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Even if the government does go into default, Social Security still has money in its account to pay benefits. There is no reason not to send out Social Security checks unless the government raids the SS account to pay its other bills -- like payroll to Congress or something it thinks is more important than the old and disabled, or the widows and children of deceased workers.
When the media, or the politicos tell the public that the government isn't going to send out Social Security checks, they do so in order to WAKE US UP. We are now counting down the days until the government runs out of its ability to borrow any more money.
We have not been paying attention, because we do not think we ARE the government. Well, what do we think WE THE PEOPLE OF THESE UNITED STATES means? We elect these representatives, these congress people who are at loggerheads, who don't seem able to reach a compromise so that our government can pay its bills. WE do. YOU and I do. We have to light the fire under their chairs.
We have to write our congress people, sign petitions, call them on the phone, send email, tweet, however you reach your representatives. NOW IS THE TIME. Okay, I'm sorry to be be shouting. I'm a little impatient. With all of us. Especially with our so-called representatives.
We have to get to yes.

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By Edward Zelinsky

Receiving my AARP membership card was one of the truly traumatic events of my life. I had marched for civil rights. I had protested the war in Vietnam. I walked the streets for Gene McCarthy. I was a legitimate Baby Boomer. How could this have happened to me?

My wiser and more self-confident spouse took it in better stride. Doris quickly became adept at pulling out her AARP card and demanding old-age discounts, as I stood sheepishly aside.

My personal disquiet about my AARP card reinforced my deeply-seated, policy-based misgivings about the AARP. President Clinton and Speaker Gingrich could have emulated President Reagan and Speaker O’Neill by negotiating a reasonable, bi-partisan approach to Social Security. At that time, increasing the retirement ages for Baby Boomers and other similarly modest measures would have brought Social Security’s projected payments into line with its expected revenues, with only minor impacts on future retirees.

There were many reasons such a deal didn’t happen during the Clinton years, but the AARP’s strident opposition was chief among them.

As the financial problems of Social Security and Medicare became more acute, I became increasingly troubled by the AARP’s refusal to address them. The AARP’s effective opposition to reforming these entitlement programs has implemented perfectly the ethic of Baby Boomer narcissism.

I was accordingly surprised and reassured to learn that the AARP has at last acknowledged the need for us geezers, i.e., its members, to reform Social Security benefits for the financial sake of our children and grandchildren. As a mushy moderate, I am convinced that there is a balanced package of tax increases and benefit reductions which can allow the Baby Boomers to retire without bankrupting our offspring.

It is good news that the AARP has belatedly recognized this reality.

Medicare will be tougher to reform. It is now finally sinking in that the Independent Payment Advisory Board President Obama and Congress created as part of the health reform package will effectively ration medical care through its control of Medicare’s payments to health care providers. This should surprise no one: Rationing is how government outlays are controlled. Medicare’s outlays must be controlled.

The same is true of the consumer-driven approach to controlling Medicare expenses proposed by Rep. Paul Ryan. The Ryan plan would place greater responsibility on Medicare consumers to control costs. This approach is also going to be necessary to control Medicare outlays.

Determining the right mix of these two approaches is going to be a difficult task. Regrettably, neither Republicans nor Democrats are now prepared to undertake the serious enterprise of governing.

It would be good for the AARP to also raise its voice on behalf of the cause of Medicare cost reform.

However, for now, I’ll take what I can get. It is progress for the AARP, however gingerly, to acknowledge that Social Security entitlements for the elderly must be curbed in the interests of national solvency and the futures of our children and grandchildren.

But I will still step aside while Doris demands the elderly discount.

Edward A. Zelinsky is the Morris and Annie Trachman Professor of Law at the Benjamin N. Cardozo School of Law of Yeshiva University. He is the author of The Origins of the Ownership Society: How The Defined Contribution Paradigm Changed America

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By Edward Zelinsky

The United States is in the midst of a “free lunch” campaign in which Republicans and Democrats alike promise painless resolution of our budgetary problems. As a result, neither party will have an electoral mandate for the hard choices necessary to tackle our fiscal quandaries. Both parties are squandering an important opportunity to mold public opinion and set the stage for meaningful budgetary discipline.

In a recent survey of the U.S. economy, the Organization for Economic Co-operation and Development (OECD) concluded, with considerable understatement, that “the United States faces challenging budgetary prospects.”

