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From the category archives: Budget

Trump’s Debt Idea = Social Security Default

 

The latest idea from Donald Trump, the GOP Presidential candidate and self-proclaimed “king of debt,” would have devastating effects on the Social Security Trust Fund. While we could write pages on the Treasury bond market, federal debt and the Social Security Trust fund, chances are you wouldn’t want to read it, so instead, here is a quick summary of the issue.  

Starting first with The Donald’s plan to run the U.S. government like one of his failing casinos.  He described it on CNN:

“If we can buy back government debt at a discount -- in other words, if interest rates go up and we can buy bonds back at a discount -- if we are liquid enough as a country we should do that. ... People said I want to go and buy debt, and default on debt. These people are crazy. This is the United States government. First of all, you never have to default because you print the money, I hate to tell you, OK? So there's never a default. ... I'm the king of debt. I understand debt better than probably anybody. I know how to deal with debt very well. I love debt. But, you know, debt is tricky, and it's dangerous; you have to be careful, and you have to know what you're doing.”

Both the Motley Fool and The Economist have raised red flags on what this strategy would actually mean for the Social Security Trust Fund -- which has $2.79 trillion invested in Treasury notes that Trump is apparently willing to devalue.

“Debt issued by the U.S. government is done so with the ‘full faith and credit’ of the United States. To consider allowing U.S. debt to get into a situation that incites a crash in bond prices would probably undermine the high quality ratings bestowed on U.S. debt and raise major red flags in the U.S. stock market and in markets around the world that look to the U.S. as a rock-solid financial leader.

The single largest holder of U.S. debt is the Social Security Trust, which held 16% of outstanding national debt at the end of Q1 2013. Other federal programs holding U.S. debt include the Medicare Hospital Insurance Trust, military retirement fund, and federal civil-service retirement and disability fund. If Trump were to consider buying back debt at a discount it would potentially reduce the investment value of the Social Security Trust, which generally invests its cash reserves in extremely safe, interest-bearing U.S. Treasury notes. Doing so could wind up hurting current and future retirees who depend on this key federal program."

The Economist reminds us this approach is what got Greece into so much fiscal hot water:

“The idea, it seems, would be to get creditors {editor’s note: in the case of the Social Security Trust Fund that’s seniors, the disabled and survivors} to accept less than 100 cents on the dollar. This happens with corporate bankruptcies; if the market price has fallen to 60 cents on the dollar, and been snapped up by specialist hedge funds, then redeeming the debt at 70 cents on the dollar may be a good deal. Emerging economies have done the same in the past when they have fallen on hard times; it happened in Greece.

But with Treasury bonds, investors expect to get 100 cents on the dollar. It is the risk-free asset that underpins the entire global financial system. A forced deal, of course, would count as a default. Treasury bonds are at the heart of the financial system. Banks use them as collateral for loans; insurance companies hold them as reserves; pension funds own then to fund retirement benefits; mutual funds own them as well. Any default within the system would have cataclysmic consequences for the economy that would far outweigh any gains in refinancing costs. To cap it all, the Federal Reserve owns almost $2.5 trillion of Treasury bonds and the Social Security Fund some $2.8 trillion. So the government would, in part, be defaulting to itself.

In short, this seems like a completely nonsensical idea. Do you think it is possible that Mr Trump didn't think it through and just said the first words that came into his head? Couldn't be.”

The takeaway from all of this is that Donald Trump’s claims that he’ll “leave Social Security alone” is an empty promise because, if his debt plan becomes reality, the Social Security Trust will lose years of solvency and the billions of dollars contributed to the Trust Fund by American workers will actually be worth only pennies on the dollar.  

Celebrating Older Americans Month

Chances are if you, or anyone in your family, is 65 or older your life has been impacted by an Older Americans Act program.  From Meals on Wheels to senior centers, prevention of physical and financial abuse, computer training to legal assistance, OAA programs touch the lives of millions of seniors and their families.  This myriad of programs provides home and community-based services making it possible for older adults to remain independent, but they’ve continually faced flat or shrinking budgets at a time of growing needs.  Funding programs that allow seniors to age in place is cost-effective; however, the Older Americans Act languished for more than 5 years without Congressional reauthorization. 

