Eating the Old at Thanksgiving

Thanksgiving is America’s great family holiday, the one time in the year when the various generations of the American family make every effort to gather together in some mutually convenient place, the better to share a turkey dinner and to eat pumpkin pie. Thanksgiving is therefore a singularly inappropriate moment to kick-off a new round of inter-generational conflict – particularly when there is no legitimate new reason to set young and old apart. Yet this Thanksgiving, inter-generational conflict is back on the political agenda – the burden which the old supposedly place upon the young is back in public view – because the rich and famous are after Social Security again. For some reason, Jonathan Swift keeps coming to mind. Perhaps it is because contemporary Ireland is in such crisis too; and in an earlier Irish crisis Swift’s Modest Proposal was that the Irish should eat their young.[1] He didn’t mean it of course – he knew that eating relatives was wrong – but with this current generation of pension cutters you can never be too sure.

Granny-bashing is back in vogue this time courtesy of the co-chairs of Obama’s Commission on Fiscal Responsibility and Reform (Erskine Bowles and Alan Simpson) and his outgoing budget director (Peter Orzag). Bowles and Simpson want to chip away at the Social Security budget in order to reduce the federal deficit. Orzag wants to reform Social Security now to avoid its privatization by Paul Ryan later.  Bowles and Simpson have long campaigned for the reform of Social Security, so their advocacy of its incremental erosion presumably came as no surprise to the president who appointed them. As part of a package of deficit-reducing measures which they preemptively launched at an unexpected press conference on November 10^th, the co-chairs proposed that in future the age of retirement should be indexed to life expectancy – an indexing that would slowly raise the early retirement age from 62 to 64 and the standard retirement age to first 68 and eventually 69 (They allowed a “hardship exemption” for those unable to work beyond 62.) Bowles and Simpson also included in their reform package an incremental raising of the cap on payroll tax, and the tying of future Social Security rises to wages rather than to prices, an indexing likely to slow their rate of growth. For his part, Orzag, while conceding that “Social Security is not the key fiscal problem facing the nation,” then added a defensive reason for its reform: broadly supporting the Bowles/Simpson initiative as a means of preventing the full privatization of Social Security by the Republicans later. As Orzag put it in a New York Times editorial just days after the Bowles/Simpson press conference ‘why not lock in a reform when private accounts are off the table?”[2]

So how best to show our intruders the Thanksgiving door?[3]

• Orzag first, this way. I just hope his retreat before imaginary enemies is not symptomatic of how the Obama White House is now viewing the world in the wake of the mid-term elections, though I fear that it is. There is just no credible danger of Social Security being effectively privatized, no matter what Paul Ryan might say or claim. Privatization failed to gain traction when it was canvassed in 2005 by George W. Bush because the vast majority of the American people then valued, as they continue to value, the security that a state pension provides. And that was when the private pension system running alongside Social Security was broadly intact. People’s 401k’s and their employer-provided pensions were already beginning to erode even then, hence the popular support for Social Security that so blocked George W. Bush; and no one in 2005 was anticipating the scale of damage that would be done to private pension savings by the credit crisis of September 2008. How could they? None of us saw that coming. No, George Bush couldn’t persuade people to put their pension money fully into the casino when the casino was doing well. The notion that today, after all the financial turmoil of the last two years, people will think of the stock market as a better and more secure route to income in old age is simply ludicrous.[4] At least Bowles and Simpson are up front about why they want to cut Social Security. The Orzag reason deserves to be laughed out of town.

• But so too do the proposals from the two co-chairs. Most of the reasons for dismissing out of court their attempt at Social Security reform have been well aired in the liberal press since Bowles and Simpson broke cover. As we have argued before on this website,[5] Social Security is not bankrupt, and it is not going bankrupt any time soon. Raising the retirement age is therefore not necessary. Nor is it desirable, given that any increase in the minimum age of retirement hits the American poor hardest, since they die young.[6] Raising the retirement age is particularly hard on manual workers, a surprisingly large number of whom are older workers.[7] Since the distribution of American poverty is also ethnically skewed, raising the retirement age hits African-Americans hardest of all. There is a sharp gender dimension to this too. Women in this society live longer than men. Women in this society suffer broken careers that leave them less access to employer pensions; and contemporary divorce settlements normally leave women pension-starved. Tinkering with Social Security therefore, when Social Security makes up 55% of older women’s incomes and when “for many elderly unmarried women, it is their only source of retirement income,”[8] seems particularly offensive in a world that refuses to tax disproportionately heavily men working on Wall Street for bonuses that, at their worst, run into literally billions of dollars.[9]

• All that has been pretty effectively aired of late, in an attempt to prevent the Bowles/Simpson approach becoming the conventional wisdom of the age; but two other things – equally potent as a defense against them – have not. The first is this. To talk of Social Security as an entitlement is to treat it as though it was something which the old are given – a gift rather than a right. But Social Security is not a free gift. It is something the old have already paid for: paid for directly through the payroll tax that was taken from their pay check on a weekly/monthly basis through all the years in which they worked; and paid for indirectly through that entire period too, because the employer contribution to their pension fund also came from the same stock of money available for their wage and salary payments. Because of the employer contribution, the money available for wages was less. Because of the payroll tax, the wages paid were depleted. The old have already paid twice: cutting their Social Security rights in any way is to make them pay a third time. The supposed looming insolvency of the Fund available for the pensions of the baby boomers is a product of past taxation policies – of the Fund being raided to finance other government programs – rather than any consequence of inadequate contributions made when working by those now poised to retire. The baby boomers have paid in. They deserve now to be paid out. Anything else is simply a matter of generational theft.

