Further fleshing out the truth regarding Obama and SS and…
by Daniel J. Becker
Back in June of ’08 I asked regarding Jason Furman’s appointment by Obama:
Is this the concession the Clinton/Blue Dog group was looking for? The DLC still keeps control of the money issues?
I asked because of his connection to the Hamilton Project at the Brookings Institute: Hamilton Project, a small think tank created by Robert E. Rubin, Bill Clinton’s Treasury secretary and key economic adviser, and former Treasury deputy secretary Roger C. Altman…
Bruce posted a response by Furman regarding Obama’s SS plans:
As president, he would work with Congress on a bipartisan basis to design the details of such a change, including the tax rate, how it is phased in over time, the linkage between these tax payments and benefits and other critical design elements of this plan.
We have known what Obama’s position is since his campaigning. Unfortunately, many have ignored it even blaming the victim (the voter) for his lack of left leaning action. But, just to bolster the smacking up side the head Bruce is offering via NewDealDemocrat, I went digging further on Mr. Furman and found this from 2005 via Center on Budget and Policy Priorities:
By contrast, under traditional reform plans like that proposed by economists Peter Diamond and Peter Orszag, the debt would be reduced immediately, and by 2050, the amount of debt reduction would be substantial.
Mr. NewDeal stated:
In short, only a month into his Administration, Candidate Obama’s insistence on tax hikes as the method of long term Social Security budget balancing was replaced by President Obama’s embrace of the Diamond-Orszag plan…
I was certain with Hillary we were getting the DLC and all the Chicago School Econ we could handle. I was resisting the temptation of conspiracy thought when I asked if Furman was a concession to the Clinton power block, but I feel confident now that this is exactly what happened. Hillary conceded on June 7th, Furman was appointed on June 9th.
Remember the 60’s and the warnings about how the “Man” was messing with our heads? The message wasn’t to be paranoid, the message was to be aware.
http://www.brookings.edu/views/papers/orszag/200504security.pdf
I haven’t read D-O for a while so will this morning and then comment again. For anyone who wants to follow along here it is.
D-O comes in 3 parts, the first two of which are short enough to put in comments:
“Addressing Improvements in Life Expectancy
The first area is increasing life expectancy. Since 1940, life expectancy at
age 65 has increased by four years for men and five for women, and is expected to
continue rising. And of course, further years of life means further years of Social
Security payments.
To offset the cost from further increases in life expectancy, we propose a
balanced combination of benefit reductions and tax increases. Specifically, in
each year the Office of the Chief Actuary would calculate the net cost to Social
Security from the improvement in life expectancy. Half of this cost would be
offset by a reduction in benefits, which would apply to all workers age 59 and
younger.The other half would be financed by an increase in the payroll tax rate.
Implementing this proposal would reduce the seventy-five-year actuarial
deficit by 0.55 percent of taxable payroll, slightly less than a third of the currently
projected deficit.”
Addressing Increasing Earnings Inequality
Social Security’s financing is affected by two recent trends: the increase in the share of earnings that are above the maximum taxable earnings base ($90,000 in 2005) and are therefore untaxed, and the widening of the difference in life expectancy between lower earners and higher earners.
Over the past two decades, the fraction of aggregate earnings above the taxable maximum has risen from 10 to 15 percent. Our plan gradually raises the taxable maximum, so that the percentage of aggregate earnings above it returns about halfway to its 1983 level—that is, to 13 percent—by 2063. (This raises the payroll tax for roughly six percent of workers each year, those with the highest earnings, and raises the marginal tax rate for even fewer workers.)
I should point out these are just excerpts, the whole article is only seven pages long. For the third part I am only going to put up the framing, the solution they end up proposing is a combination of tax increases and benefit cuts of about 1.7% of payroll starting in 2023.
“Confronting the Burden of the Legacy Debt
Third, and finally, our plan addresses the burden of the legacy debt.
