Can Harry Be a Hero?

By Dean Baker
Talking Points Memo
January 21, 2011

http://tpmcafe.talkingpointsmemo.com/2011/01/21/can_harry_be_a_hero/

That is the question that supporters of Social Security
should be asking as we brace for President Obama's State
of the Union address next week. Specifically, the
question is whether Senate Majority Leader Harry Reid
will keep up his spirited defense of Social Security or
whether he will buckle to the pressure from the
financial industry and the Washington insiders.

For those who missed it, Senator Reid distinguished
himself by saying the obvious on one of the Sunday talk
shows two weeks ago. He said that Social Security is not
contributing to the deficit and that the shortfall it
faces is still distant and relatively minor. He said he
was tired of people picking on this program, which is
vital to the financial security of tens of millions of
retirees and disabled workers and their families.

Truth is rare in Washington, so Senator Reid's comments
really stood out. If the Senator is prepared to hold his
ground, he can save the program.

There is no doubt that the forces arrayed against Social
Security are enormously powerful. The wealthy hate the
idea of government money going to anyone but them, and
since the vast majority of Social Security benefits are
going to low and middle-income families, the program is
an outrage to their sensibilities.

The financial industry also knows a cash cow when they
see one. It would take more than $10 trillion in private
accounts to generate the same amount of money as Social
Security pays out each year in benefits. If the
financial industry collected just 1.0 percent of this
sum in fees each year, it would mean another $100
billion a year into the coffers of the Merrill Lynch
set.

And, for anti-government conservatives, Social Security
is the worst nightmare imaginable: a government program
that really works. Its administrative costs are less
than one-tenth as high as they are for financial
industry. There is minimal fraud and the program does
exactly what it was supposed to do: provide a core
retirement income and protect workers and their families
against disability and early death.

For these reasons, it is inevitable that powerful forces
would be looking to ax Social Security. Much of the
media, led by the Washington Post (a.k.a. Fox on 15th
Street), have abandoned rules of objectivity in their
quest to paint Social Security as a basket case.

The most common tactic is to lump Social Security in
with Medicare and Medicaid as "entitlements" that will
break the budget. Of course, every budget expert knows
that the vast majority of the projected increase in
spending comes from Medicare and Medicaid due to
exploding health care costs, not the modest impact that
aging has on projected Social Security benefits.

Peter Peterson, everyone's favorite Wall Street
billionaire, has committed much of his fortune to
gutting the program. He is buying everything in sight to
advance this goal. This includes setting up a new
foundation, paying for scary anti-Social Security
documentaries, setting up a fake news service (the
"Fiscal Times"), sponsoring rigged public forums
(America Speaks), and even playing silly games on the
mall.

Can Senator Reid stand up to this massive push?

Well, Mr. Reid has two things on his side: public
opinion and the truth. As far as public opinion, there
is no doubt that Social Security is a hugely popular
program. Everyone loves the security that it provides
them, their parents, or their grandparents, and their
children. Its sky-high approval rating is across the
board with all demographic groups and spans the
political spectrum from progressive Democrats to Tea
Party Republicans.

The truth is also on Reid's side. One only has to read
the Social Security Trustees Report to see that the
program will be fully funded for the next 27 years even
with no changes at all. After that date, it would still
be able to pay almost 80 percent of scheduled benefits
indefinitely, even if nothing were ever done.
Furthermore, it is not difficult to find progressive
ways to make up the remaining shortfall. Just raising
the payroll tax cap to where the Greenspan commission
set it in 1983 makes up more than one-fourth of the
projected shortfall.

The fixes proposed by the Social Security cutters would
involve real pain, some of it longer term and some of it
very immediate. Most notable is their proposal to reduce
the annual cost of living by 0.3 percentage points.
After ten years, this would reduce retirees' benefits by
close to 3 percent, after 20 years the reduction would
be 6 percent. This would be a big hit to many seniors
who are surviving on less than $20,000 a year.

The longer-term plans call for making the program more
"progressive." This generally means cuts for people who
earned $50,000 or $60,000 a year in their working
lifetime. That's better than the typical worker, but it
doesn't fit most people's conception of rich.

What is so frustrating in this story is that we are not
a poor country and are not getting poorer. There is
plenty of money out there, if our politicians ever had
the courage to confront the rich and powerful. We could
easily raise more than $150 billion a year from taxing
Wall Street with a financial speculation tax.

We could save as much on prescription drugs if we
started having them sold in a competitive market and
adopted a more efficient mechanism for financing drug
research. And, we could have the Federal Reserve Board
hold the bonds it is now buying so that taxpayers are
not burdened with hundreds of billions a year in
additional interest payments to the wealthy in future
decades.

These are items that we would be discussing if the
political system were not so dominated by moneyed
interests. So, in this context does Senator Reid have a
chance?

Actually he has a very good chance. There is an
important precedent for Senator Reid's defense of Social
Security. In 1997, President Clinton had reached a deal
with Trent Lott, then the majority leader in the Senate,
to reduce the annual cost-of-living adjustment for
Social Security. Their deal would have lowered the
adjustment by about 1 percentage point annually. After
10 years this would mean that benefits would be almost
10 percent lower and after 20 years they would be close
to 20 percent lower.

This plan might have gone through, except for the
opposition of Richard Gephardt. At the time, Gephardt
was the leader of the Democrats in the House. Even
though the Democrats were a minority, everyone knew that
if Gephardt spoke out forcefully against this deal, it
would create too much political heat to carry it
through.

This saved the day. As President Clinton said at one of
the Peter Peterson deficit fests last spring: "I wanted
to cut Social Security, but they wouldn't let me."

Let's hope that Harry Reid and the American people also
don't let President Obama cut Social Security.

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