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In a must-read editorial, the NY Times tells us:

"At the end of last year, just shy of the 11th hour in the fiscal cliff negotiations, President Obama made an offer that included a Republican-backed idea to cut spending by lowering the cost-of-living adjustment (COLA) for Social Security benefits. The move shocked Congressional Democrats and dismayed Mr. Obama’s liberal base. The offer, however, was rejected by House Republicans ...
"But that is not the end of the story. As the next round of deficit reduction talks gets under way, the administration seems determined to include the COLA cut in any new package of spending reductions. Rather than using the issue as a bargaining ploy, the administration appears to have embraced it as a worthy end in itself."
A Democrat, not arm-twisted by Republicans into cutting social security as part of brutal negotiations, but putting it out there as a good idea at the outset.  How many ways is this a terrible idea and a betrayal?  Read on ...

(1) It's a benefit cut for some of the neediest Americans.  As Dean Baker tells it, Social Security checks currently average a bit over $1200/month -- extravagant! -- and under the COLA change

"a beneficiary would see a 3 percent cut in benefits after 10 years, a 6 percent cut after 20 years and a 9 percent cut after 30 years. This is real money. Since Social Security is more than half the income for almost 70 percent of retirees and more than 90 percent of the income for 40 percent of retirees, the hit to the affected population would be considerably larger than the hit to the top 2 percent from ending the Bush era tax cuts."
The big problem our country faces is not too many people living too high on their Social Security.  This is going to hit needy people where it really really hurts.

(2) The reasons for it are bogus.  The claim is that the switch from basing the COLA on the CPI (consumer price index) to basing it on a "chained CPI", which takes account of consumers switching to less costly goods in response to other goods increasing in price, just makes for a more accurate cost of living adjustment.  That's bullshit intended to hide a straight-out benefit cut. Let the NYT editorial explain (I've added emphasis):

"The administration and other proponents of switching to a chained C.P.I. contend that it is a technical fix in the interest of greater accuracy, not a benefit cut per se. But that claim does not stand up to scrutiny. The chained index is in many ways a better method of tracking price changes for the broad working population, but there is no compelling evidence that it is better for computing the Social Security COLA.

... elderly households tend to have lower incomes and lower expenditures than younger households, and ... more of their purchases are for needs that cannot be met by switching to products and services in unrelated categories... they do not have the same flexibility as younger households to respond to price changes while still maintaining their standards of living. And because of the way it is calculated, the chained C.P.I. would also result in delayed upward adjustments in the COLA in times of accelerating inflation. Such delays would translate into real benefit cuts, leaving retirees worse off.

If, as the administration says, the aim is to set the COLA in the most accurate way possible, then the obvious approach is to have the Bureau of Labor Statistics develop a statistically rigorous index to track inflation as experienced by retirees. A more informal index from the bureau that looks at the effects of inflation on the elderly shows that the (current) COLA is too low, not too high, in part because of medical costs.... The fact that some policy makers are willing, even eager, to move ahead with changing the COLA without having developed a more reliable gauge only feeds the impression that they are trying to get away with an unjustified benefit cut.

(3) It saves very little money -- according to the Times, "a chained CPI would reduce benefits by some $135 billion over 10 years." For comparison, raising the top tax rate -- the rate on that portion of income over $400K/year -- by 4.6% in the fiscal cliff deal was supposed to raise $600 billion over 10 years.  That means that you could raise the same money by a 1% surtax [edited 12:22pm Pacific Time: used to incorrectly say 1.55%] on the portion of income over $400K/year. You could also raise it by adding a 1/100 of 1% tax on financial transactions (calculating from numbers given here) -- or by small increases in the portion of income subject to payroll taxes -- or, by cutting the incomes of seniors by as much as 9%.  Our Democratic president chooses the last option.

(4) Besides being terrible, horrible, no good, very bad policy, there's also the politics. The Democrats created Social Security and Medicare.  Americans love them.  We have certainly seen that when both Democrats and Republicans propose the same Medicare cuts and Democrats enact them, the Republicans then pose as the defenders of Medicare and attack Democrats for the cuts, even as they pose ill-defined new policies that in fact will end Medicare as we know it.  So let's think, very hard, what will be the political implications of Democrats leading with an offer to cut Social Security benefits.  Oooh, that's a tough one, must think harder ... could this possibly be not good for Democrats?

Obama is determined to cut social security benefits. He seemed very open to negotiating his way to raising the medicare eligibility age, another terrible idea. In the fiscal cliff deal, Obama agreed to let the tax on dividends go up from 15% to only 20%, instead of going back to being taxed as ordinary income (top rate 39.6%) as would have happened with expiration of the Bush tax cuts. This means that the Mitt Romneys and Warren Buffetts will continue to pay much lower rates than Buffett's secretary; as Harold Meyerson explained,

"In 2006, the bottom four-fifths of U.S. tax filers got 82 percent of their income from wages and salaries, a Congressional Research Office study found. The richest 1 percent, however, got just 26 percent of their income that way; for the richest one-tenth of 1 percent, the figure is just 18.6 percent.

The study also looked at dividends and capital gains. The bottom four-fifths got just 0.7 percent of their income from those sources. (Those who believe we’ve become an “ownership society,” please take note.) The wealthiest 1 percent, however, realized 38.2 percent of their income from investments, and the wealthiest one-tenth of 1 percent realized more than half: 51.9 percent.

