With the midterm elections days away, Republicans and quite a few Democrats have once again been attacking Social Security for running up the federal deficit. The president’s own deficit commission is likely to make Social Security reform a priority. In view of all the rhetoric, voters may be surprised to find out how little Social Security will actually contribute to the future budget gap. In fact, most would probably be stunned.
The Congressional Budget Office, which produces dry, cautious budget projections, recently reminded Congress that Social Security as a percent of GDP will rise from 5 to 6 percent in 2035 and simply stay at that level for the foreseeable future. In other words, the much decried shortfall amounts to only 1 percent of GDP over three decades. And this may be exaggerated. As some observe, much will depend on the flow of young immigrant workers to America. The more workers contributing to Social Security, the smaller any future deficit will be. And the CBO projections tend to make overly conservative estimates about such immigration in the decades to come.
Meanwhile, Federal spending on healthcare—essentially, Medicare and Medicaid—will double from 5 to 10 percent over the same period. In a 2009 analysis, the non-partisan Center for Budget and Policy Priorities forecast that federal healthcare spending would rise to 13 percent of GDP by 2050 while Social Security, as noted, would remain at just 6 percent of GDP.
Interest on the rising debt caused by the health-spending deficit is the other big contributor to alarmist debt estimates. As deficits mostly due to health care programs are expected to continue rising each year, projections show that the accruing debt will increase to as much as 200 percent of GDP over the next thirty years.
The president’s 18-member fiscal commission, which must report its recommendations by December 1, will almost certainly use its political ammunition against Social Security. Why? Because its members can’t agree on cuts related to Medicare or Medicaid, or related to health care reform in general, that will have a meaningful effect on future costs. In contrast, after years of denigration by some politicians and economists, Social Security benefits have become a comparatively easy target.
Tied up in this is the inexplicable notion that current Social Security benefits—which for the second year in a row are not being adjusted for inflation—are adequate. The average monthly benefit is now $1400. And Social Security accounts for 90 percent of income for one third of retired Americans. Women receive less on average because they have fewer working years. And now most American workers have seen their 401(k) savings fall sharply as a result of the financial crisis. More important, the value of homes, which are many Americans’ main asset, has collapsed.
This is no way to run a government. Of course the trillion-dollar increase in the deficit, coupled with the rise in Washington of vocal and well-financed deficit hawks, has put pressure on the administration. Adding to this have been the many campaign ads attacking big government that have filled the airwaves as the election approaches. But why is Obama throwing his weight behind vigorous deficit reduction?
With government spending under attack, those who have long been on a crusade to reduce Social Security benefits have seen their opening and shamelessly taken it. At 10 percent of GDP, the federal budget deficit is indeed way up, but that has nothing to do with Social Security—or Medicare for that matter. At least one third is the result of the recession itself, which has led to a steep slide in tax revenues and significant joblessness, putting more pressure on unemployment benefits and other needed programs. Another third or so of the deficit increase results from the cost of the wars in Iraq and Afghanistan and the Bush tax cuts of the early 2000s.
For these unrelated reasons, retirees will now pay the price. Those who say the sacrifice will be minimal are deceiving us. Raising the retirement age again from the already raised 67, as many are proposing, is supposedly justified because retirees are living longer. Yes, over the past twenty-five years, men in the top half of earners are living five years longer. But the lower half are actually living less long. Women in the low-income categories actually have a lower life expectancy today. People in these categories will see their Social Security benefits sharply reduced.
Another popular proposal is to peg Social Security benefits for those above a low lifetime annual income to inflation rather than to rising wages. Of course, wages rise faster than inflation, thankfully, or there would be no increase in the standard of living: so this proposal would effectively reduce payments to retirees. A “medium” earner, as the Social Security Administration defines it, could see future benefits cut by 40 percent over time.
The increase in Medicare and Medicaid expenditures is closely tied to rising health care costs in general. But rather than tackling what could truly cripple America, moralizing reformers place their focus on Social Security.
Though Obama has given in to the deficit hawks to a degree, he is our best chance to prevent more radical cuts from being pushed through. A Republican surge on November 2 will raise pressure on Social Security further. Do voters know that?