Pimping Social Security cuts again
by digby
Peter Orsazg is supposed to be a very smart guy. After all, he worked in the White House and is now raking in the huge bucks on Wall Street. So I’m sure everyone in Washington hangs on his every word.
Today he talks about solutions to the fiscal cliff. He says, correctly, that the Republicans are unlikely to compromise significantly on tax increases. And he suggests that there’s not enough time to work out some kind of alternative agreement on ending tax breaks. Also too, going over the cliff and letting the tax cuts expire would cause uncertainty, so that’s a no go.
What to do, what to do, what to do? How can we solve this insoluble dilemma? Oh, I know, let’s fix a something that has nothing to do with the problems we’re supposedly trying to fix!
The White House, therefore, has three options. First, it could drive us temporarily over the fiscal cliff, let all the cuts expire, and aim for a deal in January with the clean slate that would occur once all the tax cuts are gone. This approach would create maximum anxiety and uncertainty, though. It’s not clear how quickly in January a deal could come together.
Second, rather than insist on raising marginal tax rates above $250,000 in income, the White House could suggest scaling back tax breaks for that cohort. House Republicans would be much more amenable to this type of approach. Still, it would be a major concession from a White House that is presumably feeling vindicated by the election. And it is always hard to trim tax expenditures such as the mortgage interest deduction and state and local tax preferences — especially now, at a moment when the economy is still recovering from a housing-led downturn and state and local governments still face significant deficits that need to be closed.
Finally, the White House could push for a placeholder tax cut while negotiations are ongoing. The “tax reform refund” I proposed in a previous column should be easier for the Republicans to swallow than any tax-expiration scheme. This refund would amount to $1,600 a year for anyone who works or receives Social Security benefits, and it would remain in place until a deal could be reached or, failing that, until the economy recovered more.
The other requirement for any deal — entitlement change — is just as challenging. A team put together by the Center for American Progress, which included me, has proposed a variety of steps to continue slowing the growth of health-care costs, but almost all of these would be impossible to get through the House, with the possible exception of our proposal for medical-malpractice reform.
So the most promising approach may be to compromise on Social Security — even though it is not a significant driver of our long-term deficits.
Why? I haven’t the vaguest idea. I guess just so they can say they did something? He suggests that it would give the administration credibility to do something else, but he doesn’t say exactly what that would be:
Reforming it would give the administration fiscal credibility disproportionate to the actual impact on the long-term deficit.
For what?
He suggests raising the cap, which is an excellent idea. But he also suggests this little bait and switch is a good reason to mess with the system:
[I]t is possible to enact but defer Social Security changes, as history has shown. Consider that the gradual increase in the normal retirement age, which did not begin until 2000, was enacted as part of reforms passed in 1983.
Kids, just a word to the wise. As one of those who got screwed in that deal — paying much more into a “trust fund” allegedly for my own retirement while having to work two extra years until I’m 67 — watch your wallet. If I’m lucky to live out my full life expectancy, I’ll one of those old ladies who will be screwed again if they change the CPI. Take my word for it, when you’re young this all seems very remote — and then you wake up one day and it’s staring you right in the face.
I don’t know what Orszag is up to with this. Perhaps he sees raising the cap as a substitute for the “asking the rich to pay a little bit more” to pay down the deficit promised by Obama in the campaign. That would be fine with me. But I can’t imagine the Republicans agreeing to that without requiring even more draconian spending cuts in exchange. After all, this is ostensibly about the deficit, about which Social Security has no effect. They’re going to demand that the tax cuts be extended and the deficit reduction targets hit through massive spending cuts to the other “entitlements” such as Medicare and Medicaid.
Who knows what the hell is going on here? There is a ton of public and private negotiating happening and I’m sure Oeszag is playing some part in it. His conclusion is hardly reassuring if he’s speaking for the White House:
Which specific reforms to Social Security should the White House embrace? There are many sound options. Not surprisingly, I am partial to the plan that the economist Peter Diamond of the Massachusetts Institute of Technology and I have proposed.
It would be nice to think that over the past couple of months all of them have been the focus of White House staff discussions.
Diamond Orszag plan says this:
Since Painful Choices Must Be Made, a Key Question Is, Which Ones?
The Social Security deficit can be eliminated only through different combinations of politically painful choices: tax increases and benefit reductions. Unfortunately, too many analysts and politicians have ignored this reality, responding to the painful alternatives by embracing “free lunch” approaches.
[…]
Our plan makes the painful choices that are necessary—selecting a combination of benefit and revenue changes to restore long-term balance. In doing so, it focuses on three areas which contribute to the actuarial imbalance: improvements in life expectancy, increases in earnings inequality, and the burden of the legacy debt from Social Security’s early history.
[…]
Workers who are 55 or older will experience no change in their benefits from those scheduled under current law. For younger workers with average earnings, our proposal involves a gradual reduction in benefits from those scheduled under current law. For example, the reduction in benefits for a 45-year old average earner is less than 1 percent; for a 35-year-old, less than 5 percent; and for a 25-year-old, less than 9 percent. Reductions are smaller for lower earners, and larger for higher ones.
Like I said, watch your wallet kids. Guys like Orszag think they can sneak this through because nobody will be “affected” until years later and then, so what? But what will happen to you is what’s happening to me: you get older and you realize that the system is insecure, that the wingnuts are carving it away little by little, and that even though you made the sacrifice to pay more and reitre later, you still stand to have necessary benefits disappearing gradually after you are too old to work. Don’t buy it. This is a rich country that’s creating billionaires by the bucketful and running history’s most expensive military empire. We can afford for our elderly, disabled and sick to be decently taken care of. It’s just a matter of priorities.
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