With the portent of an even more Republican congress on the horizon for next Tuesday, speculation about the consequences of the poor judgment of the American electorate is already in...and on...the air. You may recall that the Republican rants against "entitlements" swirled about like dust devils after the last election along with votes (46 of them) to repeal the Affordable Care Act, otherwise affectionately known as Obamacare. That term, entitlements, is code for Medicare, Medicaid and Social Security primarily, although there are other entitlements that get far less attention. Of the three programs, Medicaid does cost the federal government money, which means that it has an effect on what we pay in taxes, the deficit in the annual budget and the national debt, which is the aggregate of all surpluses and deficits from the past...the amount we owe as a nation. With that in mind, it is fair to talk about the cost of Medicaid, though the moral and social issues surrounding the program make it unseemly at best. With regard to Medicare and Social Security however, so far neither program has cost the federal government a dime, though Medicare's trust fund is running close to the bone and will need to be replenished somehow within the next decade. Social Security, on the other hand, has a surplus in its trust fund of something on the order of $2 trillion, which will last in tandem with current and future contributions to the fund from wage earners, given the rate at which benefits are now being paid, for anywhere from 20 to 30 years. So, while Social Security will need to be adjusted some time in the next two to three decades or so, the issue of how much to pay in Social Security benefits won't arise until then because as long as The Fund is solvent, Social Security benefits cost the federal government nothing. In fact, while the current rate of benefit payouts does exceed The Fund's income from Social Security contributions, it's only by about $100 billion per year, but that is where the Republicans see opportunity. That is because the money in the fund...that $2 trillion...has been lent to the federal government, which would be the case with any surplus of income in The Fund over the course of a given year. But when there is no surplus--and there hasn't been a surplus for the past few years--and The Fund needs more than it takes in from future beneficiaries' earnings, the government not only loses one source of borrowed cash, it has to pay back money it has borrowed from The Fund in the past so that The Fund can make ends meet. That's why reducing Social Security benefits is so appealing to the Republicans.
There has been a deficit in the country's operating budget every year since the second year of the George W. Bush administration. (In his first year, he had a surplus to work with, which had been created by his predecessor, Bill Clinton's administration.) And while some of that deficit could be borrowed from the Social Security Trust Fund back then, that is no longer the case since, as I just noted, Social Security has been costing The Fund more than it takes in over the past few years. Thus, not only can the government no longer borrow from The Fund, each year the government now has to pay back to The Fund some of the money borrowed in the past--about $100 billion--and that serves to increase the federal budget deficit. But what if you could reduce what The Trust has to pay out in an amount like $100 billion per year; then the federal government wouldn't have to pay that $100 billion back to The Fund and the result would be $100 billion less deficit spending. That is the inducement to reduce cost of living raises for Social Security beneficiaries by, for example, using the "chained CPI" instead of the CPI calculated as it is now. And now the timing is just right because if the Republicans effect such a change, they can say that they reduced the deficit, about which they have been complaining since President Obama took office despite the fact that it was a non-issue to them when it was Bush spending the money. What they don't tell the public of course is that doing so just defers repayment of the debt to The Fund, and thus serves no purpose but to pass the debt on to a future generation, another thing about which the Republicans complain when it comes to deficit spending in general. But this doesn't look like deficit spending to most people because the Republicans have been so assiduous in misinforming the voting public about the nature of Social Security, asserting that it is a drain on the economy and it costs our society too much. They also don't mention the fact that reducing Social Security benefits reduces the amount of money that the recipients of those benefits have to spend. Less consumption means less demand on business inventories, which means less production, which means fewer jobs.
In the final analysis, reducing Social Security benefits is a bad idea for those and several other reasons, including the vulnerability of our senior citizens to downward fluctuations in their often already marginal standards of living that would be caused by reducing their benefits, or in the case of chained CPI reducing the amounts they can count on to compensate for rising prices. And the Republican effort to accomplish the end of reducing Social Security benefits, being relentless as it has been for decades, will be a bigger threat in 2015 than it was in 2014 because there will be more Republicans pushing it. As I always say, on election day the majority always gets what it deserves, but this time, that could be a very bad thing.
Your friend,
Mike
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