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Robert Reich
NationofChange / Op-Ed
Published: Friday 22 March 2013
The richest nation in the history of the world should be able to respond to the legitimate needs of all its citizens.

Selling the Store: Why Democrats Shouldn’t Put Social Security and Medicare on the Table

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Prominent Democrats — including the President and House Minority Leader Nancy Pelosi — are openly suggesting that Medicare be means-tested and Social Security payments be reduced by applying a lower adjustment for inflation. 

This is even before they’ve started budget negotiations with Republicans — who still refuse to raise taxes on the rich, close tax loopholes the rich depend on (such as hedge-fund and private-equity managers’ “carried interest”), increase capital gains taxes on the wealthy, cap their tax deductions, or tax financial transactions. 

It’s not the first time Democrats have led with a compromise, but these particular pre-concessions are especially unwise.

For more than 30 years, Republicans have pitted the middle class against the poor, preying on the frustrations and racial biases of average working people who can’t get ahead no matter how hard they try. In the Republican narrative, government takes from the hard-working middle and gives to the undeserving and dependent needy.  

In reality, average working people have been stymied because almost all the economic gains of the last three decades have gone to the very top. The middle has lost bargaining power as unions have shriveled. American politics has been flooded with campaign contributions from corporations and the wealthy, which have used their clout to reduce marginal tax rates, widen loopholes, loosen regulations, gain subsidies, and obtain government bailouts when their bets turn sour. 

Now five years after the worst downturn since the Great Depression and the biggest bailout in history, the stock market has recouped its losses and corporate profits constitute the largest share of the economy since 1929. Yet the real median wage continues to fall — wages now claim the lowest share of the economy on record — and inequality is still widening. All the economic gains since the trough of the recession have gone to the wealthiest 1 percent of Americans; the bottom 90 percent continue to lose ground. 

What looks like the start of a more buoyant recovery is a sham because the vast majority of Americans have neither the pay nor access to credit that allows them to buy enough to boost the economy. Housing prices and starts are being fueled by investors with easy money rather than would-be home buyers with mortgages. The Fed’s low interest rates have pushed other investors into stocks by default, creating an artificial bull market. 

If there was ever a time for the Democratic Party to champion working Americans and reverse these troubling trends, it is now — forging an alliance between the frustrated middle and the working poor. This need not be “class warfare” because a healthy economy is in everyone’s interest. The rich would do far better with a smaller share of a rapidly-growing economy than a ballooning share of one that’s growing at a snail’s pace and a stock market that’s turning into a bubble. 

But the modern Democratic Party can’t bring itself to do this. It’s too dependent on the short-term, insular demands of Wall Street, corporate executives, and the wealthy.  

It was Bill Clinton, after all, who pushed for repeal of Glass-Steagall, championed the North American Free Trade Act and the World Trade Organization without adequate safeguards for American jobs, and rented out the Lincoln Bedroom to a steady stream of rich executives. 

And it was Barack Obama who continued George W. Bush’s Wall Street bailout with no strings attached; pushed a watered-down “Volcker Rule” (still delayed) rather than renew Glass-Steagall; failed to prosecute a single Wall Street executive or bank because, according to his Attorney General, Wall Street is just too big to jail; and permanently enshrined the Bush tax cuts for all but the top 2 percent.

Meanwhile, over the last several decades Democrats have allowed Social Security taxes to grow and its revenue stream to become almost as important a source of overall government funding as income taxes; turned their backs on organized labor and labor-law reforms that would have made it easier to form unions; and then, even as they bailed out Wall Street, neglected the burdens of middle-class homeowners who found themselves underwater and their homes worth less than what they paid for them because of the Street’s excesses. 

In fairness, it could have been worse. Clinton did stand up to Gingrich. Obama did get the Affordable Care Act. Congressional Democrats have scored tactical victories against social conservatives and Tea Party radicals. But Democrats haven’t responded in any bold or meaningful way to the increasingly concentrated wealth and power, the steady demise of the middle class, and further impoverishment of the nation’s poor. The Party failed to become a movement to reclaim the economy and our democracy. 

