Why the Pelosi Rule MAY not be a sell-out on Social Security
by Bruce Webb
There is a huge disturbance in the Force, at least as sensed by the Jedi of FireDogLake, Democratic Underground, AMERICAblog, and OpenLeft, which is to say among the Obama-skeptics of the Left. The substance is this, in a last minute move prior to adjournment Nancy Pelosi pushed through the rule for handling the recommendations of the Obama Deficit Commission, and on the surface they mirror that of Cooper-Wolff or its Senate counterpart Conrad-Gregg, that any recommendations coming out of the Deficit Commission has to be voted up or down without amendments. The actual language is here:
“Commits the House to vote on any Senate-passed recommendations of the bipartisan Fiscal Commission and that net savings from any Commission recommendations will go to deficit reduction.”
Meaning on the FDL reading that any Commission proposal focusing heavily on Social Security benefit cuts can simply sail through with Republican and Blue Dog support. Simple sell-out right? Well maybe. But whatever the intent of the players, including Pelosi, the effect might be much different. Because despite strong and deliberate similarities the Obama Deficit Commission is NOT the same as either Cooper-Wolff or Conrad-Gregg. Argument below the fold.
The entire Peter G Peterson backed argument as manifested in both Cooper-Wolff and Conrad-Gregg is that the major threat to the economy going forward is long-term deficits, that the major cause of those deficits are projected to be entitlements, and that the only solution is major cuts to those benefits. In this vision the disease and the medicine are determined beforehand and the whole purpose of the Commissions is to give bi-partisan cover backed up by a requirement that any proposal coming out of such a Commission is subject to an non-amendable up or down vote. And if this vision was still controlling the entire debate then this would look like total surrender by Pelosi. But I argue that it isn’t, that the Obama Commission was formally given a much different mission, and one that in the end conflicts and subverts that of PGP.
The main impetus for the Obama Commission was not the structural long-term deficits seen as the result of ‘unsustainable’ entitlements, instead it was the very large, as in more than a trillion a year, deficits starting with FY 2009 as a result of the worldwide economic crisis, that is the crisis is not defined as intergenerational but instead in the here and now with the main expressed fear is that without action the Invisible Bond Vigilantes and the Chinese Central Bank will stop buying our debt. Well I’ll leave that bigger argument to Prof K, the result was that the Obama Commission was given a specific charter, that of getting the deficit down to 3% of GDP by 2015. And the problem in a nutshell is that you can’t get there via benefit cuts to Social Security, one because Social Security is not actually projected to contribute to the deficit over that time period and two because even the most draconian proposals don’t start operating by then.
It has been an accepted principle since the Leninist Strategy of 1983 that benefit cuts shouldn’t come at the expense of people in or nearing retirement, a principle that was also the first one listed by Bush’s CSSS (Commission to Strengthen Social Security) in 2001, and followed by the various proposals fronted by Alan Simpson, the Ryan Roadmap, and even Michelle Bachmann. Each would give varying periods of grace ranging from seven years (Simpson) to not effecting people over 55 (Ryan Roadmap) to as much as 20 years. But what all share in common is that none of them show any savings under CBO scoring prior to the mandated target of 2015, they simply CAN’T bend the short term deficit path.
It is not clear that any of PGP, the Obama Commission, or Speaker Pelosi quite get this because the whole argument has been framed in terms set by the Social Security and Medicare Trustees where the score is generally expressed over the 75 year actuarial window, or since 2003 over the Infinite Future Horizon. Under those long-term scoring windows new revenues or benefit cuts get scored in the current year even if the actual incidence of the tax increase or benefit cut doesn’t occur for years or even decades. Well all of that is fine in its own place but it doesn’t cut any ice when it comes to projected deficits in 2015, when CBO scores whatever recommendations come out of the Commission, 2015 won’t (or shouldn’t) get credit for savings that won’t be seen until 2030 and later. Now the argument can and will be made that future cuts add current confidence to those nervous (but as yet invisible) Bond Vigilantes, but at most the real effects in 2015 could only be seen in lower interest rates, and those rates are rock bottom now.
