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A Rebuttal: What Conservatives Get Wrong About Social Security

Martha Holstein
January 22, 2016
If you watched the recent, Republican debate, you heard New Jersey Governor Chris Christie tell it “like it is” about Social Security.  Reforming, that is weakening, entitlements but especially Social Security, has become a centerpiece of the governor’s platform and a demonstration of his fearlessness.  His claims: Social Security is in crisis; most younger people today don’t believe that it will be there when they retire, diverting a portion of our FICA taxes earmarked for Social Security to private accounts is essential; the current surplus (Social Security intake vs. output), known as the Trust Fund, and invested in interest-bearing T-bills were worthless pieces of paper since that all that money had already been spent.  Thus, he maintained, it was essential to raise the age of eligibility for full Social Security benefits and to modify how the cost of living adjustment (COLA) is calculated.  He further claimed that he is the only politician who is telling a straight story about Social Security and its problems. Cutting entitlements, labelled more acceptably as entitlement reform, is also defended as a way to reduce the deficit.

As noted in a previous blog post about Social Security, most of these ideas have been in circulation for over 30 years.  In the 1980s, the attack on Social Security—probably the most popular and successful program ever created by the U.S. government with support across the political spectrum and across all age groups—were far from subtle.  Old people were “greedy geezers,” robbing children of their right to a secure future.  Americans for Generational Equity (AGE) built its entire platform around this purported unfairness.  It’s no surprise since Social Security represents the proverbial elephant in the room for conservatives—a large public program that is administratively simple, cost effective, essential for the well-being of individuals and families, and favorably viewed even by many Tea Party adherents. President Bush’s second term agenda to partially privatize Social Security gained no traction as many retirees and future retirees saw what a plunge in the market could do to their lifetime savings.

Lacking the opportunity to challenge Governor Christie immediately following his remarks, I take the opportunity to do so now.  This task—challenging comments such as Governor Christie made—should be part of any liberal’s political agenda.  His remarks (straight out of the neoliberal playbook) reflect the view that individual effort rather than government represent the best ways to address economic and social needs. The neoliberal goal is to privatize everything that can be privatized; Social Security privatization would be a huge prize achieving twin conservative agendas.  It would be a boon to Wall Street for that money would need to be invested somewhere. It would show that conservatives were doing something about reforming entitlements, an agenda that has also unfortunately become part of their conventional wisdom. 

If I had a chance to confront Governor Christie, I make the following points:

Social Security is in Crisis   
The Social Security Trustees estimate that around 2034, if nothing is done, Social Security will only be able to pay 75% of earned benefits to beneficiaries. Predictions made that far into the future are always iffy because they can’t account for the size of the workforce, immigration, or other unknown factors.  But let us accept the estimate.  Does that create a crisis for which otherwise unacceptable responses are necessary? I submit that the answer is no.  Here’s why: rather than reduce benefits that would be particularly damaging to single women, women of color, and low-earning men, the National Academy of Social Insurance, Social Security Works, and other national organizations that have as their goal a strong, responsive Social Security program have proposed modest changes in revenues as a means to narrow the anticipated future gap between income and expenditures. This would be done by increasing the payroll taxes in a way that protects low earners and through lifting the income levels at which one continues paying Social Security taxes.

These solutions are not radical; they would protect low earners and would go a long way to solving the anticipated shortfall. Because earnings at the top have grown so much, more and more people are exempted earlier and earlier from paying FICA taxes.  Some maintain that the ceiling should be eliminated completely while others propose that it be set at 90% of payroll where it has historically rested. It might also include unearned income that is now exempt from payroll taxes. These approaches, which focus on revenue, should be relatively easy to manage for most people and are supported by a majority of those polled.  They are, however, ruled out by the conservative anti-tax agenda. Because, Social Security is legally required to pay out only from what it takes in, politicians like Chris Christie have nowhere to go but benefit cuts achieved primarily through raising the age for full retirement and going to the chained CPI for calculation of the COLA.  

Younger People Believe it Won’t Be There for Them
In the early 1980s, two researchers at the Cato Institute, a libertarian think tank, published a paper that focused on undermining popular support for Social Security by predicting its demise. In this way, they reasoned, younger voters would act in their self-interest and support efforts to privatize it or change it in other ways.  The result of this strategy was not what they expected.  Although many younger people believe that it won’t be around when they need it, their response, according to polling data, is to support whatever changes are necessary to assure that it will be there.  Hence, younger voters support both major revenue enhancers noted above.  The future survival of Social Security is a political and not an economic problem.  Conservative efforts to undermine political support have so-far failed.

Privatization
The first practical problem with privatization is implementation.  If any portion of the FICA taxes are diverted to private accounts, the gap between what Social Security takes in and pays out in benefits will widen significantly, thus adding to the crisis mentality. But, perhaps most importantly, private accounts are risky (recall 2008 when retirees and near retirees lost as much as 40% of their retirement savings); they serve high earners (people making more than $100,000 a year) far better than others as demonstrated by the uptake of 401 (k) plans—a program the Reagan administration introduced to enhance comfort with private plans but also to permit savings that reduced one’s tax burden. Financial illiteracy, retirement advisers who put their interests ahead of their clients (efforts by the Consumer Finance Protection Agency to halt this practice are strongly opposed by Republicans in Congress), and the volatility of the market make privatization a bad bet for any but the affluent. 

The Social Security and Trust Fund Consists of Worthless IOUs
This theme, embraced by President Bush and other conservatives, on the surface may make sense. The surplus of intake over output of FICA taxes, is not placed in the “lockbox” we often heard about in the Bush-Gore presidential race. Instead it is invested in interest-bearing T-bills, backed by the U.S. government.  The money is then used to support other programs and services as is any money that the government borrows. But that fact does not mean T-bills are “worthless” IOUs.  If that were so it would be true for any individual or country, like China, that heavily invests in U.S. securities.  If T-bills are worthless, that is, unavailable to be redeemed when needed to pay Social Security benefits, then they are also worthless when China wants to sell off its holdings.

Social Security reforms passed in 1983 and designed by a commission that Ronald Reagan appointed deliberately created the surplus in anticipation of the time when Baby Boomers would retire.  These reforms, which gradually raised the age for full retirement, have already resulted in benefit cuts for Baby Boomer retirees. Ironically, this move made to anticipate the surge of retirees, is now being used to justify further cuts to benefits. Rather than be seen as an asset, anticipatory planning becomes a liability in the neoliberal political environment.

Conclusion
In my next post, I will turn to the relationship of entitlements, especially Social Security, to the deficit and also look further into the implications of cashing in the T-bills if and when that is needed to finance benefits. For now, I hope that the above has offered suggested directions for arguments against Chris Christie and so many others, including some liberals, who have adopted the now-conventional idea that entitlement reform is essential.  This idea has become so widespread that its proponents no longer feel the need to offer any defense of their position because it is what “everyone knows,” everyone except legislators like Elizabeth Warren, Sherrod Brown, Jan Schkowsky, and others who argue for enhancing rather than reducing benefits.  For further information, take a look at Social Secuirty Works by Nancy Altman and Eric Kingson and the websites of Social Security Works (www.socialsecurityworks.org) and the National Academy of Social Insurance (www.nasi.org).