And now come their pre-concessions on Social Security and Medicare. 

Technically, a “chained CPI” might be justifiable if seniors routinely substitute lower-cost alternatives as prices rise, as most other Americans do. But in reality, seniors pay 20 to 40 percent of their incomes for healthcare, including pharmaceuticals — the prices of which are rising much faster than inflation. So there’s no practical justification for reducing Social Security benefits on the assumption inflation isn’t really eating away at those benefits as much as the current cost-of-living adjustment allows.   

Likewise, although a case can be made for reducing the Medicare benefits of higher-income beneficiaries, as a practical matter their savings are almost as vulnerable to rising healthcare costs as are the more modest savings of middle-income retirees. “Means-testing” Medicare also runs the risk of transforming it into a program for the “less fortunate,” which can undermine its political support. 

In short, Medicare isn’t the problem. The underlying problem is the sky-rocketing costs of health care. Because Medicare’s administrative costs are a fraction of those of private health insurance, Medicare might be part of the solution. Medicare for all, or even a public option for Medicare, would give the program enough clout to demand health providers move from a fee-for-service system to one that paid instead for healthy outcomes. 

With healthcare costs under better control, retirees wouldn’t be paying a large and growing portion of their incomes for healthcare — which would alleviate pressure on Social Security. I’m still not convinced a “chained CPI” is necessary, though. A preferable alternative would be to raise the ceiling on the portion of income subject to Social Security taxes (now $113,600). 

Besides, Social Security and Medicare are the most popular programs ever devised by the federal government, which is why Republicans hate them so much. If average Americans have trusted the Democratic Party to do one thing it has been to guard these programs from the depredations of the GOP.  

Putting these two programs “on the table” is also tantamount to accepting the most insidious and dishonest of all Republican claims: That for too long most Americans have been living beyond their means; that we are rapidly approaching a day of reckoning when we can no longer afford these generous “entitlements;” and that prudence and responsibility dictate that we must now begin to live within our means and cut back these projected expenditures, particularly if we are to have any money left to invest in the young and the disadvantaged. 

The truth is the opposite: That for three decades the means of most Americans have been stagnant even though the overall economy has more than doubled in size; that because almost all the gains from growth have gone to the top, most Americans haven’t been able to save enough for retirement or the rising costs of healthcare; and that because of this, Social Security and Medicare are barely adequate as is.  

Paul Ryan’s House Republican budget takes on Medicare, but leaves Social Security alone. Why should Democrats lead the charge on either? 

The Republicans are already slashing help for the young and the disadvantaged. Democrats shouldn’t succumb the lie that the elderly and young are in competition for a portion of a shrinking pie, when in fact the pie is larger than ever. It’s just that those who have the largest and fastest-growing portions refuse to share it. 

We are the richest nation in the history of the world — richer now than we’ve ever been. But an increasing share of that wealth is held by a smaller and smaller share of the population, who have, in effect, bribed legislators to reduce their taxes and provide loopholes so they pay even less. 

The budget deficit “crisis” has been manufactured by them to distract our attention from this overriding fact, and to pit the rest of us against each other for a smaller and smaller share of what remains. Democrats should not conspire. 

Needy children should be getting far more help, better pre-school care, better nutrition. Seniors need better healthcare coverage and more Social Security. All Americans need better schools and improved infrastructure. 

The richest nation in the history of the world should be able to respond to the legitimate needs of all its citizens. 

This article was originally posted on Robert Reich's blog.



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ABOUT Robert Reich

 

ROBERT B. REICH, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org. Robert Reich's new film, "Inequality for All" is available on DVD
and blu-ray, and on Netflix in February.

