If reports are correct, Congress and President Obama are currently considering resolving the fiscal showdown by, among other things, cutting Social Security benefits through changing the cost of living adjustment. It is ridiculous. It is outrageous.
Historically, Social Security, defined-benefit (DB) pensions, and private savings successfully formed the foundation of middle-class retirement security. But DB pensions have declined in the private sector: only 18 percent of workers are covered, compared to nearly 40 percent in 1980. And since the early 80s, stagnant wages have caused the net worth of the bottom 60 percent of households to decline; the typical household approaching retirement age has less than the equivalent of two years’ worth of income saved in a retirement account—if they have retirement savings at all. Social Security remains the most reliable and effective part of the nation’s provision of retirement security, and for many households, retiree benefits averaging less than $15,000 a year are their sole source of income.
Our current deficits largely stem from the economic downturn, the Bush tax cuts, overseas wars, an unpaid-for expansion of prescription drug benefits, and a failure to control the excesses and abuses of the financial industry. In fact, over the last few decades, Social Security was running a surplus, providing cover for ill-advised revenue and spending decisions that Republicans now refuse to rescind. And over the long run, Social Security is legally prohibited from adding to the deficit.
So why are Republicans insisting that resolving the fiscal showdown include Social Security benefit cuts? Perhaps they don’t understand the extent to which the middle class has already suffered. After decades of outsourcing and offshoring of jobs, tax cuts for the rich, and allowing corporations to undermine worker rights (and after nearly five years of a horrific economic downturn), it makes little sense to now force the middle class to give up even more.
It may also be pure political strategy and self-interest. Republicans know that eventually, Social Security’s own solvency problems will have to be addressed, and the rich will have to contribute to the solution, preferably by “scrapping the cap” that limits Social Security taxes to the first $110,100 of salary. Cutting Social Security benefits means a smaller solvency gap, thus reducing how much the rich will be expected to contribute to close the gap. It’s a zero-sum game, and the middle class once again draws the short straw. This is why most Democrats rightly oppose any cuts to Social Security, insisting that the program be dealt with separately.
The concept of “shared sacrifice” is a cruel joke for the middle class. The rich have escaped their fair share of taxes for too long, even as they have taken a bigger and bigger share of national income. As Thomas Piketty and Emmanuel Saez have shown, the top 1 percent has doubled its share of national income over the past 30-plus years, while the top 400 taxpayers in terms of adjusted gross income saw their average federal income tax rate fall from 29.9 percent to 16.6 percent between 1995 and 2007. The leaders of corporate America have done especially well for themselves, while wages and benefits for average working Americans stagnated or fell. From 1978–2011, CEO compensation grew more than 725 percent, substantially more than the stock market and remarkably more than the annual compensation of a typical private-sector worker, which grew a meager 5.7 percent.
The super-rich have gotten richer even as they have paid lower and lower tax rates. Meanwhile, many middle-class households have seen their wages stagnate even during economic expansions, and the current recession has put them so far back that they likely won’t even see their income recover to 2000 levels until 2018, a full two decades of lost growth.
The takeaway from all of this should be clear. For decades, the middle class has been sacrificing to make room for outsized profits captured by the very few. President Obama campaigned on creating an economy that once again works for the middle class, and he was reelected to do just that. He should have the fortitude to stand up for the middle class and say no to the chained consumer price index (CPI) and any other cuts in Social Security benefits.