How does this play out in practice? Assume the worst, that the real intent of the Catfood Commission is to slash entitlements and particularly Social Security, the question is whether they can present a package that does that yet doesn’t do anything for 2015’s bottom line? Can they get away with putting forth a ‘deficit reduction’ proposal that under CBO scoring doesn’t actually lower the deficit by 2015 or within the standard 10 year scoring window? Well I don’t see that they can, not without revealing their true colors. And this is where the Pelosi Rule might actually work to protect Social Security.
Cooper-Wolf and Conrad-Gregg were both to be established pretty much openly as ‘Entitlements Commissions’ along the lines of the 1994 Kerrey-Danforth ‘Entitlement and Tax Reform Commission’ http://www.ssa.gov/history/reports/KerreyDanforth/KerreyDanforth.htm , a package entirely focused on entitlements would not only not be surprising but expected giving the framing. But the Obama Commission has a different framing, that of near term deficits, requiring a different approach, the Commission has to at least present some measures that will actually address their charter of reducing the 2015 deficit. Which means revenue enhancements and spending restraint OUTSIDE of Social Security. (Or just biting the bullet and cutting current SS benefits, something most concede would be political suicide). Now the examples of the Stimulus and HCR Bills tells us how this could work, the Commission introduces a balanced proposal of short and long term revenue increases and cuts with a focus on both 2015 and 2083 and that proposal gets whittled down bit by bit ostensibly to gain the votes of Conservadems and Blue Dogs, but really just to eliminate any tax increases or defense cuts leaving only entitlement ‘reform’ intact. The Pelosi Rule, by intent or not, prevents that whittling process.
Seen in this light Pelosi would be simply calling the Blue Dogs bluff, is it really about deficit reduction? or about slicing away at the social safety net?
I don’t believe the Commission can get away with a package that only slashes future entitlement payments but does nothing about near term deficits, it would just be too raw in light of their mandate. Yet the more cover they add in the way of truly bi-partisan measures to increase revenue and cut discretionary spending, including military, the more support will bleed from Conservadems and Blue Dogs, to say nothing of Republicans, while Progressives are not going to jump on board an entitlements cut only program. Where they might have gotten away with a straight out Entitlements Commission whose focus was on 75 year and Infinite Future savings, they are handcuffed by a 2015 target and attendant CBO scoring.
My opinion anyway. For anyone else, well that is what comments are for.
Pelosi Rule: “net savings from any Commission recommendations will go to deficit reduction.”
That is meaningless, of course. 😉
For instance, suppose that the projected deficit is $100 without the net savings from the recommendations, and the net savings is $1.50. Then the projected deficit is $98.50 with the net savings. That’s exactly the same as it would be without the quoted language. 😉
You surmise….
“I don’t believe the Commission can get away with a package that only slashes future entitlement payments but does nothing about near term deficits, it would just be too raw in light of their mandate.”
Yeah right…..hey Yogi, the fix is in. Wake up.
http://www.americablog.com/2010/05/how-to-kill-social-security-be-ignorant.html
It may be meaningless economically but it has significance under Congressional Pay-Go rules. It prevents paper offsets of other tax cut or spending proposals.
Well Gaius just says stuff…I see no numbers either. How is that convincing anyone Thomas. Other than shouting, I see no explanation of Social Security.
Bruce will stand in the ashes of Social Security saying: “This did not happen. I proved by logic and mathematics that this was impossible, so it did not happen.”
Thomas my Social Security series here is probably over 100 posts by now dating back more than two years. Which is a hell of a lot of peer review. You can access it via the top menu bar.