This conclusion should surprise no one. The history and current reality are there for all to see: In 2001 and 2003, the Bush Administration and Congress reduced federal income taxes significantly. Instead of decreasing federal spending to pay for these tax reductions, the Bush Administration presided over significant increases of military and domestic outlays as well as unrestrained growth of so-called “entitlement” spending – Social Security, Medicare, Medicaid. The Obama Administration has continued and exacerbated this trend. At the state and local levels of government, budgetary prospects often even worse as unfunded pension obligations and unfinanced retiree health benefits balloon.

To be sure, there is much contemporary political rhetoric about the need for fiscal discipline. President Obama has appointed a National Commission on Fiscal Responsibility and Reform. Tea Party candidates successfully exploit growing public anxiety about budgetary deficits.

However, none of this should be taken too seriously. President Obama’s deficit commission is scheduled to report only after this November’s elections. We have become inured to public images of Tea Party activists denouncing federal spending – except for their own Social Security and Medicare payments. The House Republicans’ “Pledge to America” promises fiscal responsibility while also refusing to reduce defense spending or spending which affects seniors.

The net result has been a free lunch campaign in which Democrats and Republicans alike promise budgetary discipline but refuse to specify how they will achieve it. The bi-partisan message to the electorate is that public deficits can be controlled without pain.

This, of course, is untrue.

Undoubtedly, it is considered wise politics to promise tax reductions and vague spending restraints while ignoring the tough choices necessary to put our budgetary house in order. However, in the long run, the promise of a free lunch will prove to be poor politics.

Empty, anodyne campaigns result in elections without mandates. Postponing the real discussion until after the election forfeits the opportunity to establish an electoral basis for the painful actions necessary to eliminate federal and state budget deficits.

In ordinary times, off-year elections are low key affairs in which the President’s party typically loses some or all of the congressional seats it gained in the prior presidential election. Conventionally, such off-year elections are preceded by locally-oriented campaigns.

However, these are not ordinary times. We are barely recovering from the worst economic contraction since the Great Depression of the 1930s and confront current and projected budgetary deficits of unprecedented magnitude. In this historically unique setting, the 2010 campaign is an opportunity for the two parties to form electoral mandates by specifying how they wil

By Edward Zelinsky

Because the rate of inflation for 2009 has effectively been zero, the Social Security Administration has announced that Social Security payments will stay flat for 2010. In response, the Obama Administration has asked Congress to send every Social Security recipient an additional $250 in 2010.

This is a bad idea. The Administration’s proposal is both unfair and misfocused.

Many Americans would be delighted to have the same deal as Social Security recipients, namely, the identical cash income in 2010 that they received in 2009. To millions of newly unemployed Americans, that looks like a good deal. Not as good as being president of a bailed-out bank, but still a good deal.

For 2010, the salaries of many Americans working in the private sector are frozen or reduced. In countless cases, compensation decreases are taking the form of fringe benefits eliminated or reduced, for example, the termination of employers’ 401(k) contributions.

As the latest saying goes, for these working Americans, flat is the new up. It is inequitable for federal taxpayers to finance $250 checks in 2010 for Social Security recipients with stable incomes, but not for the working and unemployed Americans whose incomes have declined, often precipitously.

And this is before we consider the tax-free nature of most Social Security benefits.

To illustrate, compare a young married couple with a retired couple receiving Social Security benefits. Let us suppose that both of these families have annual incomes of $20,000. The members of the hypothetical young family have minimum wage jobs while the retired family receives yearly Social Security benefits of $20,000.

While the nominal, pre-tax incomes of these two families are identical, the younger couple pays FICA taxes of $1,530. In contrast, the retired couple receives all of its Social Security payments tax-free. Thus, on an after-tax basis, the younger family has substantially less income per person than the older couple.

If federal checks are to be sent to either of these couples, the younger family is the more deserving recipient. Neither of these families is rolling in dough. However, there is no reason to target federal largesse to the retired couple rather than the young working family, with the same nominal income but which pays FICA taxes on all of its income.

In effect, the younger family would, by its FICA tax payments, finance the $250 checks the President wants to send to seniors.

The Administration has suggested other programs for 2010 which make more sense than the proposed $250 check to Social Security recipients. The Administration has advocated that, in light of the poor job market, unemployment benefits be extended and that so-called COBRA subsidies also be prolonged to help the unemployed purchase continuing medical insurance from their former employers. Both of these suggestions are compelling. Indeed, the COBRA subsidy should be made permanent.