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13 comments on "Selling the Store: Why Democrats Shouldn’t Put Social Security and Medicare on the Table"

Grant Martin

March 24, 2013 8:15pm

The problem with the USA and the world is it's filled with stupid people.
There is a technology 6 thousand years old that will fix this problem it is called
TM
see

http://www.tm.org/

http://www.youtube.com/watch?v=TfIqvZLIZz8

http://www.youtube.com/watch?v=z2UHLMVr4vg&NR=1&feature=endscreen

study everything on these sites - watch all the videos
cough up the money to learn TM properly & sit twice a day in silence for 20 minutes
nature will come to save us
Eat only organic food. Preferably food you have grown yourself.
If you live in the USA travel to Fairfield Iowa - see their plans
for the future of our dear world ... the light glows bright there.
Good luck !

Johann

March 23, 2013 9:44pm

The Democratic party has never learned, or doesn't want to learn the art of compromise.

They present a reasonable proposal, leaving many possible approaches off the table even before any compromise is attempted. Proposals like eliminating the cap on the Social Security taxes, cutting the military budget, placing a transaction tax on stock transfers, etc. This leaves them no room to compromise when it becomes time for a compromise.
The Republicans, on the other hand, present every outlandish proposal they can think of, knowing that when it comes time for compromise, the compromise will tend toward their agenda of making the Federal Government under President Obama a total failure.
The Republicans will be willing to increase the debt ceiling in return for cuts to Social Security and/or medicare and the Democrats will have nothing to trade off to keep those programs intact.
The Democrats are either really stupid or are in league with the Republicans. It really doesn't matter which since the results are so similar. We the people get screwed.

Ron in NM

March 22, 2013 10:05pm

I voted for Obama, not because I have my head in the clouds, but because I feared Lyin' Ryan and Waffling Willard even more. In that sense, I don't regret my vote. But I was worried that Obama would try to compromise too much with the Defenders of the Rich, once known as the GOP, and that seems to be the path he might take. I'm one of the retired, and I live largely on my SS and a small pension. I paid into SS since I was 15, and into Medicare when it first became law to do so.

I agree completely with Reich that it is the constantly rising health costs that are exhausting Medicare, and somehow that has to be addressed. Even basically simple medical procedures are too costly. Why? And if I go to the hospital for a few days, I can't even bring the expensive prescriptions I have with me; the hospital insists that I must take what they provide, so they can bill me for them at ridiculous rates.

Our health care system stinks to high heaven. Oh, sure, if you're a sheik from Kuwait, you can come here and get the best medical treatment that money can buy, but if you're an average working stiff, or an exhausted retiree, you pay through the nose, and your options are limited.

And why do doctors charge so much? Medicare doesn't pay what they bill us for, but why do they charge so much in the first place? I wait an hour to see my PCP, and then I consider myself lucky if she spends 3 minutes with me, and I'm not exaggerating. My last visit I managed to get 5 minutes out of her, which was quite a shock to my nerves. I thought I'd fall out of my chair. And there were only 3 patients in the waiting room, so why can't I get 15 minutes, as some dreamers think we do?

All we can do is let our senators know how we feel about Obama's flirtation with SS "adjustments" to gratify the Tea Party crusaders for the wealthy. He knows he can't run again, so we can't try to influence him that way. Frankly, I think Biden would be more of a fighter than Obama is. But I haven't given up yet on the President; just getting a bit peeved about the concessions he hints at.

MOPstr

March 22, 2013 7:39pm

The few who know that Obama is a liar and so worse than any Republican cannot make any difference to a liar like Obama no many how many protests are waged in DC. His lies work with far more people than they offend. But there is a way that small minorities who do know about the fradulent Democratic Party can have a huge impact. Organized single issue voting:
http://truth-out.org/news/item/14684-progressives-stop-obama-from-going-...

geof01

March 22, 2013 7:29pm

If we printed thrice as much money as we have now and spent it on social causes and infrastructure, the rich would have a third as much. The rest of us, no big deal. We need to take banking away from the banks and the xBox away from the FED. If we are to rebuild this country we need to stop believing in these false gods.

An 86 year old tells me we need to Return to Order.
I ask what that means?
He says "We have to stop spending money we don't have".
I ask "how do we do that"?
He says "end entitlements".
I ask "does that means he is going to give up his social security and go to work". He says, "My NO".
" Who then, I ask".
"Well the 25 year old who smokes dope and won't work".

