Sunday, August 17, 2008

Obama on Social Security in Manchester Union Leader

Sen. Barack Obama has an op-ed in today's Manchester Union Leader regarding Social Security reform. It's worth reading the whole thing, posted here, but here I'd like to dissect a few factual claims Obama makes in the piece.

First, Sen. Obama says, "Social Security has lifted millions of seniors and their families out of poverty. Without it, nearly 50 percent of seniors would live below the poverty line."

This is a common talking point, but let's be clear on what it means: if we forced people to pay Social Security taxes all their lives but didn't pay them any benefits, yes, nearly 50 percent of seniors would live below the poverty line. But this is a silly standard. If we were truly "without" Social Security, we would also be without Social Security taxes, which individuals could then save on their own for retirement. So the better question would be, "Without Social Security taxes and benefits, what would the poverty rate among seniors be?" The answer is, about the same as the current rate.

Second, Sen. Obama also says, "The underlying system is sound and the actual problem, a projected cash shortfall over the next 75 years, is relatively small and can be readily solved. For starters, that means strengthening the program over the long-term by returning to basic fiscal responsibility, so we're not borrowing billions from the Social Security Trust Fund."

This response doesn't make much sense, for two reasons. First, if the cash shortfall is small and can be readily solved, it shouldn't be difficult for Sen. Obama to propose a plan to fix the whole shortfall, not just the 15 percent of it his tax increase would fix. And second, if borrowing from the Social Security trust fund is a problem, then the problem is over $2 trillion larger than the small and readily solved one he acknowledges. That is, for the Social Security problem to be small and distant, as Sen. Obama claims, we have to assume the trust fund is "real" saving. But if one of the keys to reform is to stop borrowing from the trust funds, which we've been doing for a quarter century, then the problem isn't small and distant: it's large and begins in only around a decade.

Third, Sen. Obama says, "The Bush privatization plan that Sen. McCain now embraces would tell 39,000 New Hampshire residents that they're on their own, putting them at risk of falling into poverty and costing each of them more than $235,000 over their lifetimes."

Leaving aside whether Bush's plan was privatization and whether McCain embraces it, where is the math that supports the claim that it would cost people $235,000 over – this is the important part – their lifetimes? (Is $235,000 a correct number? I have no idea how it's being calculated, but here I'll focus on the bigger questions.) To balance Social Security going forward, we need to increase taxes or reduce benefits. Different plans may apportion things differently between tax increases or benefit cuts, but the total amount by which we need to raise taxes or cut benefits is the same. If we want Americans not to be hit with a $235,000 benefit cut, then they would need to be hit with a $235,000 tax increase. It appears that Sen. Obama is counting lifetime benefit reductions under President Bush's plan, but not the lifetime tax increases that would be necessary to avoid these benefit cuts.

Finally, Sen. Obama says, "It means ensuring Social Security's solvency while protecting middle class families from tax increases or benefit cuts, and without raising the retirement age. What I will do is ask those making over $250,000 a year to contribute a little more as part of a bipartisan plan that would be phased in over many years starting a decade or more from now."

Someone needs to show me how Sen. Obama will "ensure" solvency with the plan he outlines, one which fixes only around 15% of the long-term deficit. He can't do it, and it's irresponsible for Sen. Obama to tell Americans that he can. Right now he's only "asking" higher earners to pay more, but if he is truly to ensure solvency he will be asking others for sacrifice as well.


Anonymous said...

Your argument that poverty would be the same with or without Social Security is the usual empty Republican propaganda.

For starters, you assume that the whole payroll tax would become direct wages without payroll taxes, but that ignores elasticity issues, especially in a labor market where unions have lost their power. There is no assurance whatsoever that amount taken by FICA would go to workers in their pay.

Even if it did go to workers, income taxes -- currently not levied on the FICA portion because that's "above the line," would reduce it by about one-quarter. And then, if the money were invested privately, the management fees from the "efficient private sector" are far higher than the administrative costs of Social Security.

There is also the behavioral argument. Social Security is essentially forced savings. There is a reason we do that. Just look at the consumption habits of Americans and you can see that some manner of forced savings is essential.

If we eliminated it, a couple of things would happen. For starters, we'd face the after-effects, which would be widespread destitution among the elderly. It's unlikely that, as a society, we'd just stand by and allow it to happen. Therefore, while payments to the elderly would decline, they wouldn't be eliminated.

Over time, of course, as people got used to the lack of a safety net there would certainly be a response. One would be reduced consumption by younger workers, who would divert some of their income to care for their parents. An interesting idea in an industrial economy, isn't it?

Finally, there is the empirical evidence. Social Security went through a number of changes between the mid-1950s and the mid-1970s. These changes made the pensions considerably more generous. As that happened, poverty rates among the elderly plummeted by two-thirds, from roughly 30% to a current rate of 10%.

So, you can take your Republican lies and shove 'em where the sun don't shine. You're nothing but a propaganda shill for the far right wing, and anyone who has ever studied the program -- which I have done in depth -- sees right through your outrageous bullshit.

But hey, don't take my word for it. Tell your Republican shills running for president and Congress to go run against Social Security. Make my day!

Anonymous said...

p.s.: Resident "scholar" at the American Enterprise Institute? Don't make me laugh! That group is just one more wingnut shill. But please, oh please, try it. Just try to take away Social Security. I bet you to try, because then we can drive a silver stake through your right-wing hearts once and for all. Come on, bring it on.

Anonymous said...

No, Reps are not going to try to take away SS. The Dems will incrementally take it away by adding a means test, increasing the retirement age, and taxing the hell out of "the rich." The people will then revolt against the Dems.

Anonymous said...

The Republican Party opposed Social Security in the 1930s, and they've been scheming to destroy it ever since. But they never get too far with their schemes, because this is something America wants, regardless of whether some "scholar" from the "American Enterprise Institute" tries to put lipstick on the Republican pig.

Anonymous said...

Oh, and in fact the Republicans DID try to take it away. George W. Bush tried to give one-third of the SS Trust Fund to the banks in mid-decade. That one got stopped dead in its tracks. It was a $40 billion a year giveaway to his banker friends, and a scheme to rip apart the system. And it died. A year later, the Republicans lost Congrerss. So beware, wingnuts. Keep your hands off our pensions, or we'll electrocute you at the polls.