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Is Bankruptcy in Your Future?

Older Americans are going bankrupt in record numbers. Under a front page headline, “Bankruptcy Booms among Older Americans as Safety Net Frays,” the August 6 New York Timesrelates how the rate at which Americans 65 and older file for personal bankruptcy has tripled since 1991. This data comes from a new study by the Consumer Bankruptcy Project, “Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society.”  

Without a Net

The headline of the Web version of the story (“Too Little Too Late”: Bankruptcy Booms Among Older Americans”) drops the reference to the social safety net.  And, in fact, the US safety net hasn’t frayed—it’s been hacked to pieces, coolly and maliciously.  The Consumer Bankruptcy Project study found that as the conservative ethos of “responsibility” has gained ground over the past three decades, financial risk has shifted from government and employers to individuals.  “Graying of U.S. Bankruptcy” exaggerates only slightly when it calls bankruptcy the little that is left of the social safety net.

The shift of financial risk onto the individual is no accident.  Government policies deliberately favor the rich over the poor and middle class.  These policies are primarily the work of the Republican Party, acting on behalf of the richest 1% of Americans, but the Democratic Party, which has also latched onto the neoliberal agenda, is also to the blame.

Yet the Times nowhere mentions Republicans or Democrats.  Or “capitalism” or “neoliberalism.”  As we will see, the factors the Times blames for the gray bankruptcy crisis are real, but they don’t get at the heart of the problem:  capitalism.  It’s as though someone tried to explain the American Civil War without mentioning slavery, or tried to answer the question “Why are people poor?” by responding “Because they have no money.”

A Bankruptcy Epidemic

The authors of “Graying of U.S. Bankruptcy” found that the explosion of bankruptcies among older Americans is so marked that it can only partly be explained by aging Baby Boomers.  The Times advances several reasons for the bankruptcy surge.

Soaring medical expenses.”

For Americans 65 and older, there is Medicare, but Medicare does not cover all medical expenses.  This is due, the Times says, to “gaps in coverage, high premiums and requirements that patients shoulder some costs.”  “Graying of U.S. Bankruptcy” notes that: “Despite the widespread belief that Medicare meets health needs of older Americans, for so many retirees, it is utterly inadequate.  Out-of-pocket spending among older Americans with Medicare comprises about 20 percent of their income, and the estimated total of all non-covered medical expenses for a 65-year-old retired couple during their retirement years is $200,000” (“Graying of U.S. Bankruptcy,” p. 4).  What gets overlooked is that soaring medical expenses are the natural outcome of a profit-driven medical system.  Ask the proponents of Medicare for All (single-payer health care) why Americans pay more for health care than any other developed nation, but receive less in return.  The problem will only get worse as the Trump Administration and the Republican Congress chip away at Social Security, Medicare, and Medicaid.

For the really desperate, there is GoFundMe. The CEO of GoFundMe has said that 1 in 3 of its crowdfunding campaigns are for medical expenses.

“More people are entering their later years carrying debt.”

This includes mortgages and student loans.  The Republicans’ Tax Cuts and Jobs Act [sic] enacted last year limits the deduction for mortgage interest payments.  As for student loans, too many Americans continue to make payments into their retirement years.  That’s bad enough.  But parents who co-signed their children’s student loans may find themselves paying off their adult children’s student loans as well as their own.  Student loans are difficult, if not impossible, to discharge in bankruptcy.  The problem of student loan debt could be easily eliminated if the US government followed the lead of European welfare states and provided a free college education to all.  However, doing that would mean that the Pentagon would have to scrimp on cruise missiles.  Inasmuch as Congress just approved $717 billion in military spending for FY 2019, the rest of us must learn to make sacrifices.  Finally, the Times notes that “Perhaps not surprisingly, the lowest-income households led by individuals 55 or older carry the highest debt loads relative to their income.”

“Declining incomes.” The deindustrialization of the US has been a conscious policy of the neoliberals who dominate both the Democratic and Republican parties.  Older Americans can tell their grandchildren about a time when a high school graduate working in a factory could buy a house and could support a family on a single income. Good-paying blue collar jobs (most of them unionized) have been moved overseas.  The offshoring of American manufacturing has been facilitated by free-trade agreements such as NAFTA and the multitude of agreements failing under the umbrella of the World Trade Organization (WTO).  The Times, however, says nothing about deindustrialization, free trade, or union-busting.