Thankfully, this year is different.  Today we are celebrating Older Americans Month with a newly reauthorized OAA, signed by President Obama just a few weeks ago:

“The President believes in the Older Americans Act because it funds services that are central to older adults’ health and lasting independence, such as meals, job training, transportation, and health promotion.  And for those who do need consistent care, the law provides nursing home protections and enhances the Long-Term Care Ombudsman programs.”  Valerie Jarrett, Senior Advisor and Assistant to the President

The celebration continues as The Leadership Council of Aging Organizations (@LCAgingOrgs), chaired by the National Committee, will host a Twitter chat on May 24 @ 1-2 p.m. ET to celebrate Older Americans Month—and call for funding investments in Older Americans Act programs. You’re invited to join the chat using #WeAreOAA.

Join at www.twitter.com/#WeAreOAA or at http://twubs.com/WeAreOAA

Trump Campaign Admits They’re Open to “Entitlement Changes”

It was just a matter of time...

The Trump campaign was a participant in yesterday’s annual Pete Peterson fiscal summit which each year brings together the nation’s so-called “fiscal hawks” for a full day of doom-and-gloom prognosticating about how Social Security and Medicare will bankrupt America.  In case you’ve forgotten, multi-billionaire Wall Streeter and former Nixon Commerce Secretary Pete Peterson, has committed to spend a billion dollars in his war on America’s safety net programs.  This annual wing-ding for Washington’s “very important people” is just one of the many ways he spends that money. 

Now, you might think Donald Trump would be an unlikely guest at this event given his break from conservatives and often-stated position that he won’t cut Social Security and Medicare. In truth, Trump’s campaign was right at home with the Peterson crowd as his chief policy advisor, Sam Clovis, provided participants a fuller description of what Trump actually plans if elected President. It was music to the anti-Social Security crowd’s ears:

“After the administration has been in place, then we will start to take a look at all of the programs, including entitlement programs like Social Security and Medicare. We’ll start taking a hard look at those to start seeing what we can do in a bipartisan way.”

“...I think that whoever [is] the next president is going to have a horrible time in dealing with this, because those entitlements will race to the front of all the economic issues we have in this country.”

In other words, candidate Trump will continue to promise no cuts to Social Security and Medicare on the campaign trail.  However, President Trump clearly has a very different plan. 

As in all things Trump, he’s provided himself an out.  If voters read the fine print, Trump’s claims to leave Social Security and Medicare are completely dependent on the full adoption of his ever-morphing economic plan which promises budgetary magic turning a nearly $10 trillion deficit into a $7 trillion surplus (while also cutting taxes even further for corporations and the wealthy, increasing military spending, building a massive wall and deporting millions).  Even conservative columnists, who are thrilled to hear he is willing to cut Social Security and Medicare, left the event stunned:

“Clovis’s fiscal insouciance was breathtaking. ‘Our proposals, what we think will happen, will lead us in fact to about a $4.5 to $7 trillion surplus at the end of 10 years, if all of our initiatives are put in place,’ he said.

Pause for a moment to appreciate the audacity of this claim. The Congressional Budget Office estimates that deficits will total another $9.4 trillion during this period. So Trump is purporting to pay for his $10 trillion tax cut, plus eliminate that additional deficit, plus amass a surplus amounting to several trillion more? Outlandish is too kind a word for this.” ...Ruth Marcus, Washington Post columnist

“I understand less about Trump’s budget plan after listening to Clovis than I did before,” tweeted David Wessel of the Brookings Institution.

Maybe so...but Trump’s real plans for Social Security and Medicare are now much clearer.  

The Economic Crisis Candidates Continue to Ignore

The Economic Policy Institute’s “The State of American Retirement” combined with the National Institute on Retirement Security’s new report on women and retirement paint a very clear picture of a nation on the brink of an economic crisis that will devastate millions of average American families, if Washington continues to turn a blind eye.

The median family between the ages of 32 and 61 has only $5,000 saved in a retirement account, while the top 1 percent of families has a million dollars or more. For many groups—lower-income, black, Hispanic, non-college-educated, and unmarried—the typical working-age family has no savings at all in these accounts....The State of American Retirement.

“Our retirement system used to reduce inequality, but since the shift to 401(k)s it has only served to magnify it. These accounts are accidents of history that were never designed to replace pensions, and it should come as no surprise that they have not worked for the majority of people.” ...Monique Morrissey, EPI Economist

The numbers are stark:

  • Nearly half of all working-age families have zero retirement savings.
  • Almost nine in 10 families in the top income fifth have savings in retirement accounts, compared to fewer than one in 10 families in the bottom income fifth.
  • Only 41 percent of black families and 26 percent of Hispanic families have retirement account savings, compared with 65 percent of white non-Hispanic families.
  • Only married couples are more likely than not to have retirement account savings.

