis of the right, will be on the negotiating table. Calls to raise the social security retirement age, reduce future benefits, and privatize social security are already being voiced. Many also point to the high costs of Medicare with subtle blame directed at older people, thus re-igniting the intergenerational debate of the 1980s.

Fact: While older people are no longer the poorest group in America, in part because of Social Security, many have not risen far above the antiquated poverty line, as our work on the Elder Economic Security Initiative clearly shows.  In every county in Illinois, including those with the lowest cost of living, there is a gap between what people have in the way of income and what they need to make ends meet. For these people Social Security is the bulwark of their income. 95% of African-Americans, 85% of Hispanics, and 80% of whites report that Social Security is or will be an important part of their retirement income (National Academy of Social Insurance (NASI), February 2010).  These individuals want social security strengthened even if that means higher taxes on workers, which includes them. Nearly half of all Americans say that they would not be able to cover basic necessities without Social Security (NASI, Reno and Lavery, 2009). Social Security also benefits families not only because of joint survivor benefits or aid to the disabled but for this simple reason—if older family members did not have Social Security or if it were reduced substantially, responsibility to support aging parents can fall to their adult children who are often already struggling to make ends meet.  With pension formation falling and the market deeply uncertain, social security’s importance escalates.

Thus, we contend that Social Security should be “off the table” much as health care reform strategies took single payer “off the table.”  We fear that the new commission, not made up of Social Security experts, will look immediately to that program because that’s where the money is. Today, social security is not in deficit.  If the goal is to make Social Security more sustainable further into the future then strategies to do so should be in the hands of an independent group specifically charged with that goal.  The 1983 Social Security Commission led to modest system-wide reforms. These reforms have kept social security in the black for 27 years.  There is no urgent need to cut Social Security at this time. 

We thus call for the appointment of a similar expert commission to examine what will need to be done to protect Social Security for the next 25+ years.  It should not be seen in the context of deficit-reduction.  Rather it must be viewed as the centerpiece of America’s commitment to its elders.  How we frame the issue of Social Security—it’s busting the budget or it’s an essential program that requires some changes to assure its solvency for another two generations and beyond—makes a big difference in the questions that are asked and the facts that are gathered. Putting Social Security’s future into a context of deficit reduction changes the nature of the debate from how this program can be protected to how it can be reduced to lower the deficit.  This is unacceptable. It has not contributed one cent to the deficit, which has been caused by two wars, by Part D of Medicare, by tax cuts for the wealthiest Americans, and by lowered tax revenue because of the recession.

This new proposed Social Security Commission should have as its single purpose developing plans for Social Security’s stability into the future. Its first goal should be to examine ways to generate additional income for the program rather than reduce benefits or raise the retirement age in any major way. The National Academy of Social Insurance (NASI), for example, proposed a variety of ways to generate such revenue.  Analysts that do not have an ideological bias against Social Security believe that several relatively modest changes can assure the program’s financial stability well into the future.

HMPRG believes that any changes to Social Security must protect the least advantaged.  That is why we oppose any significant increase in retirement age unless there is some non-intrusive way of protecting low wage workers who have few or no other assets and income.  They would be forced to work longer often at physically difficult jobs while more affluent white collar workers who are more likely to have other income are able to retire.  To protect the least advantaged, any changes in Social Security payroll taxes should also protect lower wage workers. This can be done by introducing modest progressivity into the tax structure. The survival of Social Security is a political, not a financial problem.  We must not get caught up in the rhetoric that implies it will not be there in the future.  It will be there if we all have the will to make the modest changes that are necessary to assure an income floor for all who contributed to the program throughout their working lives.

We plan a series of forums on Social Security in the next several months as part of our work on the Elder Economic Security Initiative.  We invite you to participate in the discussion and to let us know what kind of programs would interest you.