Stagnant wages. This is another factor the August 6 article leaves unmentioned.  Growth “topped 4 percent in the second quarter of 2018—the highest rate since mid-2014.”  Corporate profits and stocks are hitting the stratosphere, making the richest 1% even richer.  The US is enjoying record levels of employment.  In July, the unemployment rate stood at 3.9%, according to the US Bureau of Labor Statistics, the lowest it has been since the 1990s.  In theory, wages will rise as the US economy approaches full employment.  Instead, wages have stagnated since the 1970s. There have been enormous gains from increased worker productivity, but those gains have not been passed on to workers. “The raging pattern of stagnant pay … now costs an average United States household $18,000 per year in lost income,” writes activist and author Pete Dolack.

So, why haven’t wages risen?

One reason is that unemployment isn’t reallyas low as 3.9%.  Orthodox economists have all manner of tricks for cooking the books to make it look like unemployment is lower than it is.  Just consider discouraged workers who have given up the search for a job; they’re not counted as unemployed even though they are not working.

A major reason for stagnating wages is employers’ concerted efforts to destroy labor unions, efforts which, unfortunately, have been largely too successful.  The employers’ war on unions received a turbo-boost once the Reagan Administration came into power.

Add in the rising price of basic goods.  The Washington Post observes that “U.S. workers’ meager wage gains” are entirely swallowed up by a “jump in energy costs,” including gasoline.  The price for other necessities such as housing and health care also continues to climb.  And there is another thing American workers have to look forward to.  “Additional price increases,” the Post says, “could be coming as President Trump’s new tariffs boost the prices of cheap imported products on which U.S. consumers rely.” Good work, Mr. President!

The GOP’s Assault on Entitlements

Adding to ordinary Americans’ economic insecurity is the GOP’s attack on entitlement spending.  When he was running for president, Donald Trump promised not to cut Social Security, Medicare,[1]and Medicaid.  The Republicans’ proposed budget for 2019, released on June 19, cuts all three.

The Republicans’ 2017 Tax Cuts and Jobs Act will add an estimated $1 trillion to the federal deficit.  The Republicans intend to use the deficit they themselves created as an excuse for cutting Social Security, Medicare, and Medicaid. House Speaker Paul Ryan somehow keeps a straight face as he claims that “it’s the health care entitlements that are the big drivers of our debt….”

In the meantime, until that happy day when they succeed in privatizing Social Security, Medicare, and Medicaid, the Republicans are busily at work on a second round of tax cuts.  Prosperity is just around the corner.[2]

*     *    *

When I was in college, I dated a woman from Pakistan.  She told me that one of the things that most struck her about Americans was that we do not look after our elderly.  “Graying of U.S. Bankruptcy” devotes several pages to how elderly people were treated by their families before the advent of Social Security in 1935.  The cruelty with which elderly parents were treated in 19th Century America is scarcely to be believed.  The elderly were regarded as economic burdens on the young.  The inauguration of Social Security help make the elderly economically self-sufficient, leading to better treatment.

As supports like Medicare and Social Security are phased out our elders may once again come to be seen as burdens.  That’s the capitalist way.  Under capitalism, the weak—the elderly, children, minorities, the poor, the disabled—are chewed up and spit out.  Older Americans do their best to remain independent.  You see them as greeters at Walmart or behind the register at McDonalds, working till they drop.  For some of them, bankruptcy has taken the place of the social safety net.  But bankruptcy is a completely inadequate substitute.  Bankruptcy, the authors of “Graying of U.S. Bankruptcy” write, is “Too little, too late.”  Bankruptcy provides a fresh start, but only to people who have enough time left to start over.

It looks like my friend was right.

Notes.

[1]  Trump also promised to allow Medicare to negotiate with drug companies in order to bring down the price of prescription drugs.  Trump broke this promise.  (In fairness to President Trump, none of his predecessors in the Oval Office, Democrat or Republican, took this step either.)

[2]  But wait; there’s more!  In what the New York Times correctly calls a “legally tenuous maneuver,” the Trump Administration is considering slashing capital gains taxes by $100 million—without consulting Congress.    The nuts and bolts of this scam will be of interest mostly to accountants.  Suffice it to say, new Treasury Department regulations would allow investors to inflate the initial “cost” of an asset, so that there is less of a capital gain when the asset is sold, and thus, less owed  in capital gains tax.  The George W. Bush Administration also wanted to make this change but concluded that doing so would be illegal without Congressional authorization.

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Charles Pierson is a lawyer and a member of the Pittsburgh Anti-Drone Warfare Coalition. E-mail him at Chapierson@yahoo.com.

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