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Why “Back to the Future” Budgeting Doesn’t Work

The Center for Budget and Policy Priorities calls the McCaskill-Corker spending bill a “look Ma no hands” approach to budgeting.  We also see it as a dangerous trip “Back to the Future”. That’s because , rather than making specific budget choices based on 2011 realities, their bill sends us back to the spending levels of the ‘80s, only to then  impose across-the board cuts when our “Back to the Future” DeLorean breaks down.   The Associated Press describes their budget plan this way:
“The legislation doesn't actually propose cuts but instead sets spending caps and enforces them with the threat of automatic, across-the-board reductions. The target of 20.6 percent of gross domestic product is the average of federal spending over 1970-2008. A recent Congressional Budget Office report projects spending under current policies reaching 24 percent of GDP in 2021, which would require more than $800 billion in budget cuts in that year alone. That is significantly deeper than the recent proposal by President Barack Obama's deficit commission, which recommended raising Social Security and Medicare retirement ages, and cutting military pensions, farm subsidies and a variety of other popular programs. ‘At a time when many families have been forced to tighten their pocketbooks, Congress must also learn to do the same," McCaskill said. "This bill isn't just about cutting back this year or next year; it's about instilling permanent discipline to keep spending at a responsible level.’
There are so many problems with this Congressional budget axe approach and the families’ analogy. Consider this; let’s say you need to cut your household spending by 15% to “tighten your pocketbook”.  Does that mean you can just tell your bank, "I’ll be sending you 15% less this year for my mortgage?”  Of course not, because you have a financial obligation to pay back the money you borrowed from the bank just as the federal government has an obligation to pay Social Security beneficiaries what was borrowed from the Trust Fund.  When families have to clamp down on spending, they make certain to keep paying their debts while looking for other ways to trim expenses. That’s real fiscal discipline. American families don’t have the luxury of backing out of their financial obligations. In its analysis of the McCaskill-Corker plan, the Center for Budget and Policy Priorities more eloquently says:
The proposal from Senators Bob Corker (R-TN) and Claire McCaskill (D-MO) to limit total federal spending to 20.6 percent of gross domestic product (GDP), the average from 1970 to 2008, would force draconian cuts in Social Security, Medicare, and many other programs while making it harder for the nation to recover from recession. That’s because the proposal, which would take effect in 2013 and phase in over 10 years, does not account for fundamental changes in society and government: the aging of the population, substantial increases in health care costs, and new federal responsibilities in areas such as homeland security, veterans’ health care, and prescription drug coverage for seniors.  These factors make the spending levels of an earlier era inapplicable for today’s discussions about how to reduce looming budget deficits and put the budget on a sustainable path in the coming years
Conservative think-tanks like the Heritage Foundation have pushed these kinds of time-warp budget solutions for years because it’s the easiest way to garner the largest cuts in Social Security and Medicare.  No other Democrats have signed on to this plan and Majority Leader Harry Reid says:
"I will do everything that I can in throwing my legislative body in front of any efforts to weaken Social Security," Senate Majority Leader Harry Reid said. "Social Security has not contributed one penny to the debt, and as I've said before, people should leave Social Security alone."