I don’t think I need a tutorial from some guy named Publius Gaius or Gaius Publius, between this blog, my own blog and commenting on econoblogs like Economist View and the much lamented MaxSpeak I am up to many hundreds of posts and comments on this dating back to around 2003 and my views are pretty well known and received around that part of the policy world that is supporting Social Security. This particular post is just an expansion of a couple of posts to a DC based SS list serv, if Dean Baker for one doesn’t think I am a moron on this I am pretty comfortable where I am at.
Got anything but snark to contribute Boo Boo?
Bruce
You are too confident that the Congress and the people are rational. They are not. Meanwhile David Walker is out doing the circuit explaining to the reporters and columnists that we need a stimulus now and big cuts in entitlements later. There is no sign the reporters and columists ask even rudimentary questions about this. Though they do feed him the straight lines.
What Pelosi is doing, under your surmise is saying yes to Mr Peterson who has said, “Hey, lets play Russian roulette, here’s my pistol. You go first.”
Come on Bob. The argument is not based on mathematics, it is based on a few decades of political observation, more specifically focused on Social Security since 1997.
Even the Republicans knew enough to play off the “Keep government hands off my Medicare” during HCR, despite all efforts to drain it there is still plenty of juice in the Third Rail of American Politics. Now you might fool people into accepting massive SS cuts if they could be convinced it was really in service of something like deficit reduction, but when the CBO score comes back with a big fat Zero people are rightly going to be asking what the hell they were getting for the giveup.
Peterson’s AmericaSpeaks town meetings last weekend were a big fiasco, not least because Dean got some counter briefing materials together from CEPR and Roger and others got enough people to show up at the various venues that the sales pitch was blunted.
A year ago Peterson and his agenda were not widely known around the blogosphere, today everyone knows who you are talking about and even the MSM are grudgingly citing more supporters. So I don’t grant your “no sign” premise, there are plenty of signs, if you are not too discouraged to notice them.
I have been actively working this issue for a long time, primarily in the area of simple education about the mechanics, and believe me opinion is a hell of a lot removed from that Thanksgiving Day 2004 that I first started pushing back from my own blog and from diaries at dKos:
http://bruceweb.blogspot.com/2004_11_01_archive.html
I know opinion can be moved, because with no self modesty I have seen plenty of evidence that I have moved it, and not just here with Buff.
Top Economist James K. Galbraith’s Withering Testimony to the Deficit Commission. – Democratic Underground
Thanks Hermit. We linked to it here as well, but it is great to see that it got such big play in the comment thread at DU.
Following up on the PGP theme.
A year ago Bob Bixby was just President of the “Non-Partisan Concord Coalition” and Dave Walker was simply “Former Comptroller General David Waker”. Today Bixby is head of the “Peterson founded and funded Concord Coalition” and Walker is “President and CEO of the Peter G Peterson Foundation”. Credit who you want, big props go to William Grieder and his Nation profile on PGP from Mar 2009 ‘Looting Social Security’, but either way Peterson has become a household name, at least in influential parts of the left and Walker doesn’t as easily get away with that ‘kindly uncle’ act. In fact some people we know that share the same green rooms and such report that he has gotten a little ‘tetchy’ these days.
I really doubt that CNN would get away with showing I.O.U.S.A.: the Movie as a documentary any more, even though they showed it that way twice, too many people would be Twittering in asking “Why not point out that it is a PGP production? (Which it is, the PGPF owns the copyright and distribution rights.)
Bruce and all– I was surprised at the responses of the public attending the recent AmericaSpeaks town halls. I didn’t think that people would come up with the sensible proposals they made. I pretty much assumed that the PGP bunch would be able to engineer the results of these meetings by offerring limited, false choices and insisting on their own agenda over the objections of attendees. It’s hard to say what happened. Perhaps they lost control of these meetings or were completely unaware that so few people agree with them.
Galbraith’s testimony appeared on HuffPo and a few other sites as well. It drew lots of reader comments wherever it appeared. I wasn’t too happy with his discussion of Social Security (SS) benefits as a “transfer program”. My objection to the use of that phrase is that it lends to the envidious “redistribution of wealth” notion that conservatives use to disparage SS as “a welfare program.” He used the term in its technical sense, but that’s not the way these discussions are conducted now–accurate terminology has nothing to do with it.