News that the income inequality hindering American workers now is also carrying over to their retirement is alarming for future generations who are taking an economic hit at every stage of life.  For women, the retirement picture is even worse. 

“A new analysis finds that women are 80% likely than men to be impoverished in retirement. The National Institute on Retirement Security (NIRS) finds that across all age groups, women have substantially less income in retirement than men. For women age 65 and older, the data indicate that their typical income is 25 percent lower than men. As men and women age, men’s income advantage widens to 44 percent by age 80 and older. Consequently, women were 80 percent more likely than men to be impoverished at age 65 and older, while women age 75 to 79 were three times more likely to fall below the poverty level as compared to their male counterparts.”... National Institute on Retirement Security

Just as we’ve seen from climate change deniers, many Republican politicians won’t even acknowledge the retirement crisis exists because improving the nation’s most successful federal retirement programs is anathema to their misguided belief that Wall Street should be handling your savings and for-profit insurance companies managing your health. Instead of supporting proposals to improve the backbone of America’s retirement system, Social Security and Medicare, conservatives continue their campaign to privatize and cut. 

There are legislative proposals which would improve Americans’ retirement picture but they are languishing in the GOP controlled Congress.  You can see many of these proposals on our Legislative tracker.  We also continue to advocate for meaning changes impacting retirement security for women.  Please take a moment and see those details on our Eleanor’s Hope initiative website. 

GOP Plans for Medicare? All Slash No Strengthen

The House Ways & Means Subcommittee on Health held a hearing entitled "Preserving and Strengthening Medicare."  Unfortunately, as the ranking member Rep. Jim McDermott (D-WA) made clear, this hearing actually had virtually nothing to do with preserving and strengthening Medicare:

“This is the first Health Subcommittee hearing of the year, and it could have been an opportunity to have a fresh, constructive conversation about Medicare. Unfortunately, this won’t be the case. It looks like we should expect more of the same from my Republican colleagues this morning – bad ideas repeated incessantly in the hope that the American people eventually fall for them.

The core proposal that my Republican colleagues have offered – to end Medicare as we know it – will have devastating effects on seniors. It will shift costs onto beneficiaries, create more losers than winners, and lead to a death spiral in traditional Medicare.

We all know this.”

NCPSSM President/CEO, Max Richtman, submitted testimony to the Committee and reacted to the day’s proceedings:

“Unfortunately, today’s Congressional hearing on ‘Preserving and Strengthening Medicare’ offered no new ideas and was instead an Orwellian political exercise in which politicians say preserve when they actually mean privatize, and strengthen when they mean slash. 

Republicans in the House envision a future in which millions of seniors will lose their guaranteed Medicare benefits in favor of a privatized CouponCare system in which they receive a government coupon to try and buy private insurance. Millions of seniors in Medicaid will lose their benefits due to block-granting to states without providing the resources to pay for it.  The repeal of the Affordable Care Act will leave tens of millions without insurance and strip benefits from seniors in Medicare.  

The Republican leadership has offered no plans to improve benefits in Medicare or make reforms to reign in the skyrocketing price of drugs and healthcare costs system wide.  Instead, the GOP vision for seniors in Medicare is they must just do more with less. Stagnant wages are grinding away at the middle class’s ability to save for retirement.  Many employers have significantly scaled back or eliminated the traditional retirement benefits offered to their employees.  As a result, current and future retirees simply cannot afford proposals to cut benefits, raise the eligibility age or privatize the program.”...Max Richtman, NCPSSM President/CEO

While the House Ways and Means Health Subcommittee promoted destroying traditional Medicare in favor of a fully privatized system during today’s Congressional hearing, their GOP colleagues are moving a budget through Congress that would make that plan reality.

The House budget would cut Social Security and Medicare by $463 billion over 10 years, while cutting Medicaid and other health programs by $1.028 trillion, not including the Affordable Care Act.  The GOP budget protects the wealthiest Americans and big corporations from any tax increases while imposing massive spending cuts on average Americans and their families.

Max Richtman’s full testimony as submitted to the House Ways and Means Health Subcommittee is here.  

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