If the federal fisc provides additional relief beyond this, Congress should expand the earned income tax credit for 2010 to relieve low-income working families, like our hypothetical younger couple, of some of their tax burden.

In contrast, the proposal to send all Social Security recipients $250 is ill-conceived. This proposal is not fair to working and unemployed Americans struggling with reduced incomes and tax obligations. This proposal misdirects the focus of federal assistance. When it comes to the $250 checks for seniors, Congress should just say no.

Today we are proud to bring you Teresa Ghilarducci (who just published When I’m Sixty-Four) in conversation with Jacob Hacker (author of The Great Risk Shift). These two experts will be debating how to ensure retirement for future generations. This is part two of the which will we be publishing all week, so be sure to come back and check our exchange.

Teresa Ghilarducci taught economics for twenty-five years at the University of Notre Dame and now holds the Irene and Bernard L. Schwartz Chair of Economic Policy Analysis at the New School for Social Research. She is also the 2006-2008 Wurf Fellow at Harvard Law School. Her most recent book is When I’m Sixty-Four: The Plot against Pensions and the Plan to Save Them.

Jacob Hacker is a Professor of Political Science at Yale University and a Fellow at the New American Foundation. His most recent book is The Great Risk Shift: The Assault on American Jobs, Families, Health Care, and Retirement And How You Can Fight Back.

Dear Teresa,

I see these multiple perspectives on retirement every day, in my research and my own life. I visit my dear colleague Bob Dahl, who in his mid-90s continues to publish path breaking books on democracy and political equality. How can I talk with someone so intellectually vibrant and not want to be contributing in that way in my own old age?

And then I remember Elinor Sheridan, whom I wrote about in my book. In her seventies, she was trying to find a job because her 401(k), crushed by the stock-market decline of 2000, had already been depleted. Even with Social Security, the pension she receives from 17 years at a hospital provided a meager standard of living. Elinor had worked her whole life — as a mom and wife (divorced) and then, ironically, as a “risk manager” at the hospital — and now she was not because she wanted to but because she had to. So much for the golden years.

It is good to have someone celebrating retirement as a benefit to our society, rather than a burden on us and future generations. The labor movement may be the “folks who brought you the weekend,” but it was FDR and countless fellow campaigners for a guaranteed retirement income who who brought us retirement as we now know it. And the campaign is not over.

Retirement security is under attack. Corporations are jettisoning traditional guaranteed pensions, Congress is pouring money into tax breaks for individual benefit plans that exclude millions and mostly benefit the affluent, virtue in proposals for partial privatization of Social Security that will put the promise of secure retirement= further at risk.

But this exchange would be pretty uninteresting if all I said was “Amen,” and so let me continue in the vein of disagreement for at least a little while. I have two concerns about the Guaranteed Retirement Account (GRA) vision — the first more philosophical, the second more practical. (And I should note, as a fellow policy wonk, that GRA is a nice acronym, especially when compared with John McCain’s chosen shorthand for his health plan of last resort, GAP, or “Guaranteed Access Plan.” Note to the McCain candidacy: A plan that’s billed as filling gaps should probably have another moniker, though perhaps the McCain folks believe in truth in advertising.)

First, the more or less philosophical concern: Are GRAs the best immediate use of federal resources and the scarcely unlimited running room for new federal taxes — excuse me, “mandatory contributions”? I am not one to go in for the clash-of-generations view so common in official Washington and the news media. (After all, we all get old, and young and old alike support Social Security and say they want a secure retirement.) But I am not sure I am ready to man the barricades for a major new commitment to provide enhanced retirement income when so many needs go unmet for working age Americans and kids. For one, and I say this only half in jest, I would rather have the 5 percent of payroll proposed to fund GARs for my universal health plan
= (http://www.sharedprosperity.org/topics-health care.html). For another, Social Security provides a tattered but still crucial safety net that is sorely lacking in other areas of American economic life—most notably, health care (again, I really want that 5 percent!). My point is not that we don’t need a new campaign for retirement security — we do. It’s just that I”m not sure it should be the first priority of those seeking economic security. The aged look out for themselves pretty well in American politics. Not so the young, the disadvantaged, the cash-strapped working family — though, yes, they will all be old some day and, yes, our pension system fails them above all.