"Isn't he entitled to an education, a job and the future you are living"?

Pikewich

March 22, 2013 6:26pm

Forgive me if I missed it, not one word about how there seems to be no end of funds for wars (weapons industry welfare), yet there is not enough to provide the support many of us have paid for all our lives.

Our government is simply disgusting.

anono

March 22, 2013 3:27pm

There's one big problem with Reich's common sense, Nobody in the United States government is listening. Not the president, not the congress, not the judiciary. Nor half the voting population. If he could only back that wisdom with a few billion in campaign contributions, we'd all be in the front row.

Better yet, Reich for President! Who better to lead a capitalist government than an economist. The Actor, the Yalie, the Hillbilly, the Drunk and the Negroe Boy sure haven't done a damn thing for the People.

RonniV

March 22, 2013 12:16pm

The programs WE paid for, and are, by law, supposed to get refunded to us
proportionately, are being sold off to the highest bidder, be they Democrat or Republican - they are up for grabs to be denied to WE, the PEOPLE that have paid our entire working lives for our retirement, will be denied those benefits, at least in any way that resembles what we were paying for all those years.

It appears the Democrats are just as willing to sell us off as the Republicans always have been until now, with our turncoat president leading the pack.

What do WE, the PEOPLE need to do to get represented by people that truly care about us?

diannek

March 22, 2013 11:14am

Dr. Reich, you are absolutely right. The question is, Why are Democrats, under Obama, only discussing Social Security and Medicare benefit cuts as if this is the only option? Why are they not discussing cuts to a bloated MIC budget, cutting subsidies to rich corporations, like Exxon, instituting a financial transactions tax, a whole host of options, including increasing the top marginal tax rates and, as you said, raising the income cap on Social Security? As you well know, SS and Medicare are insurance plans that working Americans have involuntarily paid into. No insurance company could change a contract with the vote of the Board of Directors. The U.S. government should be held no less accountable for paying the benefits for which people paid premiums their entire working life, even when they couldn't afford insurance to cover immediate care they paid for insurance to cover them when they reached age 65. Republicans would like nothing better than to have Medicare become essentially a program for the rest of us so they could safely categorize us into the undeserving. My question to you is why do you continue to involve yourself with the failed Democratic Party? There are alternatives. The Justice Party supports maintaining the Social Security and Medicare insurance programs and, in fact, supports Medicare for all. It also supports higher taxes on the wealthy, a financial transactions tax, ending the expensive perpetual wars this country has been fomenting, diverting funds to replacing and upgrading infrastructure and supporting the advancement of alternative energy. You would find a good fit there and would be a most welcome addition.

BozoAdult

March 22, 2013 12:43pm

If the Democratic Party goes along with privatization of medicare and chained CPI I am clear done with them.

Obama is already signing trade deals that he knows are against the wishes of the American people. Now why would a president knowingly go against the wishes of the American people?

Like you said, there are better alternatives than cuts to social security. But those alternatives are somehow conveniently "off the table". This makes no sense to the Democratic base and it shouldn't make sense.

MOPstr

March 22, 2013 7:35pm

how to be done with them:

http://truth-out.org/news/item/14684-progressives-stop-obama-from-going-...

AndymAndym

March 22, 2013 11:13am

It's becoming more and more clear that Obama's allegiances--and those of most democrats--are not to the citizens who voted for him, but to the organizations that funded his campaign.

I'm beginning to think Obama is actually worse than the likes of Paul Ryan. At least Ryan doesn't pretend he cares.

BozoAdult

March 23, 2013 3:13am

The voters were given a choice. Who would they vote for, the guy that absolutely told us he was going to privatize medicare, or the guy that wants to cut social security and medicare but lies about it.

Obama might well prove to be worse than Ryan. So far he looks like a complete failure. Hopefully we will never find out by electing an Ayn Rand disciple.

The thing the people need to do is make the President's ears hurt. I mean, by the millions we need to tell him that we know this debt debate is only a ruse and a vehicle to dismantle the New Deal. We must tell him that we will not stand for him having a hand in it after we voted him into office.