Return of the Repressed
Republicans Resume Attack on Social Security
In its heart of hearts, the Republican party has always hated Social Security. The most enduring and transformative legacy of Democratic President Franklin D. Roosevelt's New Deal, Social Security has always been the bone that sticks in the craw of the true Republican. Former Senator Alan Simpson (R-Wy.) once called senior citizens opposing cuts in Social Security as "greedy geezers." Social Security is a seemingly ineradicable program because of the support it provides to the elderly and disabled, and the support it therefore enjoys from the electorate.
Ineradicable, you say? Didn't U.S. Senator Rick Scott (R-Fla.) recently propose to put Social Security up for "sunsetting" every five years? He did indeed, only to be forced to backtrack by Senate Minority Leader Mitch McConnell and former President Donald Trump. However, the fact that Scott dared to touch "the third rail of American politics" indicates how deep the desire to gut Social Security lies in the Republican soul. It's an urge that can only be repressed for so long.
More prudent Republicans have long sensed that the way to undermine Social Security and its companion program, Medicare, is to propose to "reform" it so as to "make it sustainable over the long run." We're seeing a resurgence of such calls for "reform" right now. In this posting, I'll discuss two recent articles from the national press. Then I'll speculate a little about why we're hearing calls for Social Security "reform" right now and what the real danger on the horizon amounts to.
Manhattan Institute: Social Security Is 'Unsustainable'
The Manhattan Institute is a conservative propaganda output -- pardon me, a think thank -- that has long had Social Security and Medicare in its gunsights. Staffer Diana Furchtgott-Roth characterized Medicare as "clearly unsustainable" back in 2012.
Most recently, Manhattan Institute Senior Fellow Brian Riedl got an op-ed in the New York Times: "Biden’s Promises on Social Security and Medicare Have No Basis in Reality" (Also print edition, Feb 23 2023, p. A22). "Unsustainable" is one of Riedl's favorite words. He uses it three times in one article to describe the national debt and projections of shortfalls in the Social Security and Medicare trust funds. He trots out the standard conservative policy recommendations for dealing with this "crisis": keep raising the eligibility ages for Social Security and Medicare and means-test the program by capping Social Security payments to people with higher incomes -- thereby undermining the universality of the program intended by FDR.
Riedl hopes to tempt Democrats into drastic changes to Social Security and Medicare. He writes that in the 2011 budget negotiations, then "Vice President Joe Biden courageously put all taxes and spending on the table in hopes of a grand deal on deficits. With the Social Security and Medicare trust funds headed toward insolvency within 11 years, that courage is needed again."
Dean Baker's Critique of Riedl
Riedl's Times op-ed -- and the Times's decision to publish it -- got a scorching critique from Center for Economic Policy and Research senior economist Dean Baker: Does Being Balanced at the New York Times Mean Giving the Right Space to Lie?. Baker tackles Riedl's slippery use of demographic projections for increased life expectancies as a cause of funding problems: "[L]ife expectancies have not increased for everyone. As a recent report from the Congressional Research Service documented, there has been almost no increase in life expectancy at age 65 for workers in the bottom half of the income distribution." Hence, pushing the minimum age for Social Security or Medicare farther would amount to a cut in lifetime benefits paid to the working class and poor.
Baker then zeroes in on the way Riedl discusses Medicare's finances. He notes that projections of future Medicare expenses are so high because "we pay twice as much for our health care, per person, as people in other wealthy countries. This is not due to better care. People in the United States do not do better by most outcome measures." Baker also notes that the Medicare tax drawn from paychecks and paid into the Medicare trust funds is not intended to cover all Medicare payments.
"Since much of the Medicare program is not even designed to be covered by payments directly to the program, it makes no sense to include these portions of the program in complaints about Medicare’s deficit. When Riedl tells us that Medicare is projected to run a $48 trillion shortfall over the next three decades, the overwhelming majority of this projected shortfall is due to a portion of the program that is not covered by Medicare-specific taxes by design."
More on this in a minute. Let's first pause to savor the latest salvo from non-MAGA Republicanism's favorite policy wonk, former House Speaker Paul Ryan.