Now, the practical worry. We have a huge 401(k) complex on which millions of Americans rely. In my 2002 book, The Divided Welfare State, I described the slapdash way in which this system came into being (trust me; almost no one knew what they were getting into, though once the floodgates were opened, corporations figured it out pretty quick). But I also made the point that existing systems of social protection, however haphazardly created or inadequate in practice, are fiendishly difficult to supplant with new, more rational arrangements. I called this “path dependence.” But we could just as well call it “political reality.” And it seems to me that the political reality today is that it will be very, very hard to completely redirect existing tax breaks for 401(k) plans and create an entirely new supplementary pension system managed by the federal government.

If that judgment is correct (dispute away), then where does it leave those of us living in the reality-based policy community who recognize that the 401(k) defined contribution model is incapable of providing retirement security for all but those at the top? I argued in The Great Risk Shift thSocial Security, and (2) transform 401(k)s into something that looks like a guaranteed retirement benefit. Without going into the details, I called for making 401(k)-type accounts available to everyone, even if their employer failed to provide them; requiring automatic enrollment through the workplace; and offering progressive “matches” to supplement lower-income workers’ contributions, even if employers do not offer a standard match. And I said that all account balances should be automatically converted into annuities (a guaranteed income for the remainder of one’s life) at retirement unless someone could show they had sufficient wealth to protect themselves against outliving their assets. (providing such annuities through the post office back in the 1930s).

By the way, this would surely cost serious money – which puts it somewhat in tension with my first point about priorities. But it has the virtue that it could be done in stages, with the lowest-cost aspects (automatic enrollment; annuitization, which should be self-financing) coming \ first. Its more important virtue is that it might be possible to do at all.

Fire Away,

Jacob

Thanks for reminding me of Robert Dahl and what was unspoken, our hope we are as incisive in our nineties and in control of our time.

Please know it was both — FDR’s Social Security and union pensions (e.g. those for the Ladies Garment Workers, bricklayers, coal miners, steel, auto workers etc.) that created the middle class and middle class retirement. But, as you point out, the campaign for “decent retirement for all” is not over. Except for the wealthiest men and women, people, now in their 40s and 50s, will likely be the first U.S. history to be more at risk than their parents of experiencing a sharp drop in living standards in old age.

I bristle a bit when accused of not being a reality-based policy wonk. There is not a pension economist on the planet that will defend our system of tax breaks for savings that only help the affluent move money from taxed accounts to tax-favored accounts, costing the Treasury over $80 billion per year. Thus, it is no surprise that the tax breaks - called tax expenditures - have soared while overall savings rates keep on going down. A full 50% of the tax expenditures for 401(k)-type accounts go to only 6% of workers; those at the top earning over $100,000 per year.
70% of the tax breaks go to the top 20%. The most head banging reality of it all is that these people would have saved without the help. The current system has no basis in logic.

Who did this? Who brought old age income security under attack? I used to think it was mostly corporations spending less on pensions because they could get away with it. The shift in market power to employers and away from workers is partly the reason, but a big part of the attack comes from Congress indulging the 401(k) industry. And a dedicated, ideologically-based campaign to transform Social Security into individual accounts (my Chapter 5 covers that intricate history and, as you rightly point out, continuing saga) is the other source of the plot against pensions.

My proposal for guaranteed supplements to Social Security is based in this reality. GRAs obtains pensions for all with no additional risk or federal spending. And, they restore savings rates to the higher rates before the “debt boom” that started in the 1980s.

Philosophically we are on the same page. You didn’t say it right out, but I guess you are just as terrified as I am that high payroll taxes would cause terrible things like widespread tax evasion and an underground economy. I’ve come to appreciate how lucky we are in America that we have almost 100% employer compliance (the stray restaurant and construction sites notwithstanding) in paying social security tax.

Keeping payroll taxes low is philosophical and practical. Nonetheless, I support your plan for an additional payroll tax to pay for health care and for a mandatory 5% contribution to a GRA. First, the government will offset the 5% GRA contribution with an indexed $600 annual contribution.

Second, the “mandatory contribution” is unlike a tax, it will go into an individual’s account under that individual’s name. Third, money for the old doesn’t take away money from the young. One of my best articles has the best title - Do the Old eat the Young? (I also teach a class on social policy with the same name). The ugly fear that supporters of Social Security and pensions compete with government support for working-age Americans and kids is not well founded. You know what? Nations that pay for the old also pay for kids. It is also a pattern in American history. When American families funded their pensions and paid ever increasing Social Security taxes, they voted for increases in property taxes to pay for schools.