Benefits paid to almost all current and past cohorts of beneficiaries exceeded what could have been financed with the revenue they contributed. This difference is what we call the legacy debt. Without this debt—that is, if earlier cohorts had received only the benefits that could be financed by their contributions plus interest, the trust fund’s assets today would be much greater. Those assets would earn interest, which could be used to finance benefits. “
Legacy debt maybe the same thing as unfunded liability just formulated in a more understandable form than that presented by Biggs. The current system assumes that each generation owes some of its current increased prosperity to earlier generations and so is prepared to supplement that earlier generation with a share of the increased Real Wage that resulted. In return they expect a share of the increased prosperity of the next generation but never in a way that would result in a net loss in Real Wage. D-O implicitly breaks that link and instead transfers that obligation into something called a Legacy Tax. In numbers the Legacy Tax has much the same impact as the Northwest Plan, it just adds a layer of generational resentment. The numeric result is fine, I just don’t like the philosophy, it kind of taps into that “after all what did gramma ever do for me thing” that left that big chip on Gen-X shoulders.
As to Furman/Hamilton project.
Well whether or not Furman was a concession to Hillary, if his addition had the effect of moving Obama from earlier advisor Liebman’s LMS Plan to Diamond-Orszag and left Liebman working for Orszag rather than the other way around then that is a good thing.
It is unlikely that Obama would have been able to get a straight out fix using the cap increase alone, and the likely compromise would have been to fall back on LMS which has such a cap as part of its proposal. Which could well have been the adoption of the LMS price-indexing instead of wage-indexing proposal which is truly harmful to future workers’s interest in ways that the D-O proposal seems not to be.
The liberal economists over at Econospeak were pretty positive on Furman in regards to Social Security so to some degree I just relied on their judgement. But in any event I agree with Barkley Rosser that the real danger is Larry Summers and not the Rubinistas per se.
Bruce–Important points. One other thing also comes to mind. We have 46 million uninsured people in this country. A substantial number of them are bound to have serious undiagnosed/untreated health conditions. Diabetes, for example, affects about 25% of the population (as far as we know.) It is unknown how many of the uninsured have DM Type II, hypertension, obesity, etc. We have no way to determine the effect of the health insurance mess on life expectancies in the future, but pretty clearly, it can’t be good.
So, the idea that to raise the retirement age is a quick, obvious fix is absurd. Consider the projected increase of dementias in the population of people 55 and older. Yet, you hear “experts on Social Security” spout this “fact” continually on MSM outlets. This is something else we know that ain’t so and will hurt us. It will be hard–maybe impossible– to disabuse people of this false notion.
Just to make things clear. The parts of the post between the bold titles and the quote marks are from Diamond-Orszag, the only parts from me are the brief note at the beginning of the 3:55 and the first and last paragraph of the 4:16
so you have to ask yourself what is the point of cutting benefits in order to avoid half a percent of payroll tax increase?
the trade off is essentially one dollar of taxes gets you four dollars of benefits on a monthly basis.
and the benefits come at a time when your income is less than half of what your income was when you were paying the tax.
and remember we are talking about tax increases on the order of 80 cents per week in any given year. half that for low income workers. the actual amount will grow as incomes grow… but the “felt” amount will remain the same. in any case the 80 cents per week will come out of an income that is ten dollars per week bigger.
trust me. when you retire, and that 80 cents per week has added up without your noticing it, you will, or would, notice a 250 dollar per month cut in benefits.
i realize the math of the above might be a little obscure. but trust me or not, that’s the way it works out.
there would be some “justice” in reducing the “return” for high earners, and even raising the cap, on the theory that it’s still insurance. but it would be a hard sell. and easy to oversell yourself if you like the idea of “soaking the rich.”
so the questioin remains, is it worth it to avoid a half a percent increase in the “tax” which is really an insurance premium, if the premium is going to finance your own longer life expectancy?
the “legacy debt” is nonsense. in fact it is damned nonsense. pretty much the same thing as Bigg’s “backward transfer.” Social Security is not an investment club. If there had ever been a chance that
benefits “could have been financed” they would have been.
