Joseph Minarik (former chief economist of the Office of Management and Budget for eight years during the Clinton Administration) and economist Richard Wolff take on President Obama's proposed changes to Social Security.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.
President Obama's budget has been criticized for making cuts to Social Security, opening the door that has not been opened by any Democratic president prior to President Obama. Others are saying this is a balanced approach; the president needed to make certain kinds of compromises here in order to deal with both the deficit and the objective to raise taxes on the wealthy.
Now joining us to discuss and debate President Obama's budget first of all joining us now from New York is Richard Wolff. He's currently a visiting professor at the Graduate Program in International Affairs at the New School in New York. His most recent book is Democracy at Work: A Cure for Capitalism.
And joining us from Reston, Virginia, is Joseph Minarik. He's the senior vice president and director of research at the Committee for Economic Development in Washington. He was the chief economist of the Office of Management and Budget for eight years under the Clinton administration. He helped to formulate the administration's program to eliminate the budget deficit, including both the Omnibus Budget Reconciliation Act of 1993 and the bipartisan Balanced Budget Act of 1997.
Thanks for joining us, Joseph.
JOSEPH MINARIK, SENIOR VP AND DIRECTOR OF RESEARCH, COMMITTEE FOR ECONOMIC DEVELOPMENT: Thank you.
Jay: So, Joseph, let me start with you. So, first of all, what do you make of President Obama's budget proposal? Is this an unnecessary concession or unnecessary compromise?
Minarik: I think at the end of the day, we are going to have to--given the concern about Social Security, we're going to have to make Social Security sustainable for the long haul. Everybody wants Social Security to be a contributory program. People want to believe that what they have contributed in they are going to get out. If we allow the program to go too far down the road, where we are funding it with general revenues, there can be--quite possibly could be a perception that Social Security becomes a welfare program. And that is not good for the beneficaries. And I think it's quite possible that it would make the program less protectable in the political realm. So I think the president is taking a step that is necessary. I would have done it differently. But I don't see that there's much of an alternative to trying to make Social Security work in the long haul as part of the budget.
RICHARD WOLFF, PROF. EMERITUS ECONOMICS, UMASS AMHERST: Yes. I have no problem with arguments about making the Social Security system sustainable. I'd just make a couple of comments. So far, it is not only not the case that Social Security has tapped into the general fund; it's actually the other way around. Social Security has been subsidizing the general fund of the United States for many, many years.
Number two, if you're really worried about the sustainability of the Social Security system, then the way to deal with that is, for example, to raise the amount of money against which Social Security deductions are calculated. We now have a cap of $113,000, allowing all the people who earn more than that amount of money to basically escape paying into this system. If you understand that Social Security is not only a pension system for the particular person who contributes to it but has something to do with the quality of the community we live in, sustaining people who have given a lifetime of work, then it becomes a social objective and not just something to be calculated in terms of money in, money out. On those grounds, we ought to have a completely different basis for providing the care for elderly people that a civilized society ought to do as a matter of automatic commitment to even the most basic moral and ethical values.
Jay: Okay. Joseph, let's back up to Richard's point that it's the other way around, Social Security's been feeding money into the general fund, not the other way around. What's the factual basis here?
Minarik: It depends on how you look at it. Social Security flipped--I believe it was back in 2008--to the point where tax revenues going into Social Security fell below the amount of benefits being paid out. So the general fund is providing cash to Social Security so that benefits can be paid.
The argument that you'll get on two sides, one is that this is the beginning of the process of running down Social Security's trust fund, and that we can't do that too far. The other side will make the argument that all that Social Security is getting is interest and return of its prior contributions in accumulating its trust fund. So there's a question of how you define terms. There's also a question of how far we can go prudently in reducing the amount of Social Security's trust fund.
There's no question--let me add one thing--there is no question that over a long period of time the federal government in Washington did not make real the contributions that were put into the Social Security Trust Fund. I'm personally fairly proud that I was involved in the effort in the Clinton administration to reverse that. And if you go back to the last two years of the Clinton administration, fiscal years 2009 and 2010, we actually did save the amount of money that was necessary to fund the contributions into the trust fund. I wish we had continued on that path, but unfortunately we didn't.
Jay: So, Richard, what do you make of the argument the amount of money coming in doesn't equal the amount of money going out now, even if in the past it was the other way around?
Wolff: Well, again, if you lend money, which the trust fund basically did--Social Security was regularly charging Americans more money for many, many years than was necessary to pay out for those who were eligible and shoveled that money over into the general fund of the United States, then all we're seeing now is that we have begun--and we're not anywhere near through it--begun to pay back the Social Security fund, to pay back to all of the recipients the money that they paid in as young people strikes me as a strange argument to suggest that they oughtn't to see that money come back, since no one questioned that they were paying that money into the general fund in the first place.
