For those of you who missed it, there was a rare matter of fact statement of fact in the Washington Post last week. As a result of the recession Social Security payroll tax revenue is falling, and “the trust fund's annual surplus is forecast to all but vanish next year — nearly a decade ahead of schedule — and deprive the government of billions of dollars it had been counting on to help balance the nation's books.” To balance the nation’s books? You mean there aren’t trillions being saved in the Social Security “trust fund?” “The Treasury Department has for decades borrowed money from the Social Security trust fund to finance government operations. If it is no longer able to do so, it could be forced to borrow an additional $700 billion over the next decade from China, Japan and other investors. And at some point, perhaps as early as 2017, according to the CBO, the Treasury would have to start repaying the billions it has borrowed from the trust fund over the past 25 years, driving the nation further into debt or forcing Congress to raise taxes.” Isn’t this what I said two years ago here? (And other thoughtful people have said over and over again for two decades, but been largely ignored).
The federal government will not have the money to repay Social Security, because the country will be deep and debt and broke, as a result of the decisions, non-decisions and deals by those now in charge, the representatives of Generation Greed. And all the extra money that was collected in the past, via a huge increase in the regressive payroll tax in 1983 to “save Social Security,” was spent in the past by older generations on themselves, as I explained two years ago here. My analysis, based on changes in federal spending and revenues as a share of GDP over time, shows that the additional payroll taxes were spent on lower progressive income taxes, and higher health care spending on today’s and yesterday’s seniors. Generation Greed’s response? According to the Republicans, those now are currently age 54 or younger will have some Social Security and other federal retirement benefits taken away, and face old age without them.
One can see a glimmer of this in the alternative federal budget proposal from the Republicans, as presented in the April 1 Wall Street Journal. (And no, they weren’t kidding). The Republicans propose to cut Social Security benefits when there isn’t enough money anymore, but not to impose any reductions in benefits for those “in or near retirement.” It is presented as a way to “save Social Security.” And they propose to “preserve the existing Medicare program” for those 55 or older, but take away benefits for those 54 and younger “starting in 2021.” So despite $trillions of dollars in federal debt being added this year and next, there is no need for any reduction in spending (or increase in taxes) on the generations that were born before 1955, and came of age in the 1950s through 1973, according to the Republicans. It is those born after will have to sacrifice.
And what is 1973? The peak year for the median wage in this country. All the generations who entered the work force after the deep 1970s recession have, aside from the very wealthy, been worse off than those who came before. They were on the wrong end of “two tier contracts” in every unionized industry. Their wages were suppressed by the their employer’s need to pay for the early retirement of those who came before, but in most of the private sector they only received 401Ks rather than pensions. These generations had to pay the vastly higher payroll taxes imposed in 1983 throughout most or all of their working lives, limiting their ability to save. And they have already had their Social Security retirement age increased from 65 to 67, also as part of the 1983 Social Security deal. Basically, the divide between the best off and worst off generations in America runs down the center of baby boom, between the 1960s “flower children” generation (the one that gets all the attention) and (my) 1970s “stagflation” generation, one that probably deserves the very limited attention it gets — Generation Greed was followed by Generation Apathy. Later generations are worse off still.
The only surprise in the Republican proposal is the way in which the Republicans would slash benefits for future generations: by means testing. That is, imagine two families with identical incomes throughout their working lives. One spends it all and goes into debt, living in bigger houses, buying more and bigger cars, taking more frequent and expensive vacations, eating out and bringing in rather than cooking, getting the maximum cable package. The other saves for retirement. Well, because the family that sacrificed and saved would be “wealthy” relative to the family that borrowed and spent once old age arrived, so it would have some or all of its Social Security benefits taken away, and be forced to pay more for Medicare, under this proposal.
I predicted this two years ago, but predicted that means testing would be the Democratic Party solution. After all, the Republicans up until recently pretended to worry about economic incentives, such as the disincentive to save as individuals, even if they believed (because they wanted to believe it) that collective government deficits “don’t matter.” (Does anyone else remember growing up hearing the federal deficit was OK because “we owe it all to ourselves?”) I predicted the Republicans would instead screw working women, by only allowing one worker per family to collect Social Security. Perhaps by screwing savers as well, the Republicans are trying to propose (as they put it in the WSJ) a “bi-partisan solution.” After all, it is a bi-partisan problem — Generation Greed insisted on taking more and more out and putting less and less in for 30 years, leaving the bill to those who came after. And the assertion those at or over 55 shouldn’t be part of any “shared sacrifice” is bi-partisan as well. Most members of Congress are 55 and over after all. And once they have to start handing out “shared sacrifice” after years of pandering to the powerful, they might be “at more near retirement” as well.
By the way, isn’t the Republican Party that now proposes lower social guarantees in old age for those born later the same Republican Party that just a few years ago passed the most costly expansion of old-age benefits in 40 years for those born sooner — the Medicare prescription drug program? While choosing to do nothing for millions of younger people paying taxes for health care for those older and yet uninsured? Isn’t this the same party that, when the Bush tax cuts were attacked as primarily benefited the rich, asserted they in fact benefited senior citizens, because those senior citizens held the lion’s share of the nation’s wealth? Why, I think it is!