I agree that PGP’s groups are better identified now and CNN will probably have to change the way it discusses the Deficit Commission. But, I noticed that Walker and others have appeared recently on NPR selling the Peterson agenda. Current producers, contributors and featured guests from CNN are increasingly heard on TON and ATC beating the deficit doom and gloom drum. “Entitlement reform” as part of deficit reduction is also a frequent theme there. NPR is a liberal bastion no more, it seems. Still,Bruce, the up-or-down-rule is very encouraging. Pelosi is just daring anyone to vote to cut SS in an election year. Chicken, anyone? Nancy Ortiz
I wasn’t made real happy by the clearly implied “Be ignorant”
If that is thin skinned, then so be it.
Bruce,
I have read much of your commentary on SS at this site over the years and believe you to be quite knowledgeable on this subject. My concern is with the Treasury bonds that form the basis of the SS trust fund. Maybe I’m not seeing the whole picture but it’s my opinion that the deficit commision intends to find a mechanism under which the US can default on those bonds while continuing to honor all bonds & obligations that are not part of the SS trust fund. Is this a rational view in your opinion? Again, am I missing something?
Short version: they know they can’t abrogate the Special Treasuries, they are seeking some way of denying the implications and so delay or avoid redemption based on externalities. That is Simpson’s expressed position in the infamous video interview with Alex was “Yes they are backed by Full Faith and Credit, but—” Where “but” is replaced by some excuse for workers to vote away their own interest in favor of that of billionaires.
darms
while waiting for Bruce.
your view is rational. but the bonds won’t be “defaulted on.” all they need to do is cut benefits, so the bonds will not need to be called.
this creates problems of its own… the debt just keeps getting bigger because of retained interest. but it is my view that the Petersons don’t give a damn about the Trust Fund or the bonds or the deficit…. it’s all just the latest excuse to kill Social Security. Remember ten years ago they were going to kill it so we could all participate in the New Unbreakable Stock Market. DOW 36000.
Galbraith is more or less an Old Keynsian and willing to embrace more Social Democratic solutions. As am I. My willingness to keep Social Security confined to it’s insurance model is based on issues of practicality and not philosophy, and I suspect FDR was right there with me. It is not like he was opposed to redistribution, just that he understood that an insurance based plan had more natural insulation from politics.
Bruce,
Since the commision may be looking for a mechanism to delay redemption of those SS trust fund bonds and I’ve read that some of these bonds are routinely redeemed & renewed each year, would that not provide those on the commission with an excuse to cut SS funding now even though the actual problem is not until 2030 or beyond? In contrast to your thesis above? Possible quote come December – “Yes, we know the problem w/SS funding won’t be upon us for decades but we have to defund SS now as paying off this year’s (& next thru 2015’s) maturing SS trust fund bonds is pushing this deficit to unmanageable levels!!! You lame ducks have to support this NNOOOWWWWW!!!!! Thanx Nancy!”
FWIW personally I think all this deficit talk is nonsense, the stimulus was far too small & went to the wrong people and that left alone SS will do just fine especially if the wage cap is raised a bit. Why nonsense? If for nothing else, the next R administration will blow the deficit out of the water same as they’ve always done since 1980. [eye roll]”Reagan proved ‘deficits don’t matter”, didn’t he?[/eye roll]
Sorry fr that triple post, don’t have a clue what I did. Can you delete two of ’em?
Deleted.
Friend Coberly–Seems right about the goal of cutting benefits, thus delaying the effects of the TF obligations. It won’t do a thing to reduce the intragovernmental and total debt everyone complains about. But, of course, that’s not the point. The point is for the Anti-New Dealers to get their way at last. You know, considering the length of time they’ve had to undo the New Deal, it seems a little late to be going on about it. But, you know, there is such a thing as an hereditary grievance. Seems like that’s what we have here. Nancy O.