Thus, we can plausibly argue for a bread and roses social policy. Your great book, The Great Risk Shift, put working class families’ insecurity front and center. The kids! The kids! Only African American kids have higher poverty rates than older single women. And, you are right, over the last 4 decades, we have drastically cut old age poverty rates while more kids face poverty risks. But did bread leave the mouths of babes to feed the grandmas? No. Tax expenditures - taxes not collected for special reasons, like for oil depletion and for profits of banks operating abroad — between 1974 - 2004 tripled. And the growth in tax breaks, mostly for businesses and the wealthy, far exceeds the growth in social spending. That is where much of the money for cash-strapped working families have gone.

I agree, thought the practical reality of checking the runaway 401(k) industrial complex might be difficult, it is not impossible don’t annihilate Wall Street firms, the government will contract with for-profit professional money managers just as we do for for investing pensions for Federal Reserve employees, Texas teachers, etc. Even Chuck (in the “Talk to Chuck” campaign for Charles Schwab brokerage accounts) and other broker dealers will have something to do. Employers can still keep their 401(k) plans, but their merits have to be r al, not based on the tax breaks going to the bosses. So, though it is difficult to implement policy as if we are “starting from scratch” because of “path dependence” this 401(k) path is fairly new - the tax breaks have soared only recently. And, if we can keep tax breaks for 401(k) contributions up to $5,000 per year - not up to, in some cases, $46,000 — we only spend $25 billion per year for GRAs for all, funded with $600 federal contributions for everyone.

So, don’t throw me out of the reality-based policy community. Guaranteed Retirement Accounts, with all due respect, is a more effective, straightforward plan than your plan that relies on clever psychological jujitsu with automatic this and thats. You aim to raise pension coverage rates by taking advantage of human laziness through auto enrolling, auto annuitizing and - you should add — auto investing. Fundamentally, relying on voluntary, commercial accounts does not address huge leakages from high retail fees, leakages from churning and scams, and leakages from early withdrawals and, the biggest leak of all, the fact most employers do not bother to sponsor a pension plan at all.

The best part about the GRAs is that it addresses the two Americas. The GRAs gives every American worker with a Social Security number what only some lucky workers have. Workers with government, corporate and union defined benefit plans, and college professors in TIAA -CREF have low cost, not-for-profit financial institutions handling our pensions. The other Americans have nothing, or pay retail fees for leaky 401(k) accounts. The GRAs close that access gap - everyone has access to a low fee, professional, quasi-governmental, financial institution that guarantees an inflation-protected competitive market return.

Jacob, we can get health and pension security. No?

Teresa

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After reading this article in The American Scholar, I was inspired to create an occasional poem. This is dedicated to all my readers, on the longest night, which is also the beginning of the light.


96% of the Universe is Dark

Open the door and greet the moment
the dark begins. The dark, like a road
poured to your door
has brought to you the world,
to shelter from brilliance.

Open the door and greet the moment
the dark begins. The world spins
by a twisting dark scarf
pulled from its shoulders.

Open the door and greet
the moment the dark begins.
Every hand! All hands! To to edge!
Catch hold of the dark
that unrolls before your door.

Open your door.
Open your door. The moment.
The moment the dark begins.
All! Pull! Strive!
We must turn the earth ourselves, this night.

Sink your hands into the dark
cloth, fold upon fold.
Plunge your hands in,
your little warmed air,
coddled in closed throat,
rips from you,
breath taken by the
fierce strings.

Hold to. Hold to. Lean back and pull.
Not every door has opened this night.
Not every hand has taken hold.
Not every breath sacrificed.
But enough. Enough, if you pull. Pull!

Take hold of the night!
The dark cloth, the heavy bolt,
the hours and hours
you roll into your hands,
strand by strand,
you put away the longest night
like a beloved carpet,
rolled tight against wear.

Each takes a little inside,
a thin fiber of dark breath
hidden until called out,
when night has starved
itself into summer
and cries stars.

Come out and greet with me
the moment the dark begins
and you will have rooms and rooms
of beauty each other day,
every other day,
every other thread
all the night and day
will be yours.

----Sara Lewis Holmes (all rights reserved)

I read this poem out loud at my poetry page, A Cast of One.

Poetry Friday is hosted today by AmoXcalli.