In Bernie Sanders’ eight-and-a-half-hour speech yesterday, he brought up two main points about Social Security. The first point was that his proposal to provide a one-time $250 payment to Social Security recipients and disabled veterans had been blocked by Senate Republicans. This despite the fact that they haven’t had a cost of living adjustment in two years, and despite the multi-billion-dollar tax cut President Obama and the Republicans are trying to give to the wealthiest people in America. Sanders’ Senate webpage explains:
“I am very disappointed that we were unable to get the votes needed to stop a Republican filibuster,” Sanders said. “It’s hard for me to understand how my Republican colleagues can fight for a million-dollar-a-year tax breaks [sic] for billionaires but deny a $250 check for seniors and disabled veterans, especially at a time of rapidly rising health care costs.”
Without action by Congress, there will be no cost-of-living adjustments for retirees and the disabled for only the second time since 1975, when a law took effect linking benefits to inflation. The outdated formula for calculating living costs does not accurately take into account the budgets of senior citizens who spend a disproportionate amount on increasingly expensive health care and prescription drugs.
Sanders’ other main point about Social Security, and the more important one, is that the Obama “compromise” imperils the very basis of Social Security. It does that by proposing a tax holiday that will reduce Social Security taxes from 6.2% to 4.2% in 2011. That’s a 32% reduction in the Social Security taxes paid by employees. The most succinct explanation I’ve found is from the McGuireWoods law firm:
The proposed payroll tax holiday would reduce Social Security taxes paid by workers from 6.2% to 4.2% for one year. As a result, employees earning $70,000 per year would save $1,400 per year in taxes, while employees earning $106,800 or more per year in wages would recognize a tax savings of approximately $2,100. The tax holiday will replace the Making Work Pay credit, and will not be offset by new revenue raising provisions or other spending cuts. President Obama and other proponents of the payroll tax holiday believe the tax savings to working families will increase consumer spending and further stimulate the economy.
I’ve noticed a lot of unfounded, fatalistic indifference to the future of Social Security. “The whole system’s going to collapse anyway.” “There won’t be any Social Security by the time I retire anyway.” Well, maybe there won’t be. The surest way to make sure there won’t is to cut Social Security taxes, which provide the basis for the whole program and are the only real obstacle to Republican attempts to gut the program and privatize it.
Julian Zelizer explains why it’s dangerous to cut Social Security taxes:
For supporters of the program, the use of Social Security tax reductions for economic stimulus is a dangerous political precedent. The tax holiday plays directly into the “Starve the Beast” strategy that conservatives have pursued since the 1980s. After Ronald Reagan’s election in 1980, Republicans learned that directly attacking domestic programs was hard to do. When Reagan pushed for cuts in Social Security in 1981, he faced a massive backlash that forced him to back down. President George W. Bush encountered the same fate in 2005 when he tried to spend his political capital on Social Security reform. The lesson was learned. Republicans instead focused on a strategy whereby ongoing tax cuts would gradually leave the federal government with less revenue for new programs and make existing programs susceptible to attack as a result of deficits.
A key reason for the program’s strength has been the sanctity of the Social Security tax, which has been treated as a special tax, distinct from income and corporate taxes, on the grounds that it is linked to a specific government benefit. Every year, Congress uses the funds collected from payroll tax contributions of workers to pay for the benefits of current retirees. “With those damn taxes in there,” Franklin Roosevelt once declared, “no damn politician will ever scrap my Social Security program.” …
By insulating the payroll tax from the perennial debates in Washington over cutting taxes to stimulate demand and investment, politicians have protected the program from short-term economic and partisan pressures.
But this time the situation appears to be different. President Obama and the congressional Republicans agreed to break with this precedent. In the future, proposals to further cut Social Security taxes — including to do so on a permanent basis — will certainly be on the table.
There’s no reason Social Security has to fail. Back in September, Bernie Sanders wrote:
The truth is that the Social Security Trust Fund has run surpluses for the last quarter century. Today’s $2.5 trillion cushion is projected to grow to $4 trillion in 2023. The nonpartisan Congressional Budget Office, experts in this area, say Social Security will be able to pay every nickel owed to every eligible beneficiary until 2039. …
It is true that by 2039, if nothing is changed, Social Security will be able to pay out only about 80 percent of benefits. That is why it is important that Congress act soon to make sure Social Security is as strong in the future as it is today. …
In the midst of all of the destructive rhetoric and ideas out there, there is one proposal that is simple, sensible and would keep Social Security strong and solvent in a fair and just way.
Under the law today, the Social Security payroll tax is levied only on earnings up to $106,800 a year. That means millionaires and billionaires get off scot free on all of their income above that amount. In other words, an individual who earns $106,800 pays the same Social Security tax as a multimillionaire. That’s wrong.
Applying the Social Security payroll tax on those with the most income, say over $250,000 a year, would correct this inequity. According to CBO, applying the tax to all income would provide all the revenue that Social Security needs for the foreseeable future — for our kids and grandchildren and great grandchildren.
Read Bernie’s whole op-ed here: Hands off Social Security.
I can’t stress enough that this is not something that can be blamed entirely on Republicans. This isn’t the first time Obama has signed off on a Social Security tax cut. The Hiring Incentives to Restore Employment Act which cut the employer portion of Social Security taxes, was signed by Obama on 18 March of this year. It had passed with overwhelming support from Democrats in both the House and the Senate. Even progressives like Anthony Weiner — and, yes, Bernie Sanders — voted for it. But at least that bill had provisions to offset the cost. This one has none. The current compromise just takes money from Social Security, and when it’s gone, it’s gone.
Social Security does not have to die. But it can die, and it will if it’s not defended from this kind of attack. Keep your eye on what the Republicans do and say about this issue, but keep your eye on Barack Obama, too. Remember that the Co-Chair of Obama’s National Commission on Fiscal Responsibility and Reform is Alan Simpson, a former Republican senator who has made his opinion of Social Security clear: “We’ve reached a point now where it’s like a milk cow with 310 million tits! Call when you get honest work!”
Protecting Social Security is going to require vigilance and action, and the program has enemies in the White House as well as on Capitol Hill.
Oh, and by the way: Mitch McConnell proposed this tax holiday almost two years ago. See Chye-Ching Huang, Payroll Tax Holiday a Poor Stimulus Idea