Bruce
neither me nor FDR are opposed to redistribution. but the insurance model is not only about good politics, its about good psychology, and human self respect… which may be evidence of something even deeper, which you might dismiss as “philosophy.” but i can tell you as an old son of workers that it means a lot to a working man not to take charity, not even from the government.
doesn’t mean they won’t take it when its all they have to feed the kids. but they’d rather earn their bread and pay their own bills.
in any case, once you have a working class that is dependent upon handouts from the rich as a regular expectation of a major part of the life cycle, the rich have you by the balls as it were. and no damn government is going to save you from what happens next.
darms
the routine redemption and renewal is because the bonds have a maturity date. they can either pay cash to the lender, which, in the case of social security, doesn’t need the cash.. or not until recently… or they can use the “money” to buy new bonds. really would not have the effect you are looking for.
as far as the commission is concerned the actual problem is now. mostly, i think, because now is the best chance they have had to cripple social security, logic be damned. but now is also pretty much the start of the payback period that the Trust Fund was created for (pace Bruce).
by 2030 or so most of the bonds are scheduled to be paid off and social security will return to pay as you go. those who regard this as a looming castastrophe, or something that can be avoided by “good economic news” are missing the whole point. social security is not the trust fund. and the big Trust Fund Going Broke! argument is a deliberate mis-framing of the issue. After the Trust Fund is paid down to the normal one year reserve, Social Security is likely to need a tax raise, not because of the Boomers who will mostly be dead, but because the post boomers will be living longer than their grandparents… the last time the tax rate was set.
As for your December quote, they may well say something like that. They are not constrained by truth or even any rationality.
the deficit is real. whether it is important is questionable. i’ll defer to Galbraith. but it has not a damn thing to do with Social Security. Social Security pays for itself. that is, the workers pay their own retirement insurance via the payroll tax. as long as they understand that’s what they are doing, they will keep paying it and feel they are getting a good deal because they are.
nancy, other nancy
that hereditary grievance started in a case of pale ire, envy, and despair. these folks hate roosevelt because he reduced the sum of human misery.
btw, my introduction to the game of chicken was “Rebel Without A Cause.” Sometimes chicken doesn’t end the way you expect.
coberly,
Appreciate the response, I’m just another confused observer trying to make sense of this nonsense, nothing more. But I have been and will continue to pay attention, not that there’s anything I can do personally but at least it won’t be done w/o me noticing as best as possible..
darms
best we can ask for. hope for. try to keep us honest… and clear.
I’m just worried that Pelosi is being too clever by half. At this point, I expect that, if SS is on the table, Dems, even the well-intentioned ones, will screw it up.
There was no substance to speak of in the linked post, which combined with the ‘Yogi’ led me to believe it had been selected BECAUSE of its title, not despite it.
I am not new to this game and have been on both the giving and receiving side of rhetorical shivvings, I recognize what is happening while it is happening
““Yes, we know the problem w/SS funding won’t be upon us for decades but we have to defund SS now as paying off this year’s (& next thru 2015’s) maturing SS trust fund bonds is pushing this deficit to unmanageable levels!!!”
Well they will certainly try, the problem is that the scoring doesn’t follow. Bond principal that is simply rolled over adds neither to debt or deficit, instead a Special Treasury is retired and another issued with neither actually having been financed in the markets. Interest is a little more complicated.
For each of the two Trust Funds (DI and OAS) that go into combined OASDI there are three possible states. One the TF can be in both ‘surplus’ and ‘primary surplus’ where ‘surplus’ means all income INCLUDING interest exceeds cost, while ‘primary surplus’ means that income EXCLUDING interest (meaning taxes) exceeds cost. Two the TF can in be in ‘surplus’ and ‘primary deficit’ meaning that cash income from taxation has fallen behind cost, but that only a portion of the accrued interest needs to be tapped to pay the difference, the rest being credited to the TF in the form of new Special Treasuries. Three the TF can be in ‘deficit’ and ‘primary deficit’ meaning that all income including interest needs to be used to meet costs and that some portion of principal has to be redeemed as well.
