May 18, 2011
The obvious answer is because it doesn’t matter. Those pushing for cuts in Social Security and the other big items on the right’s agenda can get the basic facts about Social Security, the budget and the economy wrong over and over again and it doesn’t in any way affect their standing in the public debate on these issues. One need only look at the career of former Senator Alan Simpson, who has repeatedly shown that he doesn’t have the most basic understanding of the finances of the Social Security system, yet is still seen as a respected voice on this topic.
In keeping with this “ignore the facts” approach, the Progressive Policy Institute recently released a paper by Sylvester Schieber telling readers that Franklin Roosevelt would be pushing large cuts in Social Security benefits for middle income workers. Schieber and the Progressive Policy Institute have been pushing cuts to Social Security for close to two decades so it is not exactly surprising that they would be trying to take advantage of the current hysteria around the budget deficit to push their agenda on this topic.
What is interesting is that in their eagerness to take money away from ordinary working people they showed even more disregard for the facts than usual. They referred to the Center for Economic and Policy Research as “a research arm of the AFL-CIO.”
Why would Mr. Schieber and the Progressive Policy Institute think that CEPR is a research arm of the AFL-CIO? CEPR lists our funders on its website, which clearly states that “CEPR does not receive any funding from corporations, unions, or foreign governments”. Neither the AFL-CIO nor any individual unions appear on this page. Or, they could have looked to the 990 forms filed with the IRS every year. In fact, CEPR provides a link to our financial forms on the sidebar on nearly every page of our website.
It’s possible that Schieber and the Progressive Policy Institute live in some crazy fantasy world, but it’s more likely that they just assumed that because CEPR has been aggressive in telling the truth and confronting misinformation from Wall Street funded organizations, that it must be on the payroll of the AFL-CIO.
Let’s take this opportunity to get a little more truth on the table. Most of the “wealthy” beneficiaries for whom Mr. Scheiber and the Progressive Policy Institute want to cut benefits had incomes of less than $100,000 a year during their working lifetime and have incomes of much less than $100,000 a year in retirement.
Their proposed cuts would lead to substantially reduced benefits for school teachers, nurses and firefighters who might have averaged $60,000-$70,000 a year in salary during their working years. The reality is that the vast majority of retirees do not have high incomes. Furthermore, because Social Security benefits are progressive, wealthy beneficiaries do not get much more money than middle-income beneficiaries. This means that it is not possible to save much money by taking away benefits from people who are actually wealthy. It is only possible to have substantial savings if we go after people who are very much middle class by any reasonable measure.
The second point is that while there have been increases in life expectancy, they have gone disproportionately to higher end workers. Those in the bottom half of the wage distribution have seen very modest gains in life expectancy in recent decades. Furthermore, most moderate-income workers are employed at physically demanding jobs where it is difficult to work well into their late 60s as Mr. Scheiber and the Progressive Policy Institute propose.
There is also an important point left out of Mr. Schieber’s horror story; that we get to 2036 — when the Social Security program is first projected to face a shortfall — and Congress votes to fill the gap by raising the payroll tax. Mr. Schieber implies that this outcome would impose an enormous burden on the working population.
While it would be unfortunate to see a substantial increase in the payroll tax, especially if it happened abruptly (as opposed to more progressive ways to raise revenue), it is important to recognize that workers will, on average, be far wealthier in 2036 than they are today. According to the Social Security Trustees projections, the average before tax wage will be almost 42 percent higher in 2036 than it is today.
This means that even if Congress did absolutely nothing to address the Social Security shortfall over the next 25 years, and then imposed a 1.5 percentage point increase on both employees and employers in 2036, workers in that year would still have an after-tax wage that is more than 37 percent higher than it is for workers today. Is this a disaster that we should be losing sleep over?
There is an issue of wage inequality. Over the last three decades the vast majority of the benefits of growth have gone to those at the top, leaving the typical worker with minimal gains in real wages. If this pattern continues, then a Social Security tax increase in 2036 will be a serious burden, but the problem is the pattern of inequality, not the tax increase.
At CEPR we have researched and written extensively on the government policies (e.g. trade policy, Federal Reserve Board policy, health care policy) that have led to the increase in inequality over the last three decades. We argue that the reversing the policies that promote inequality should be the primary focus of public debate since these policies are having the greatest effect on people’s lives.
This is why the debate over Social Security and budget deficit is so frustrating. Social Security is an enormous success story. It ensures a decent standard of living to workers in their old age; it provides insurance against disability; and it provides support to workers’ families in the event of an early death. Social Security does all of this with extremely low administrative costs and with relatively few instances of fraud and abuse. The program’s funding problems are distant and relatively minor. It is absurd that “reforming” Social Security, which invariably means cutting this essential program, is occupying center stage in the national policy debates.
In the same vein, the country desperately needs to get the economy moving again. While the recession might be over, we still have almost 25 million people who are unemployed, involuntarily working part-time, or have given up looking for work altogether. This is a huge hardship to these families and incredible waste to the country. The weak economy should be the main focus of our political leaders, not the deficit – which everyone knows was caused by the weak economy in the first place.
It is an unfortunate state of affairs when people in Washington assume that anyone who promotes policies that advance the interests of ordinary workers must be on the payroll of the AFL-CIO.
Addendum: Just to be clear, there is nothing wrong with getting union money. It just happens to be the case that CEPR doesn’t, and Mr. Schieber and the Progressive Policy Institute could not be bothered to get this fact right.