Social Security is insurance. And the intra-generational “transfer” is no more fair than the inter-generational transfer Biggs and Orszag are so worked up about. What they are saying in effect is that because the cost of bread may be different from one generation to the other we should all give up farming and rely on the superb generational equity of the stock market.
i guess my head has been messed with. i thought it was hillary who was saying that Social Security didn’t need to be fixed, while Obama was saying it was a huge problem. that’s why i voted for hillary.
Nancy, you’re saying something I’ve been saying for a few years now. Maybe I see it so clearly because by the time I reach Medicare I will have been uninsured for over 13 years.
These “everyone knows” “facts” make me crazy. Fortunately I don’t suffer from hypertension, or I probably wouldn’t make it to Medicare. (Don’t get me started on assumptions based on the “average” or “typical” member of any class, either!)
All of this undiagnosed and/or untreated illness is going to impact Medicare. THAT is what we should be worried about. The uninsured who live long enough to be eligible are going to be playing catch up.
Yes, I remember posting to one of Bruce’s blog’s that when I looked at the SS account numbers dating back to when it was started, there was no deficit at all in the beginning.
That is what happened. And it led to Obama getting smacked around from the left and so then he moved left in the primary (one of the few times). Personally, I don’t know why it’s so hard to believe that his initial statements on Social Security – that it was “in crisis”, using a RW talking point – aren’t closer to what he really thought than his faux tacking left during the primary after that didn’t work for him. Obama also ran to Clinton’s right in terms of his economic plan as Krugman pointed out at the time, only to be accused of having a son (who does not exist) working for Clinton. But, still, somehow, his neoliberal economic policies are her fault because some people apparently don’t want to admit that Obama is who he is which is a corporate Democrat of the first order, something that anyone looking at his donors (hedge funds!) and record could’ve figured out.
Obama was Wall Street’s choice from the get go. He got more money from them than any other candidate, including Clinton who represented New York. Going after Social Security benefits Wall Street, as Bernanke said that’s where the money is. Ergo, Obama is fine with going after social security. Follow the money. That’s always the safest bet in trying to figure out what motivates any of our politicians, including but not limited to Obama. Which is why it was Obama who saved the TARP bailout by whipping for it in 2008 and why he’s now going to cut the deficit on the backs of the poor and elderly. That’s what his Wall Street masters want and he’s going to give it to them.
thanks BD
about what i expected.
not much action on this thread. i guess we are all depressed.
President Bush wanted to create private account. If the money were in private accounts then the government could not sieze it at will. If the money is in your private account its your money, outside private accounts its not your money and subject to the political winds of change. And given now a democrat is being questioned on social security its making private accounts look better and better.
http://www.youtube.com/watch?v=Tts2uTWt6e8
Cantab try reading some of the actual plans out there. First of all most of those that include PRAs have a clawback provision that takes back that component of your gain that you would have gotten if it had just gone straight into the regular system. Second the plans generally have annuitization provisions for almost all enrollees meaning you don’t end up with an inheritable account at all. Three they have restrictions or prohibitions on any kind of early withdrawal. Fourth Congress can change the terms at will. Ultimately you have the same degree of ownership and protection you have on your Social Security account now. Which is to say none at all.
You are arguing at the level of gauzy abstraction, the real world proposals in play just don’t operate in the way your free market fantasy would require.
LMS http://www.hks.harvard.edu/jeffreyliebman/lms_nonpartisan_plan_description.pdf
Ferrara Plan http://www.socialsecurity.org/pubs/ssps/ssp8.html
Bush’s Model 2 http://govinfo.library.unt.edu/csss/index.htm
“If the money were in private accounts then the government could not sieze it at will.”
I got four words for you: Kelo v New London. And Kelo lost. If the government wants the money in your “private account” it can seize it or tax it or put restrictions on how you manage and withdraw it. And most “reform” plans do all three.
good stuff here as usual.thanks guys.