The tax deal Congress passed last week raised the top rate on wages and salaries from 35 percent to 39.6 percent. The rate on income from capital gains and dividends, however, was raised to only 20 percent from 15 percent. There has been no rending of garments nor gnashing of teeth from our super-rich compatriots; they got one sweet deal."

On the economy, he supported the cut-the-deficit craziness when the key need was stimulus and fighting unemployment. He gave unchecked bailouts to the banks with no consequences or prosecutions ever and somehow kept forgetting to use the authority and resources he had to help people with their mortgages (read David Dayen's stuff on Firedoglake and Matt Taibbi). On secrecy, the national security state, unchecked executive authority, he's perpetuating all the Bush administration policies except torture, including many he campaigned promising to fix,  and making many of them worse (read Glenn Greenwald; here's one example).

The Republican party are right-wing nutjobs, and it was critical to defeat them. Obama does some good things, like (despite all the problems) health care reform. But let's face the fact that the guy we've got leading us is not really what any of us would have called a Democrat. He's what until recently would have been called at best a liberal Republican, maybe a moderate Republican. Compared to the current Republicans he's a godsend, and he needs our support when he does the right thing. But compared to what Democrats should be fighting for he isn't going to stop betraying us and he sure as hell needs our resistance when he does.  Let's face this without illusions.  

9:30 AM PT: Update: A number of commenters argue that it's just an editorial, and note that it doesn't present any actual evidence or cite any sources for its assertion that Obama admin has adopted the COLA change as a worthy end in itself and is determined to include it in the next agreement.  The point is, it's not just some "random editorial", as one commenter argued. It's the NY Times, America's Paper of Record. They take themselves Very Seriously -- not always a good thing, but true. They're wired in terms of inside information -- the editorial board is going to be hearing the inside dope from their reporters in D.C., from Democratic insiders, and from all sorts of other insiders who are only too anxious to be talking to them and keeping them up on the latest. They are never going to make some wild assertion that they don't absolutely know is true. Writing this editorial is, among other things, telling us "this is what's going down". We'll read about it in the news pages with sources soon enough.

10:00 AM PT: The other main Obama-defense argument in the comments is: if he wanted to cut it he would have cut it already, he's had 4 years, so it's just clever negotiating. First of all, Dems would never stand for just up and cutting it. This is something Republicans want, and politically it's only going to happen as part of a "grand bargain" with Republicans so that enough Dems feel they have to vote for it. He's repeatedly offered it up in that context, but Repubs haven't been able to come through on a deal. Second, the current negotiations involve the sequester, big cuts to defense, which Republicans hate, as well as domestic unless they negotiate an alternative. So Repubs are very motivated to find a deal. Republicans number 1 demand is deep cuts to social security and medicare. Now I could imagine a situation in which Obama lays down a line, "we're not cutting benefits for the elderly, period"; the Republicans have to be the ones to openly push for the cuts; Obama negotiates hard and tries to prevent it; but in the end, he needs to do it for a deal, and Obama says "for the good of the country we need to give this to the Republicans as part of the deal, but we're insisting that it be done in a way that protects the neediest." I would still scream about the policy, but who knows, maybe it would have been the best deal he could get, and at least the politics would be OK -- the Republicans would be insisting on the cut, the Democrats would be doing the protecting. Instead, Obama is going in offering this up front, before negotiations begin, thinking it's actually a good idea. Now there is no chance that he can not give this away in the negotiations, unless there is no deal.  Now the Republicans don't have to propose it or own it. Now he starts out on the wrong side, ensures a terrible outcome and politically he and the Dems will own it.

12:20 PM PT: Some people seem genuinely confused how the proposal -- to decrease the cost of living adjustment (COLA), which they construe as decreasing the rate of increase of benefits -- could be construed as a cut in benefits. So let me just try to explain that clearly.  It's the difference between nominal dollars -- say, one hundred seventy one dollars, whether in 1970 or 2013 -- and real dollars, corrected for inflation -- where $171 in 2013 dollars has the same purchasing power as a whole lot less 1970 dollars. The purpose of the COLA is keep benefits unchanging in real dollars -- in purchasing power -- despite inflation, which requires increasing benefits in nominal dollars.  So COLA is not an increase in benefits, it's a method of keeping benefits from shrinking due to inflation.  The switch from CPI (CPI=consumer price index) to chained CPI means a switch to a different, lower, estimator of inflation, which means nominal dollars go up by about 0.3% less per year, or about 3% less per decade.  Now here comes the key issue: as the NYT editorial discusses, the chained CPI probably is a better estimator of the effects of inflation on working Americans, but it is almost certainly a worse estimator of the effects on the elderly.  The Bureau of Labor Statistics has an experimental elderly CPI index which goes up at a higher rate than the current CPI index.  In other words, if this experimental index is correct, seniors are already losing purchasing power every year in their Social Security benefits, and the switch to a chained CPI will make them lose even more purchasing power. As the NYT says, anyone serious about coming up with a better CPI estimator for social security would propose developing a full, non-experimental elderly CPI index. Anyone proposing instead to go to chained CPI is just proposing to cut benefits, under bullshit cover of a technocratic fix (which in reality, doesn't fix -- make things more accurate -- but instead makes things worse).


Originally posted to kenm on Sun Jan 13, 2013 at 01:25 AM PST.

Also republished by The Democratic Wing of the Democratic Party and Social Security Defenders.

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