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Dean Baker
Published: Tuesday 15 January 2013
“The bottom line is that President Obama and many leading Democrats are prepared to give seniors a larger hit to their income than they gave to the over $250,000 crowd.”

The 3 Percent Cut to Social Security, Aka the Chained CPI

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According to inside Washington gossip, Congress and the President are going to do exactly what voters elected them to do; they are going to cut Social Security by 3 percent. You don’t remember anyone running on that platform?  Yeah, well, they probably forgot to mention it.

Of course some people may have heard Vice President Joe Biden when he told an audience in Virginia that there would be no cuts to Social Security if President Obama got re-elected. Biden said:

“I guarantee you, flat guarantee you, there will be no changes in Social Security. I flat guarantee you.”

But that’s the way things work in Washington. You can’t expect the politicians who run for office to share their policy agenda with voters. After all, we might not like it. That’s why they say things like they will fight for the middle class and make the rich pay their fair share. These ideas have lots of appeal among voters. Cutting Social Security doesn’t.

While the politics of cutting Social Security are bad, it also doesn’t make much sense as policy. In Washington, the gang who couldn’t see an $8 trillion housing bubble until its collapse sank the economy has now decided that deficit reduction has to be the preeminent goal.

They don’t care that we are still down more than 9 million jobs from our growth trend; deficit reduction must take priority. These whiz kids apparently also don’t care that the cuts that have already been made are slowing growth and costing us jobs.

If we actually did have to reduce the deficit it’s hard to see why Social Security would be at the top of the list. After all, the vast majority of seniors are not doing especially well right now. Our defined benefit pension system is disappearing and 401(k)s have not come close to filling the gap. Retirees and near retirees have lost much of the wealth they had managed to accumulate when the collapse of the housing bubble destroyed much of their home equity.   

From a policy standpoint it would make far more sense to tax Wall Street speculation. Congress’ Joint Tax Committee estimated that a 0.03 percent tax on each trade could raise almost $40 billion a year. Such a tax would also make the financial sector more efficient by eliminating a huge volume of wasteful trading.

It also is bizarre that Social Security would even be considered in the context of the deficit. In law and in practice it is a separate program, financed by its own designated stream of revenue. Cutting benefits as part of a deficit deal means that we will be making cuts to Social Security with zero quid pro quo in the form of increased revenue. That hardly makes sense if the point is to protect the program.

What’s more the cut in fashion in Washington is especially poorly targeted. The idea is to reduce the annual cost-of-living adjustment by 0.3 percentage points annually by using a different inflation index. That translates into a cut in benefits of 3 percent for those who have been retired 10 years, 6 percent after 20 years, and 9 percent after 30 years. The people who have been retired the longest and therefore the poorest will see the largest cuts.

And remember those pledges not to cut benefits for those currently retired? Oh right, no one meant that to be taken seriously.

The benefit cutters argument is another nice piece of D.C. humor. The argument is that the current index overstates inflation. However, there is an experimental index produced by the Bureau of Labor Statistics that shows the current index actually understates inflation for seniors.

That is just an experimental index but if the concern really is accuracy then the obvious answer would be to construct a full index to examine the cost of living of the elderly. But that suggestion just draws contempt from the Social Security cutters.

In order to avoid feeling too badly about their plan to cut Social Security, many of the cutters want to protect some programs for low-income people. For example, Supplemental Security Income (SSI) a program for the disabled and low-income seniors will be protected. The word is that SSI will continue to be indexed to the current inflation index.

If we believe the claim that the chained CPI is the more accurate measure of inflation, this is a proposal to increase SSI benefits each year by an amount that is 0.3 percentage points more than annual rate of inflation. That may make sense to inside Washington types, but anywhere else this is loon tune stuff. If SSI benefits are too low (they are), then raise them. What possible logic can there be to have benefits rise each year by a bit more than the actual rate of inflation? 

The bottom line is that President Obama and many leading Democrats are prepared to give seniors a larger hit to their income than they gave to the over $250,000 crowd. And the whole reason it is necessary is that the Wall Street types who wrecked the economy say so. Is everybody happy?



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ABOUT Dean Baker
Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is the author of several books, including Plunder & Blunder: The Rise and Fall of the Bubble Economy, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer and The United States Since 1980. He was the editor of Getting Prices Right: The Debate Over the Consumer Price Index, which was a winner of a Choice Book Award as one of the outstanding academic books of the year. He appears frequently on TV and radio programs, including CNN, CBS News, PBS NewsHour, and National Public Radio. His blog, Beat the Press, features commentary on economic reporting. He received his B.A. from Swarthmore College and his Ph.D. in economics from the University of Michigan.

cut 3% from the war and

cut 3% from the war and defence budget.
add 3% to the upper class's bill and cut their loopholes.