Paul Ryan: No Backsliding on Need for Changes in Social Security and Medicare
After the Republicans lost control of the House of Representatives in the 2018 elections, Ryan left Congress to
(1) take up a sinecure at another conservative think-tank, the American Enterprise Institute; and (2) be appointed to lucrative corporate directorships, including one at Rupert Murdoch's News Corporation. He recently was interviewed in the Washington Post ("Ryan says Biden, Trump put country at risk by swearing off changes to Medicare, Social Security"). Interviewer Patrick Marley described Ryan as having "repeatedly pushed economic policies that called for raising the eligibility age for Medicare from 65 to 67 and giving future beneficiaries set amounts of money to cover their health-care costs." Ryan continues to push these positions and blames "Trump populism" for Republican "backsliding" from their previous positions.
Demythifying the Social Security 'Crisis' with Stephanie Kelton
In her 2020 book, The Deficit Myth, Modern Money Theory (MMT) expert Stephanie Kelton devotes a whole chapter to the way discussion of the finances of Social Security and Medicare is enshrouded in political myths.
Kelton argues that the problem goes back to 1935 and the way FDR structured Social Security's finances. Remember that back then we did not yet have withholding of income taxes from workers' paystubs. Withholding only came later, during World War II. So when the FICA payroll tax funding Social Security first appeared, people would have wondered, "Where is the money being deducted from my pay envelope actually going? Will it actually be there for me when I retire?"
Roosevelt addressed this problem by funneling payroll taxes into a trust fund known as Old Age and Survivors Insurance (OASI), out of which benefits for retirees would be paid. That trust fund was subsequently joined by the Disability Insurance (DI) fund for benefits for disabled people. These trust funds invest in non-marketable U.S. Treasury bonds, which in essence are "Treasury Department IOUs—promises that the federal government will fulfill its future obligations". Social Security payments are, by law, paid out of these accounts rather than general Federal budget accounts, and for decades that gave people confidence in Social Security. But, as Kelton notes, "This reinforced the belief that payroll taxes from working people -- rather than the federal government as a whole -- was supplying the cash that kept Social Security afloat." (162-3) The Social Security trust funds are ultimately just accounting mechanisms; what really matters is the Federal government's promise to pay benefits when people retire or are disabled.
When Medicare was created in the 1960s by Lyndon Johnson's Great Society administration, it too was structured as a pair of trust funds: Hospital Insurance (HI, roughly Medicare Part A) and Supplementary Medical Insurance (SMI, Medicare Parts B and D). Money is deducted from your paycheck, goes into these funds and is subsequently paid out in benefits. But Kelton points out an interesting difference with the SMI fund. "SMI has the legal authority to pay full benefits if the trust funds are ever exhausted, and the others [the two Social Security trust funds and Medicare HI] don't." (168) Suppose that the Social Security and Medicare laws had been written to say, "We will make payments out of these trust funds, but even if their balance goes negative, the government will make all benefit payments as they come due, as backed up by the full faith and credit of the United States." If that had been the case, all the political panic which Alan Simpson, Paul Ryan and so many others -- both Democrats and Republicans -- have tried to gin up would never have been raised.
Can the Federal government make all Social Security and Medicare payments as they come due? Yes.
The Federal government is monetarily sovereign. It is the issuer of the currency; the rest of us (including lower levels of government) are mere users of the currency. Indeed, the currency is created by the Federal government when it spends into the economy to purchase goods and services in pursuit of the public purpose. (Taxation in effect returns that currency to the Federal government and extinguishes it as currency. Having to pay taxes in that currency gives people a reason to produce goods and services for sale to the government.)
So the financial ability of the U.S. government to make payments for Social Security, Medicare or anything else is never in doubt. In Stephanie Kelton's lectures, she is fond of playing a YouTube clip of a House Budget Committee hearing from 2005 in which former Federal Reserve chairman Alan Greenspan explains precisely this point to Paul Ryan, then the chair of that committee. As Kelton points out, it is only the government's lack of legal authority to make particular payments from particular government accounts that enables such a political fuss to be kicked up.
John Rekenthaler:
What If Defense Were Funded Like Social Security?