GOP’s Pay China First Plan Puts America’s Retirees Last

New Republican legislation would require the U.S. to send huge amounts of money to our foreign creditors and major financial institutions before paying off its obligations to Social Security beneficiaries and other citizens owed money by the Treasury, if Congress doesn’t raise the debt ceiling. The bills are sponsored by Pennsylvania’s new tea-party backed Senator, Pat Toomey, and Rep. Tom McClintock of California.  The reaction has been understandably blunt:
 “Senator Toomey certainly has a fascinating perspective on our national priorities – not to mention his obligations to his constituents- considering the Senator’s proposal would have us pay China before we make monthly payments to the millions whose Social Security check is the only thing standing between their ability to scrape by and falling into complete and utter poverty. Never mind that our current retirees were paying into Social Security long before China became our nation’s bank.”  Forbes, 1/31 "[T]his idea is unworkable," said Deputy Treasury Secretary Neal Wolin in a statement. "It would not actually prevent default, since it would seek to protect only principal and interest payments, and not other legal obligations of the U.S., from non-payment. Adopting a policy that payments to investors should take precedence over other U.S. legal obligations would merely be default by another name, since the world would recognize it as a failure by the U.S. to stand behind its commitments." TPM Cafe
 “House Republicans’ new proposal to put foreign creditors – including China – before American families is deeply troubling and will hurt our economic recovery.  There is no question that we must come together as a Congress now to put a long-term plan in place to reduce the deficit.  But this country must not put China first, and fail to extend that same full faith and credit to American taxpayers.  We must get our fiscal house in order, and at the State of the Union the President laid out ideas to tackle this challenge.  But for the new Republican majority to do so at the expense of the economic security of American families and seniors is reckless and irresponsible.  Democrats will fight any legislation that doesn’t put American families first.” Rep. Chris Van Hollen(D-MD)
  “Hard to believe, but true: members of the new Republican majority have introduced legislation that rips the hard earned Social Security benefits out of the hands of seniors, widows and disabled workers—and hands them over to creditors like China. This ‘Pay China First’ plan would treat retired American workers as second class citizens in line behind foreign lenders even though Social Security had nothing to do with the nation's $14 trillion debt. Working Americans want us to focus on cutting wasteful spending—and keep our hands off of their hard earned benefits.” Rep. Xavier Becerra (D-CA) Ranking Member of the Subcommittee on Social Security
One thing remains perfectly clear, Social Security has been targeted by many in Washington to pay the tab for mountains of debt it hasn’t contributed to and years of fiscal irresponsibility it has nothing to do with.  The question is, will the American people allow fiscal hawks to get away with putting our retirees last?

A Reporter Gets it Right on Social Security...Finally!

Normally we don't republish other articles in their entirety, but today in Reuters a blog post on Social Security from financial reporter Mark Miller was so well done, we couldn't resist. Congratulations on receiving our Networthy Award, Mr. Miller. This is an excellent overview of the challenges Social Security will face in 2011.
Reuters Obama Lays Down a Marker on Social Security Cuts JAN 27, 2011 By Mark Miller Would he or wouldn’t he? President Obama’s deficit commission endorsed cutting Social Security benefits last month, and many wondered whether the president would endorse those cuts in his State of the Union message this week. Instead, the president reiterated the traditional Democratic position on Social Security in his address that he staked out as a candidate in 2008:
“We must [strengthen Social Security] without putting at risk current retirees, the most vulnerable, or people with disabilities; without slashing benefits for future generations; and without subjecting Americans’ guaranteed retirement income to the whims of the stock market.”