The following statement is an

The following statement is an absolute truth:
"Capitalism is now an ideology pure and simple, with a propaganda boilerplate and patter all its own. It is used to camouflage the real truth, which is that Congress has sold out to corporate interests; that members of Congress are bought and sold in a behind-the-scenes market where votes and money are constantly traded; that America's megabanks and corporations do not believe in competition but obsessively seek market-distorting tax favors, subsidies, federal rulings allowing "venture capitalists" to gobble up or destroy competitors and drive small businesses into extinction." The first step that is urgently needed to correct this shameful situation is to initiate a massive grass roots movement by getting enough signatures on the petition by clicking on or copying and pasting into your browser - http://signon.org/sign/take-money-out-of-politics

Let us all get our heads out of the sand and recognize finally that we no longer have a Democracy (government of the people by the people and for the people). What we do actually have is Plutocracy (government of the people by the lobbyists for the rich and powerful corporations, banks and individuals).

So, the remedy is obvious. Take the money out of politics so that members of Congress will be responsible only to the people that voted for them. To accomplish this it will require a massive grass roots movement by the majority of our citizens that can be started when they have all signed the petition at - http://signon.org/sign/take-money-out-of-politics

While this article is

While this article is excellent in explaining why SS benefits should not be cut at all, it appears to overstate the proposed cuts. After ten years, there would be a 3 percent reduction in the cost of living adjustments, not in the total SS benefit. There is quite a difference! If I am mistaken, please explain.

The chained CPI should be

The chained CPI should be refered to as the "Let them eat cake", act to show how out of touch the political elite have become. I think that the example of chicken being substituted for steak, is just like the "If the peasants have no bread, let them eat cake".

Because of a hike in my

Because of a hike in my Medicare Part D payments, my SS payments for 2013 after the COLA raise will be $2.30 per month less than they were for 2012. Thank you, private sector!

Just want to repeat my fear

Just want to repeat my fear and loathing of Obama Dem duplicity.

This is an understatement. I

This is an understatement. I commend GregGhilbert. "Duplicity" has been
at the core of all of Obama's years in office. I expect it to continue to be
central to Obama administrations in all fields.

It should be noted that discussions of SS amounts in fact reflect the refusal
to face cuts in wasteful military spending by the US (and its allies). There
is, for example, no reason why the US should be supporting some 178
bases around the world on "Status of Force Agreements" ("SOFA") or the
continued support of "research", international sale of weapons made in
warm and fuzzy locations such as Stratford Conn (near Newtown, Conn) with agreements championed by Connecticut's two Senators, Chris Dodd and Joe Lieberman (See John Tirman's SPOILS OF WAR....). So because of
these machinations (eg the Dodd amendment to the rules for the Ex-Im Bank), money that might go to social security, health care, education
and "infra-structure" not- to- mention education are simply.. not there.
What a "disaster" shout the politicians. They want even more cuts...in
programs for our quality of life. Cuts in the military (outside of for
wounded vets) are not ---in Washington-speak----"on the table"!!)

Thank God we have Dean Baker

Thank God we have Dean Baker on our side. He smacked this one out of the park...

Mussolini described fascism

Mussolini described fascism as an agreement by the government and corporations for their mutual benefit. Cutting Social Security is a giant step in that direction It is called an entitlement because we paid for it. How about a penalty tax on citizens and corporations that have hidden taxable income in the Cayman islands and other tax shelters?How about slashing the m,ilitary-industrial complex budget? Is it still 49 % of the national budget? Why do we need based in Okinowa, Germany, etc.? The World Health Care Organization ranked the quality of U.S. health care 37th best in the world with the highest costs. Let's fix that. How about Medicare demanding volume price discounts? Etc.

Remember back when Social

Remember back when Social Security was supposed to be a sacred fund? Administrations were not supposed to siphon off the surplus, but rather let it accumulate and earn interest. Instead, every year, the fund gets raided. That's the problem with Social Security. Given that this money goes straight back into the economy--only the well-off bank it--I can't figure out why right-wingers are so against it. Social Security is part of what makes their businesses fluorish. It's why older people can go to their movies, eat at their restaurants, stay in their hotels. I just don't get it.

let us continue and let the

let us continue and let the retirees in 2032 take a 30% cut

Many have written using the

Many have written using the same facts but this is one of the better pieces. I still maintain the the issue is ideaology coupled with greed not economics. Ideaology dictates this popular, efficient and eminently successful progressive program must be destroyed and greed would have it destroyed in name and function but have the money flow into the hands of private investors

You can bet that the Fortune

You can bet that the Fortune 500 and filthy rich billionaires and millionaires don't have to take a cut in their corporate welfare.

Told you so! Obama and most

Told you so! Obama and most of the Democrats work for the 1%. The Democrats get THE MAJORITY of their money from corporate sources.

This is a direct result of liberals' unconditional support for this other corporate-funded party. It gives the Democrats the confidence to sell us out to the 1%, secure in the knowledge the peasants will still vote for them.

2-4% of the vote for the Green Party would have sent a message to the Democrats that our support isn't unconditional, and that selling out the people will cost them votes.

The Green Party is the non-corporate alternative. They don't accept corporate money and they represent CITIZENS' interests. Stop playing the corporate parties' rigged game, and vote for a party that represents YOUR interests!

VOTE GREEN!

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