• Then there is this. The Social Security system is a “pay as you go” pensions system. Contributions into the Social Security Fund made by workers go straight out to pay the pensions of workers now retired, just as, years ago, those now-retired workers’ payroll tax paid the pensions of their parents. Social Security is in all its essentials a generational deal. Any change in how it is configured in any one generation turns on choices that can only be made in one of three ways: either by putting the burden of any change entirely on those still working, or by putting that burden entirely on the retirees, or by dividing it equally between current workers and current retirees, so maintaining the same generational deal as the one in place a lifetime ago.[10] The Bowles-Simpson proposals shift the burden forward onto the already retired while actually lowering the tax contribution of the most privileged of those still working. Why the working rich should be favored, and the retired poor disadvantaged, they don’t explain. But then that is hardly surprising. Robbing Peter to pay Paul is tough to justify if Peter is the poorer of the two.

In truth, there is a strong case to be made for Social Security reform. It is a case for making it more generous rather than less, for lowering the retirement age rather than for raising it, and for financing the greater generosity of a better Social Security system by removing the cap on the payroll tax and by increasing income tax on the super rich.[11] But that is not the case being made right now either by Bowles or by Simpson, and not even by Orzag. The Washington Post reported on November 22^nd on the emergence of a remarkable consensus within governing circles on how best to cut the federal deficit: apparently an emerging agreement on “big cuts at the Pentagon, higher taxes, including those on home ownership and health care, smaller Social Security checks and higher Medicare premiums.”[12] Shame on you, Beltway. Leave the grandparents alone. They deserve better. The only thing that needs retiring around here is this perennial attempt by Washington grandees to whittle away at the people’s pension.

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[1] The full title of Jonathan Swift’s 1729 satirical essay was A Modest Proposal For Preventing The Children of Poor People in Ireland From Being A Burden To Their Parents Or Country, And For Making Them Beneficial To The Public. It has a certain modern ring.

[2] Peter Orzag, “Safer Social Security,” The New York Times, November 14, 2010

[3] We are not alone in this. For counter proposals, see those issued by Rep. Jan Schakowsky, which concentrate cuts on defense and farming subsidies. These are discussed by, among others, the Brookings Institution, in its Around the Halls: Analyzing the Plans to Solve the Budget Crisis http://www.brookings.edu/opinions/2010/1119_halls_budget.aspx

[4] For the latest opinion poll data showing overwhelming opposition to the Bowles/Simpson proposals, see http://www.alternet.org/newsandviews/article/342310/8_in_10_strongly_opposed_to_social_security_cuts_recommended_by_deficit_commission_proposal/#paragraph5. See also http://www.democracyforamerica.com/poll

[5] https://www.davidcoates.net/2010/08/18/the-looming-battle-over-social-security/ and https://www.davidcoates.net/2010/05/03/chapter-5-may-2010-update/ The full argument is in chapter 5 of Answering Back

[6] “While average life expectancy is indeed rising, it’s doing so mainly for high earners, precisely the people who need Social security least. Life expectancy in the bottom half of the income distribution has barely inched up over the past three decades. So the Bowles-Simpson proposal is basically saying that janitors should be forced to work longer because these days corporate lawyers live to a ripe old age.” (Paul Krugman, “The Hijacked Commission,” The New York Times, November 11, 2010)

[7] “Of the 18.8 million U.S. workers who are 58 or older, over 45% have physically demanding jobs and/or difficult working conditions. The rate is even higher for the 5.2 million workers 66 and up (48.2%).” (Amy Goodman, “Hard Work at an Advanced Age”, Dollars and Sense, September/October 2010, p. 30. See also John Leland, “Retiring Later is Hard Road for Laborers,” The New York Times, September 12, 2010, citing a Center for Economic and Policy Research Report that had one in three workers aged 58 or over doing physically demanding work. The full report is at http://www.cepr.net/index.php/publications/reports/patterns-in-physically-demanding-labor-among-older-workers

[8] National Organization for Women, Talking Points About Women, Social Security and Privatization, March 4, 2005: available at http://www.now.org/issues/economic/social/030405points.html

[9] For the general arguments against raising the retirement age, see Ross Eisenbrey, Top Ten Reasons NOT To Raise The Retirement Age, Washington DC: Economic Policy Institute Fact Sheet, August 24, 2010: available at http://www.epi.org/latest_research/entry/ten_reasons

[10] This is the standard choice in all pension redesign, between models with a fixed replacement rate (which puts all the costs associated with demographic change back onto those paying in to the system), models with a fixed contribution rate (which pushes all the costs onto those receiving pensions) and fixed relative position models, which hold the existing social contract stable. On this, see John Myles, “A New Social Contract for the Elderly?” in Gøsta Esping-Andersen, Why We Need a New Welfare State, Oxford, Oxford University Press, 2002, pp. 140-41

[11] “According to Stephen Goss, the SSA’s chief actuary, lifting the cap while giving commensurate benefit hikes to high income taxpayers once they retire would cover 93% of the SSA’s projected shortfall in Social Security revenues over the next 75 years, removing the cap without raising those benefits would actually produce a surplus in the system over the same period – even if the economy creeps along as the SSA predicts it will.” (John Miller, “Go Ahead and Lift the Cap”, Dollars and Sense, Current Economic Issues: 14^th edition, 20109, pp. 199-200)

[12] Lori Montgomery, ‘Consensus is forming on what steps to take in cutting the deficit,” The Washington Post, November 22, 2010

David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.

He writes here in a personal capacity.

This entry was posted on Monday, November 22nd, 2010 at 7:32 pm, was written by David Coates, and is filed under US Blog. You can leave a response, or trackback from your own site.