Trays of printed social security checks. (AP Photo/Bradley C Bower)
On the very day that a bleak jobs report exposed the feebleness of the recovery, the White House announced that the president will propose cuts in Social Security. This was designed to get Republicans to agree to negotiate a grand bargain on deficit reduction—or prove that they are obstructing a budget deal. House Speaker John Boehner's reaction immediately revealed the folly of Obama's ploy: "If the president believes these modest entitlement savings are needed to help shore up these programs, there's no reason they should be held hostage for more tax hikes."
The exchange has Republicans salivating. Cutting Social Security has now become Obama's choice, not something extorted by the GOP. This could imperil Democrats running for re-election in 2014; those who support Obama's proposal will face the wrath of seniors and a flood of Republican ads accusing them of wanting to cut Social Security. If Nancy Pelosi and Harry Reid have any sense, they will organize their caucuses and pledge to oppose any deal that cuts a dime from this popular New Deal legacy.
The economics of the president's proposal are even worse than the politics. The crisis we face isn't that Social Security benefits are too generous; it is that more and more Americans lack the means for a secure retirement. Only about 15 percent of employees have traditional defined-benefit pensions at their workplace, and 55 percent have no retirement plan at all. Decades of wage stagnation and the corporate rollback of pensions have sapped worker savings.
The Wall Street wilding that produced the Great Recession and the housing collapse savaged what little wealth workers had stored in their homes, as well as their 401(k)s and IRAs. And many families are racked by job losses or medical crises that upend their finances, forcing them to pay penalties to tap into retirement accounts.
Sixty percent of Americans receive at least two-thirds of their retirement income from Social Security, but the meager payments replace only 40 percent of earnings, on average. Most experts argue that retirees need about 70 percent to maintain living standards.
Yes, we need to reform Social Security, but the reform should increase—not cut—this crucial income support that millions rely on. In a sensible proposal released by the New America Foundation, Michael Lind, Steven Hill, Robert Hiltonsmith and Joshua Freedman call for adding a supplement to Social Security that would guarantee all retirees about 60 percent of their average wage in retirement (similar to that of most other developed nations).They would pay for the expanded benefit not by increasing the payroll tax rate, but by raising the payroll tax cap and eliminating top-end tax breaks, particularly those now offered to private retirement plans that disproportionately benefit the wealthy.
The authors argue that under their plan, we would end up spending about the same percentage of GDP on the nation's retirement system, but with a much fairer distribution of support. This would also stabilize the overall economy, since the elderly will spend those extra dollars, giving a boost to aggregate demand.
The greatest power of a president is the power to set the agenda. Barack Obama should be rallying Americans to protect and strengthen our already inadequate Social Security system. Instead, he's pushing for cuts. For most Americans, that's a lousy deal, not a grand bargain.