John Rekenthaler is a commentator on the website for the Morningstar mutual funds network. In a recent post, "The Two Great Myths of Social Security Reform", Rekenthaler argues along lines somewhat similar to Kelton, viz., that many aspects of the Social Security "crisis" merely reflect accounting phenomena rooted in the contingencies of how and why the Social Security trust funds were originally set up. I encourage you to read Rekenthaler's whole article, but here is a tasty excerpt:
[L]et’s conduct a thought experiment. Imagine that when the Social Security program was launched, it was financed through general revenue. In that alternative universe, President Franklin Roosevelt created a new payroll tax not to defray Social Security’s costs, but instead to expand the U.S. military, in response to Japan’s imperialist ambitions. To convince a skeptical American public that he wouldn’t break the federal budget, Roosevelt pledged to cover all current and future defense spending through his new tax. The military would be self-funding.
"The political discussion in that alternative nation would be very different from ours. Social Security’s costs would be taken for granted. The benefit would exist, payments would be made, and the country would quietly pay those bills—as we currently do with military costs. However, the “Defense Budget Trust Fund” would be heavily discussed and criticized, with debates raging about how best to “reform” military spending—as we currently do with the Social Security system.
"In short, today’s Social Security discussions are the product of arbitrary decisions that have no effect on the nation’s financial health. Whether the payroll tax is alleged to cover Social Security’s costs, or is alleged to cover the military’s costs, matters not. The distinctions are immaterial."
Why Are the Repressed Returning Now?
Recall that I began by citing Donald Trump's opposition to Rick Scott's call for putting Social Security up for re-authorization every five years. Call Trump narcissistic, call him racist, call him sociopathic -- ya gotta give the guy credit: He knows what will rile up his "base." He knows his base does not want to see their Social Security checks cut or face higher monthly Medicare premiums. After Paul Ryan left the Speakership in early 2019, we heard little from any Republicans about reforming Social Security.
But in the wake of the 2022 congressional elections, Donald Trump's star has been declining and his grip on the Republican party has begun to loosen. This has enabled other, older strands in Republican politics to re-emerge. Sensing a change in the political weather, the "Sound Finance" guys (and gals) have begun to creep out of their caves and test the winds again.
The Real Danger:
Neoliberal Democrats Buying Republican Ideas
If the Republicans capture the presidency and both houses of Congress in the 2024 elections, then, yes, the undermining of Social Security and Medicare will take center stage. Until then, however, the real danger is not the likes of the propagandists at the Manhattan Institute and the American Enterprise Institute. The real danger is that the way the Republicans are framing the political discussion will penetrate into the thinking of the neoliberal elites who run the Democratic party. Neoliberalism essentially says, "The government can't solve problems. We have to reduce the scope of what government does and turn over problem solving to the private sector." Though Paul Ryan would be aghast at being described as a liberal, 'neo-' or otherwise, the essence of his policy prescriptions would not be shocking to the Clintons (both of them), Al Gore, Barack Obama, Joe Biden -- they've all been periodically seduced by the notion that
(a) changes in the balances of the Social Security and Medicare trust funds means those programs are "going broke"; and (b) the mission of the Democratic party is to pursue a "bipartisan" "grand bargain" with the Republicans. And so we've seen:
Increases in the Social Security full-retirement age (which, since U.S. life expectancy has begun to decline, means a cut in total lifetime benefits for the average recipient).
Attempts to cut the indexing of benefits to compensate for inflation.
Taxation of Social Security benefits for higher-income people, undermining the universality of Social Security.
... and on and on.
What Do We Need to Do?
There are many places on the internet where you can go to find recommendations for how we can adapt Social Security and Medicare to enable those programs to respond to current and future challenges. I'm only going to highlight one thing as a first step: We need to change the laws governing Social Security and Medicare to ensure that the Federal government will pay benefits as they come due regardless of the accounting balance in their trust funds. In other words, change the two Social Security trust funds and the Medicare Hospital Insurance fund so that they have the same legal authority to pay as does the Medicare Supplementary Medical Insurance fund. Once we do that, we can then proceed to discuss the provision of the real resources which the elderly and disabled need and which we need to provide decent health care for all.