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The first assault of the new Trump administration and Republican Congress upon Social Security has been launched. It comes in the form of release of a new report by the Congressional Budget Office, which of course these days is a wholly owned subsidiary of the Republican Congressional Caucus.
Using some financial sleight-of-hand, this CBO report pushes forward by two years the date at which its ideologically driven experts claim Social Security benefits will exhaust the Trust Fund, and since the Social Security program is required to be self-financing, the date at which, barring adjustments by Congress in the program’s funding and/or benefit payment levels, promised benefits would have to be cut by what the CBO claims will have to be 31%.
Such a cut would clearly be a staggering blow to the finances and livelihoods of nation’s retirees, dependents and the disabled.
This end-of-the-year CBO report is at odds with a report issued earlier this year by the Trustees of the Social Security Administration, which projected that the Trust Fund, barring any changes in taxes or benefit payments, would be tapped out in 2033, and that at that point benefits, barring some fixes in Social Security financing, would have to be cut by an also horrific but far lower 21% (with the remaining 79% of benefit payments being covered by current employee FICA taxes being paid into the system).
How did the projection on Social Security move from a cut in benefit payments of by just over a fifth being required in 17 years to a cut by almost a third being required in just 15 years?
Well, the CBO decided, in its wisdom, that the estimates of economic trends being used by the SSA’s Trustees — a group about evenly divided between Republican and Democratic appointees, with Democrats having a slight edge — were too optimistic.
Specifically, for example, the CBO gnomes are projecting that the interest rate on 10-year Treasury notes will only be at 1.7% in 2026, rising to just 2.3% in 2046. Since the Trust Fund — composed of FICA taxes paid by workers — is invested by law entirely in these 10-year notes, that’s a pretty low rate of return to be projecting. In contrast, the Trustees, in their 2016 report earlier this year, projected 10-year rates in 2016 of 2.4%, rising to 2.7% in 2031. For the record, the 10-year rate today is 2.51%, well above even the Trustee’s projection, and almost a percentage point higher than the latest CBO figure for the year.
The CBO is also projecting a slower rate of wage growth than did SSA Trustees, and thus is predicting a lower amount of FICA tax payments into the fund, as well as a further decline in labor participation rates and productivity growth, and other factors that all point to reduced contributions to the Trust Fund going forward.
Remember, though, that the Trump campaign and the Republican Senate and House candidates running for election, have been all about boosting jobs, raising incomes and lowering taxes, all of which should logically, if it were to come to pass, improve Social Security finances, not worsen them.
This leaves us with only two ways to look at the new CBO report, which will now be cited ad nauseam by Republicans in Congress as a reason to cut back on Social Security benefits and on annual inflation adjustments to those benefits, to raise the retirement age for receiving full benefits (a disaster especially for poor workers who cannot continue the hard physical labor many of their jobs require), and to raise the FICA tax rate, already a regressive flat 6.2% for employees and employers. Either Trump and Congress are not really going to try to boost jobs and income, or are going to try using measures like deregulation and trade sanctions on imports that will not work, or the CBO is just providing a fraudulent projection to give a boost to Republican plans to gut Social Security.
So what’s really going on here?
It’s classic scare tactics.
The Republican game, one in which they are, as always, being shamelessly supported by many conservative Democrats, as well as by nearly every financial advisor in the financial industry, and by financial industry lobbyists, is and has been to frighten younger workers into thinking that they are never going to receive Social Security benefits by the time they reach retirement age. The goal is to drive a wedge between older workers and retirees on the one hand, who are looking at Social Security benefits as the mainstay of their lives in retirement (half of all Americans have no retirement savings — no IRA or 401(k) and no pension — and of those with savings, the average amount is $60,000 per family, according to the Economic Policy Institute, enough to pay out just $2400 per year in interest for life), and younger workers, who are being told Social Security will be going bust before they retire.
In 2016, according to the Social Security Administration, 61 million Americans, or about one-fifth of the country’s population and nine our of 10 of the nation’s elderly and disabled, are receiving Social Security benefits. Of these, 48% of couples and 71% of single retirees depend on those benefits for 50% or more of their income. Furthermore, 21% of retired married couples and 43% of single retirees depend on those benefits for 90% or more of their income. Cutting Social Security benefits, or reducing them by stealth through continued under adjustment for inflation each year, will wreak havoc with their lives.
Meanwhile the 75-year-old system, which has never missed a payment, has long been supported by all workers, young and old, first because of confidence that it will pay promised benefits, and equally importantly, because children and grandchildren paying into the system know that it is supporting their parents and grandparents, and helping to keep them out of poverty and also off the backs of their offspring. There is, in other words, an inherent solid logic in seeing Social Security as a national good for people of all ages.
The Republican strategy is to destroy this universal support by convincing the young that their FICA taxes are going into a black hole and that those funds won’t be available for them when it’s their turn to retire.
The idea is to pretend that Social Security is like an investment in stocks and bonds, and that the return is not very good in comparison to investing money in privately managed accounts (that’s what the Wall Street financial community wants: to get their hands on all those FICA funds totalling nearly a trillion dollars a year!).
But Social Security is not like a 401(k) fund. It is a government program funded by taxes and with benefits set by Congress. It is a wholly political construct, and it will be whatever the public demands it to be. Sadly, because most of the corporate media have bought into the Republican-led scam that Social Security is just an investment program with a poor return, many Americans are losing confidence in its future. And so for years, during which, as even now, small tweaks in the funding of the program could have made the program fully solvent right through the period when a large population of Baby Boomers will be increasing benefit outlays, and into the foreseeable future, and that in fact would allow it to be expanded (European public retirement programs pay benefits that are about twice as large as those paid by the US Social Security system!), nothing has been done.
Make no mistake: this CBO report is the opening salvo of an all-out assault on Social Security, as Republicans, now thanks to Trump’s presidential win, seek to take advantage of their full control of the levers of power in Washington for at least the next two or more likely four years, try to do as much damage to the program as possible.
The only answer is for progressives to organize massively in support of this last and most critical piece of the old New Deal legacy of President Franklin Roosevelt. It will require massive protests in Washington and major cities of the country, incessant pressure on all elected officials, and a concerted educational program so that all Americans understand that this program is critical to their and their parents’ and grandparents’ survival.
The truth is that despite a decade of dithering by Republicans and limp Democrats also anxious to cut the program’s cost on behalf of their Wall Street contributors, Social Security could be fully funded for another 75 years or more by simply eliminating the cap on income subject to the FICA tax (currently only the first $118,500 of income is taxes, rising to 127,200 next year), so that all income is taxed, and benefits could even be expanded by adding a small transaction tax of a fraction of a percent on all short-term stock trading (a measure that would not impact long term investors or retirement funds).
It is a critical time for this organizing to begin because the attack on Social Security promises to be rapid and brutal. On the upside, rallying and organizing around a defense of this program can be the core of a new progressive movement that can address all the key issues facing us in the year and presidential term ahead. Just as an example, it would be difficult to rescue, and impossible to expand Social Security benefits if Trump and Congress go ahead with announced plans to expand spending on the military instead of cutting military spending.