That rhetoric differs significantly from the “everything on the table” messages emanating from the White House since the National Commission on Fiscal Responsibility and Reform issued its final report. Written by commission co-chairmen Alan Simpson and Erskine Bowles, the reportrecommended benefit cuts via a higher retirement age, lower annual cost-of-living adjustments (COLA) and a third, somewhat technical change in the way benefits are calculated. What happened in the weeks since the release of the commission report? A coalition of traditional Social Security backers and Democratic lawmakers seem to have convinced the White House to back away from the Simpson-Bowles recommendations. Their case had two main points — both correct: 1. Cutting benefits is bad policy. That’s because Social Security has nothing to do with the federal deficit. The program ran a $2.5 trillion surplus in 2009, a number that will hit $3.8 trillion in 2020, according to the Economic Policy Institute. The surplus has been accumulating since implementation of the last Social Security reform measures in 1983, which were implemented for the purpose of building a cushion to fund the anticipated big wave of baby boomer retirements. Social Security does have a long-term problem, in that the surplus will be depleted around 2035, absent any other changes. But that doesn’t mean the program is careening toward insolvency, as stated often by many pundits and elected officials. Even in 2035, Social Security would be able to fund 76 percent of promised benefits from current revenue. The causes of this long-range imbalance also are misunderstood. Social Security cutters argue that the program can’t support the nation’s rising longevity rates; therefore we should boost the retirement age and work longer. But rising longevity accounts for only about one-fifth of the long-term problem, according to a new analysis by the Economic Policy Institute:
“The bigger problems are weak wage growth and rising earnings inequality, which account for more than half the projected shortfall that has emerged since the system was last restored to long-term balance in 1983. Earnings inequality has eroded Social Security’s taxable earnings because earnings above a cap are exempt from Social Security taxes. Likewise, slower wage growth increases the costs as a share of taxable earnings. Rising health care costs, which create a growing wedge between compensation and taxable wages, a falling birth rate, and higher disability take-up are also contributing to the projected shortfall.”
Advocates of benefit cuts further state that their changes would be grandfathered in so slowly that no current beneficiaries would feel the pain. But the proposed COLA changes would kick in as early as 2012, reducing the formula used to calculate the adjustment by about 0.3 percent less than it does now. That may not sound like a big change, but compounded over many years it would cut benefits significantly. Social Security benefits are modest — average annual benefits are a bit under $15,000 per year. A better way to get the program back into long-term balance than cutting benefits is to lift the aforementioned cap on payroll subject to Social Security taxes, currently set at $106,800. 2. Cutting benefits is bad politics for Democrats — and for Republicans. Numerous polls show remarkably strong opposition to cutting Social Security benefits across all political and demographic groups. A poll last year found that 77 percent of all adults agree that Social Security benefits shouldn’t be cut to reduce the federal deficit. The figure was 84 percent among Democrats, 78 percent among independents and 68 percent among Republicans. Supporting Social Security is a near-religious issue for core Democratic constituencies that Obama and Congressional Democrats will need at their side in 2012. Yet a Rasmussen poll earlier this month showed that Republicans “hold a 10-point edge when it comes to voter trust on Social Security-related issues, 46 percent to 36 percent, up from a virtual tie last month.” Those numbers stem from the success Republicans had last year convincing seniors that the healthcare reform law will slash Medicare benefits. (It doesn’t). And it’s a stunning finding, considering that Obama rode into office two years ago being hailed as the heir to the legacy of Franklin Delano Roosevelt, who counted Social Security as a signature domestic achievement. Advocates for protecting Social Security were cautiously optimistic that Obama’s position on Social Security is set following his State of the Union address. “We’re not taking victory laps yet, but the speech was a positive step,” said Eric Kingson, co-director of Strengthen Social Security and a professor of social work at Syracuse University. “The White House has been under huge pressure from Wall Street, conservatives and deficit hawks to talk about cutting Social Security. The president didn’t do it.” But pressure to cut Social Security hasn’t evaporated. Tough negotiations loom on the federal budget and the need to raise the government’s debt ceiling. Said Kingson: “Would the White House accept a deal with Republicans involving benefit cuts in that situation? I’m nervous about it.” Link: http://blogs.reuters.com/prism-money/2011/01/27/obama-lays-down-a-marker-on-social-security-cuts/