And what is the Democratic plan for Social Security and Medicare at this point, with the wolf at the door? “La la la la I’m not listening!” And didn’t plan to start listening until 2017 until there was no longer a Social Security surplus to “borrow,” and everyone born in 1955 or earlier had a chance to retire early at age 62 and be “grandfathered.” And President Obama? When campaigning, he proposed raising the payroll tax, so younger generations could pay for Social Security a second time. But only for those earning more than $250,000 or more, and not for ten years — after those who are “at are near retirement” have a chance to retire and not pay it.
To see how bi-partisan benefits for Generation Greed offset by future disasters is, however, just look at various proposals and budgets going around in Albany. The State of New York has sacrificed the future even more than the federal government, and with the recession the bills are coming due. As a result, the Democrats in Albany agree, tax increases too levels that were too much when Generation Greed was in its peak earnings years are fine for those coming after. But having retired public employees pay a cent in tax on their income, and those who got the better deal on Social Security pay taxes on that, no matter how high their income is? No one else would even dare to talk about it.
Or just look at the pension proposals. Just last week, an aide to Mayor Bloomberg pointed out that the burden of all the pension enhancements handed out for more than a decade are going to cause a catastrophic decline in public services. “’The city is already paying more in health and pension benefits at the Fire Department than in salaries,” according to the aide’. ’We expect the Police Department to reach the same tipping point in 2013.’ Officials later said the other uniformed forces — sanitation workers and correction officers — would also reach that tipping point in four years.” Well that shouldn’t be a problem should it, because all the money needed to pay those retirement benefits was already saved up in the past when those who will receive them were working, right? Of course, the answer is “wrong.” Just like for Social Security. So should today’s retirees, or today’s workers, give anything up to prevent disaster? That wouldn’t be too popular with powerful interests. So the proposal is to provide much lower retirement benefits for future workers only. This from the administration that claimed little more than a year ago that having teachers retire at age 55 rather than 62 would cost nothing.
But to understand the Democratic position, you need to look at what is going on in Albany with regard to the MTA. As I explained here, everyone has been sucking money out of this organization for 15 years, allowing former Governor Pataki and the state legislature to seek popularity by giving the money away. The members on the MTA Board got to be on the MTA Board by going along with this — and borrowing massive amounts to make up the difference. Lower fares. Richer pensions. Tax dollars diverted to other more politically potent interests, like the health care non-profiteers via Medicaid and the over-funded schools in the portions of New York State outside New York City. Tax cuts, breaks and giveaways. “Dedicated” taxes diverted away from the MTA. Half fares for senior citizens all day, not excluding rush hours as previously. Higher prices for contractors on capital contracts. Etc. etc. etc.
And now that the bills are coming are coming do and disaster looms? None of those in power are willing to impose the sacrifices required to prevent it, on anyone. No to fare increases. No to tolls. No to taxes. No to service cuts. No to pension changes. “We won't face it and you can't make us! La la la la I’m not listening!” Watching the various Gangs of Four, one can see the future of all public services and benefits once Generation Greed has taken their fill. Can you imagine members of Congress refusing to either raise taxes or cut Social Security benefits, claiming that there are hidden $trillions and accusing the trustees of the Social Security Trust Fund of having two sets of books? In this case, as in the MTA, that accusation has merit, but the real books certainly don’t show extra money available to give away. They should the opposite.
And now you can see why we are heading for an institutional collapse. What happened at the MTA has happened across the board — older and prior generations have taken too much out and put too little in, borrowing the difference — all while not saving in their personal lives too. To prevent the collapse of our institutions, painful sacrifice would have to be made, and everyone would have to accept being worse off for perhaps twenty years. But Generation Greed will not accept this, so they just refuse to vote yes — unless only younger generations are affected. And now that the future is arriving earlier than expected, its representatives in Congress and the State Legislature are flailing and posturing and fulminating. They’ll soon be panicking.
For those younger, expect to not get Social Security. Your children’s children will not get public schools as they have been known for 50 years; the education situation will be more like it was before 1900. There will be very limited publicly funded health care for you in old age, so you can expect to die younger and poorer. Better ride a bike, because mass transit is going into a downward spiral, and we’re still dependent on foreign oil from unreliable sources 35 years after the consequences of this were identified. Taxes will be much higher, with nothing in return, tax fraud rampant, the authorities discredited, respect for laws that have only applied to some diminished for all.
Mathematically this doesn’t have to happen — the U.S. is still a rich country after all. Culturally, it appears nothing will stop it. No one, even those that are willing to talk about “sacrifice” and “solutions” is willing to talk about how we got into this fix, and who benefited, and how. Perhaps in 30 years, when those “at or over 55” today are mostly gone and things have sunk as low as they need to sink, younger generations will be able to gradually rebuild the country. Thanks to their perpetual control of our public and private institutions, things will not stop getting worse for those who come after until they are all gone.