Obama, Warner Making Weird Mistake on Key Social Security Issue


    ( – promoted by lowkell)

    by Paul Goldman

    President Obama and Senator Warner are smart, Harvard lawyers. Thus, their position on a key Social Security is strangely so wrong as to make my head spin.

    I don’t get it. Surely, they read the US Bureau of Labor Statistics stuff at the White House and in the Senate Office Building. In recent years, their computers have been humming to develop something called CPI-E, aimed at trying to determine the real level of inflation experienced by Americans 62 and older. This is different than the CPI- Consumer Price Index, used now as the basis for the COLA (Cost of Living Adjustment) that annually adjusts social security payments upward to reflect inflation.

    The President and the Senator say using the CPI isn’t an accurate measure of inflation. Instead, they want to use “chained CPI,” which is a different CPI measure and comes in somewhat lower on an annual basis due to its methodology in determining the cost of goods and services used by most Americans.

    One of the great achievements by Democrats is not merely Social Security, but passing the law that helps adjust the payments for inflation. Many of the people on Social Security are elderly widows living on a very small amount of money a year — far less than members of Congress make every month when you include their benefits and pensions.

    The Social Security COLA has been one of the reasons many of the elderly have not become destitute, as was the case when FDR fought to pass it in the 1930’s. Back then, it was estimated that half of the nation’s elderly – if they were lucky to live to 65, which was higher than the average life span – lived in abject poverty. It is almost impossible to overestimate the amazing vision of FDR, a man whose legend is really yet to be appreciated in my view.


    The term “Social Security” was not Roosevelt’s; he saw the program as a way to insure the elderly had at least a little dignity in their later years. In the beginning, Social Security covered fewer than half of American workers: few women, even fewer minorities. And without the COLA, the program would not have been what it is today, one of the great progressive achievements in modern civilization.

    Unfortunately, the politicians in Washington several decades ago decided the way to cover their deficit spending was to appropriate the Social Security surplus – the program had a net revenue flow of payroll taxes over payments to beneficiaries – and leave special U.S. government IOU’s in the so-called “lock box.” The amount of those IOU’s, growing into the hundreds and hundreds of billions, didn’t matter as long as the Social Security program was revenue positive. They were just pieces of paper IOUs gathering dust. But the politicians knew that at some point, the Social Security program would start becoming revenue negative as the money paid out to beneficiaries began exceeding the payroll tax revenue coming in.

    In the early 1980’s, then President Ronald Reagan broke his no-tax pledge and agreed to support the largest payroll tax increase in history in order to put the program on a sounder financial footing. Democratic Senator Pat Moynihan helped convince Reagan to, in effect, save Social Security.

    But as the years passed, great advances in health care have expanded the average life span further and faster than had been anticipated. Health care costs likewise have grown far faster than the average index in consumer prices (HOLD THIS THOUGHT IN MIND BECAUSE IT WILL KEY SHORTLY IN THE DISCUSSION) due to the unique dynamics of the health care industry.

    Meanwhile, as Congresses have created trillion-dollar deficits, there has been a lot of pressure to look wherever possible to reduce the costs of all government programs to make it easier to balance the general fund of the US Government, the pool of money which pays for its operations and capital investments.

    HOWEVER – and this is key – Social Security is NOT SUPPORTED BY GENERAL FUND TAXES, but rather has its own dedicated revenue stream, SS taxes.

    THIS IS BY FDR’S DESIGN! He intentionally rejected the use of any general fund tax money to support Social Security, opting instead for a payroll tax system to cover the program at 100%. In doing this, he rejected the dominant model at the time, which had been developed by the Germans in the 1880’s. Their model, which used a combination of general fund taxation and special payroll type of taxation, had been a breakthrough achievement against the Social Darwinism of the time.

    FDR feared that if Social Security was seen as funded in any way by general taxation – as opposed to 100% contribution by employees (the employer share was seen then and now as really monies that would otherwise have gone to an employee raise) – then future generations of politicians would raid the funds.

    FAST FORWARD to the present. As a matter of law and Democratic history, Social Security should NOT BE PART IN ANY WAY of “fiscal cliff” negotiations. Why? Because Social Security de jure doesn’t contribute to the deficit in any way, shape or form.

    BUT: Because the government used all those prior surpluses to hide the true size of its operational deficit, it now has to redeem all those IOU’s from this same general fund.

    THUS: If they can figure out a seemingly “fair” way to reduce Social Security benefits, this de facto helps Washington avoid the price of its prior recklessness by reducing the amount it has to pay each year to cover its wasting the Social Security surplus. Ergo, the claim that using the “chained consumer price index” is a fairer measure of measuring real inflation, and thus a fairer basis for the Social Security COLA.

    Senator Warner has made this part of his “Gang of Eight” talks, and now the President is saying the same thing They claim that the regular CPI used today is not as accurate a measure of real inflation as the chained CPI. This is true, but…

    THE PRESIDENT AND THE SENATOR MAKE ONE BIG MISTAKE. If their goal is to have a “fairer” measure of inflation for the elderly, then why aren’t they calling for the use of the CPI-E measure created specifically to measure consumer price inflation related to the lives of the elderly? What could be fairer? Am I to believe I am the only one to actually have read the reports on CPI-E? Hardly.

    I put it to the President and the Senator: Any fairer and more accurate measure surely has to be one that measures the real world of the real people at the heart of the debate. The lives of seniors relies far more heavily on goods and services whose prices rise faster than the chained CPI the President and Senator Warner claim is fairer.

    Believe me, I get it: The President and the Senator are trying to do the right thing. They have a good track record in my book. They also have to deal with the Speaker and his posse. I feel for them.

    BUT: The current Social Security COLA understates, not overstates, the true inflation faced by seniors. This is a proven fact. The question is, can we make fiscally responsible and prudent improvements to Social Security and Medicare? Yes we can, and Americans will support them.

    Social Security didn’t cause the “fiscal cliff”: and it should not be used as a piggy bank any longer to cover the reckless spending on too many for too long in Congress.  

    Poor widows on Social Security didn’t cause the nation’s fiscal problems. They raised the children, grieved for their sons dying in war, took care of the grandkids when necessary and buried their husbands. They built America. We owe them.

    Let me be honest: For the life of me, I can’t understand why Democrats are hell bent to take $50 a year from these people this year, $50 more on top of that next year, until it really adds up a generation from now. How does this make America better? I don’t get it.

    The elderly poor getting a Social Security COLA adjustment that the government’s own experts KNOW understates the real level of senior inflation is not the cause of our fiscal problems.

    I know it is hard to deal with Mr. Boehner’s posse. I get that. But they lost the election: and that either has consequences, or why not just get rid of the vote and be done with it?


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