American Workers and Welfare Queens

The Republican Party’s chosen speaker to follow-up the President’s State of the Union has finally said out-loud what has been kept on the down-low for a year... the GOP will embrace Rep. Paul Ryan’s budget “roadmap” to dismantle Social Security and Medicare. We’ve already written a long post detailing Ryan’s plan and the CBO analysis of it, when it was unveiled.  Now that it's the heart of the Republican Budget approach we think it's worth another look:
In short, it is a budget plan which decimates Social Security and Medicare in the name of deficit reduction.  The only thing new about this strategy, is the fact that Rep. Ryan isn’t shy about acknowledging that he believes seniors should foot the bill for our current economic nightmare. As for Social Security, the GOP Roadmap leads to the same privatization dead-end for seniors, who are already reeling from Wall Street excesses and collapse which have decimated their nest-eggs.  Once again, just as we saw in President Bush’s failed privatization plan, long-term solvency isn’t the goal.  The goal is to turn Social Security over to Wall Street through the creation of Social Security private accounts.
Of course, we know unraveling the nation’s safety net is a policy dream for some in Washington and unfortunately last night’s speech provided much of the same tired “us versus them” language we’ve come to expect. Especially from those who care more about tax cuts for millionaires than seniors who dare to collect an average $14,000 annual retirement benefit they’ve worked to contribute over their entire working lives. Harkening back the “good old days” of Ronald Reagan’s attack on “welfare queens”, last night Rep. Ryan suggested collecting Social Security will somehow lead to a future of welfare-like dependency:
“a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency.”
Of course, this kind of language is really nothing new. Consider Fiscal Commission Co-Chair Alan Simpson:
"And yes, I’ve made some plenty smart cracks about people on Social Security who milk it to the last degree. You know ‘em too. It’s the same with any system in America. We’ve reached a point now where it’s like a milk cow with 310 million tits! "
And then there’s America’s leading anti-Social Security campaigner, billionaire Pete Peterson:
"We will no longer be able to afford a system that equates the last third or more of one's adult life with a publicly subsidized vacation."
This campaign to convince Americans that we can’t afford Social Security—even though we can afford tax cuts for billionaires--is now far more than just political rhetoric.  It is at the heart of the Budget debate beginning in earnest in Washington today. Please take a moment and educate yourself about the Ryan Roadmap and the GOP proposals for Social Security and Medicare.  These futures of these programs will likely be determined in this Congress and it’s vital that you know just what’s at stake. Here are a few links to read and share: Ryan’s Plan Would Convert Medicare to a Voucher Program, Vastly Cutting Benefits. “People who become eligible for Medicare after 2020 would no longer have access to a defined set of benefits from any participating health care provider. Instead, they would receive a voucher worth $11,000 (on average) to be used to purchase private health insurance… Moreover, the Ryan plan imposes no requirement that private insurers actually offer health coverage to Medicare beneficiaries at an affordable price, or at all. Some beneficiaries, particularly the frail elderly, people with disabilities, and those with very modest incomes, could end up uninsured or heavily underinsured.” [Congressional Budget Office, 1/27/10; Center on Budget and Policy Priorities, 7/7/10 <http://www.cbpp.org/cms/index.cfm?fa=view&id=3114> ] Ryan’s Plan Would Eliminate the Children’s Health Insurance Program. “The Ryan proposal would eliminate most of Medicaid and all of the Children’s Health Insurance Program. Low-income families with children would receive a health insurance tax credit and some additional low-income assistance and be pushed into the private health insurance market to fend for themselves.” [Center on Budget and Policy Priorities, 7/7/10 <http://www.cbpp.org/cms/index.cfm?fa=view&id=3114> ] Ryan’s Roadmap Would Raise Middle-Class Taxes While Handing Giveaways To Millionaires. Ryan’s Plan Would Give More Than $500,000 to Millionaires While Raising Taxes for Middle Class Families. Households with incomes of more than $1 million would receive an average annual tax cut of $502,000, while the wealthiest one-tenth of one percent of Americans would receive an average tax cut of $1.7 million a year.  At the same time, about three-quarters of Americans — those with incomes between $20,000 and $200,000 — would face tax increases. For example, households with incomes between $50,000 and $75,000 would face an average tax increase of $900. [Center on Budget and Policy Priorities, 7/7/10 <http://www.cbpp.org/cms/index.cfm?fa=view&id=3114> ; Urban Institute and Brookings Institution’s Tax Policy Center, 3/9/10 <http://www.taxpolicycenter.org/numbers/displayatab.cfm?Simid=359> ] Under Ryan’s Plan, Wealthiest Americans Would Pay Lower Tax Rate Than Middle-Class Families. “The Roadmap would lead to the wealthiest Americans paying a lower average tax rate than most Americans. Eliminating taxes on capital gains, dividends, and interest, as the Roadmap proposes, would overwhelmingly help taxpayers at the top of the income distribution, who receive most or all of their income from capital. For example, Wall Street financiers could shelter all of their income as tax-free stock options or carried interest.” [Economic Policy Institute, 1/20/11 <http://www.epi.org/publications/entry/paul_ryans_plan_for_millionaires_gain_and_middle-class_pain/> ]

Social Security and the State of the Union

By most accounts, it appears the White House may have heard the pleas of millions of working Americans who’ve urged President Obama to Keep His Promise on Social Security.  With one day left (and the President reportedly still working on his State of the Union address) there’s still time to send another round of emails/letters/phone calls to the White House urging the President to reject fiscal hawks’ efforts to cut Social Security under the guise of fiscal “responsibility”. Seniors understand the need for fiscal sanity to return to Washington; however, we also know that Social Security has absolutely nothing to do with our current deficit crisis.  That’s the message we’ve delivered to Washington in more than 780,000 petitions, and thousands more “Hands-Off” Ecards,  “Makes No Cents” penny campaign letters, phone calls and emails.   Let’s make one last push before tomorrow night’s State of the Union speech! There are several ways you can Take Action.

"Hands Off My Social Security" Ecard

"Makes No Cents" Penny Campaign

Email to Congress - Using our Legislative Action Center

Legislative Hotline 800-998-0180

Making this effort now builds the foundation for future battles ahead.  Not long after the State of the Union address the President’s Budget will be released…will Social Security cuts be included?  Republicans still promise to block passage of debt ceiling legislation without cuts in return and legislation is already being drafted in the Senate and House that target Social Security under the guise of “deficit reduction”. Your voice is vital to the future of Social Security…please add it to the debate today!



   

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