These three state of affairs hits debt/deficit scoring in different ways. What we normally call ‘the deficit’ as in ‘Obama is on target to fun a $1.5 trillion deficit in 2010’ considers Social Security ‘surplus’ to be a positive number offsetting in part General Fund deficits. Which makes reasonable sense in state one of ‘surplus/primary surplus’, after all some cash is coming in even if it doesn’t make up the entirety of that surplus which can be (and currently is) mostly in the form of interest that is simply credited to the Trust Fund. But it is also the effect in state two of ‘surplus/primary deficit’, that is even as a portion of accrued interest is flowing FROM the GF TO Social Security to make up the gap between income from tax and total cost, the net balance of the TF for that year is still positive due to the remaining interest. Now this flow of funds is not coming from nowhere, the dollars have to be raised from other taxes or borrowing, but they won’t show up in the top line CBO number as contributing to the deficit. Only when the TF enters into state three, that of ‘deficit/primary deficit’, does it actually contribute to the top line deficit, and that only to the extent that principal is being redeemed and not rolled over.
In 2015 combined OASDI is projected to still be in ‘surplus/primary surplus’ emerging from its temporary state (2010 & 2011) of being in ‘surplus/primary deficit’ in 2012. Meaning that it will still be scoring as a top line surplus, which is to say REDUCING the deficit. In fact this will still be true after 2017 when projections show combined OASDI going back to ‘surplus/primary deficit’, it isn’t until 2023 that the system goes to ‘deficit/primary deficit’ and since the amount of principal redemption needed will initially be small, only modestly contribute to the top line score.
The Commission can tie itself in knots trying to convince people that the real number to focus on is ‘primary surplus/deficit’, i.e. cash flow, but since that will still be modestly positive in 2015 on a combined basis and not at all contributing to the top line number they are targeting (deficit of 3% of GDP) the argument falls apart, there just not being an official score to point at.
Well, Mike–You’re quite right that the Dems get things wrong a lot. And, then, of course, we have the President’s intentions which are by no means clear. Why would he sicc this damnable Commission on us if he weren’t prepared to accept Peterson’s conclusions? The President knows perfectly well what Peterson wants. Peterson has apparently ponied up with gazillions of bucks for the DNC’s 2010 fund raising effort. Right on the face of it, looks like a put up deal.
Despite Galbraith and others’ testimony, Simpson and Bowles will keep right on the trail of “ruinous entitlements.” People expect them to. Chris “Tweety” Matthews on MSNBC who considers himself a very well informed Big City Dem, was bemoaning the “entitlement mess” on his program the other night while ignoring Iraq and Aghanistan as possible sources of deficits.
None of this is encouraging. But, this business won’t play out until after the election. We have to wait to see what will happen. I still can’t believe Obama will sign any legislation that will reduce SS benefits. Suicidal for him and for the Dems. But, this is a very strange situation and maybe a game of chicken is the last thing the Dems ought to want. N Ortiz
Mike
I agree with you. If Pelosi herself is not sold out to the Petersons, or as stupid as everyone else.
The dems can go right on winning elections by claiming the “solved the deficit problem” and “saved social security.” the facts won’t matter.
there has been some sign on some web sites that some people sort of understand what is being done to them. but the overwhelming comments by the people show they don’t really understand it. and the press is uniformly disinforming the people.
i think you are looking at the death of democracy… or at least the latest episode. they are proving you can tell the people any sort of lie. make no sense at all. and the people will mostly buy it. and those who don’t won’t be able to do much about it except shout for awhile. and if the shouting gets too loud, the parties and the press will simply change the subject.
do you seriously think any gutting of Social Security that “won’t affect” anyone for fifteen or fifty years is going to result in serious political opposition?