But again let me stress we have a peculiar idea here. We charge only people only on their wage and salary income. Why do we not make a contribution to Social Security to the system from people who earn dividends, from people who earn interest, from people who earn capital gains, and for people who earn over
$113,000? I mean, what is this logic that escapes the--allows the richest in the country to escape from performing their part of what would be a social activity and a social commitment to the community they purportedly are members of?
Jay: Richard, I want to deal with that second point as a point on its own. I just don't want to let go of the first point until it's really clear.
Joseph, what do you make of this point? The capital fund owes Social Security this money. So you can't really say it's not bringing in as much as it's spending.
Minarik: Well, you can say it's not bringing in as much as it's spending, because that's the fact. The question is: is that appropriate at this point or not?
Here's the problem. One can claim and argue--and it's an arguable point--that an injustice was done, that the budget as a whole did not restrict its spending and increase its taxes so that the Social Security, the accumulation of the Social Security surplus, which occurred between 1983 or so and the late 1990s, in fact equaled the amount of money that was being contributed by taxpayers in excess of the benefits that were being paid.
The problem is that there is no way to get that money back. If you want to get the cash to pay benefits to Social Security recipients, the only way for that to happen now is for the Treasury to go into the public markets and borrow. And the problem that we have at this point is that the Treasury is borrowing excessively.
So the threat to the U.S. economy, about which a lot of people are very concerned, is that we are borrowing so much money that our accumulated debt is growing faster than our income. And obviously that is a process that cannot go on forever. So, yes, it would be wonderful if we could go back and reclaim that excess that should have gone--should have been made real in the Social Security Trust Fund, but that money is gone. It has been spent. And that's the problem.
Wolff: Yeah, I find the logic here a little bit strange. The government is borrowing excessively, the argument goes. But the use of the word excessive would have to make reference, for example, to borrowing untold quantities of money to bail out all kinds of failed banks, insurance companies, and large corporations, to try to stimulate a capitalist economy stumbling now for five and six years, to pay for extraordinarily excessive, by any human measurement I know of, wars in multiple parts of the world. So if there's an excess of borrowing, it would be strange to apply that to making good to the Social Security contributors, the money they actually put in, that was syphoned over to the government, and which now apparently can't be paid back because that same government has undertaken a vast array of borrowing for all kinds of purposes that those folks who contributed to Social Security have no part in and want no part of is kind of a strange sort of argument.
And even if you went for that, there are many ways to improve the viability of the Social Security system. I have mentioned already several ways to beef up that fund. If that were the genuine concern here and that would go into the direction of equity in terms of rich and poor that are at least as compelling as any argument given by the Obama administration to raise the top tax bracket from 35 percent to 39.6 percent, my goodness, if we're going to talk seriously about Social Security, then the funds are there. It just lacks the political will to go and get them.
Jay: Joseph, what do you make of this argument? If the problem is the overall problem of the debt and the deficit, why is this specific part of the population, people who are on Social Security, being asked to bear more of the burden of it, especially, as Richard says, they actually paid into this thing?
Minarik: Well, we're going back, I think, implicitly to a point that Richard made earlier, which is the question of taxing incomes other than wages to fund the Social Security system. And I think there are really two separate sides to that point, one of them being what is fair for Social Security, and the other being what is fair for taxation other than in Social Security.
With respect to taxing incomes other than wages and salaries for the purpose of funding Social Security, we simply have to make a choice, and it's a binary choice. Is Social Security going to be a pension system? And if it is a pension system, it would be based on income from labor, because you don't need a pension for income from capital, because the capital is its own resource. So we don't need to pay people Social Security benefits on their interest and dividends and capital gains, because they still have the assets that generated that income in the first place. They don't need a benefit. If we're going to have a pension system, and if it is going to be based on income from labor, from wages and salaries, then that is the tax base that we apply for purposes of funding Social Security.
The concern that I raised earlier, and I think it is important, is that if we go beyond that definition of a pension system--we could choose to do so. It's a choice. If we go beyond that definition of a pension system, we could find ourselves with a perception that Social Security is not an earned pension; it is, rather, a welfare program. And some people would use the term in a derogatory sense. I just want to make the point that some people will not like that interpretation of their pensions. People might perceive that as a welfare system, that they are receiving benefits that they did not earn. We do have people in this country who don't like to apply for Social Security benefits that they deserve, that they are entitled to because they don't want to be recipients of welfare. It is also the case that if the program is perceived that way, it can become subject to political attack.
So I would be concerned about the survival of Social Security, about the self-perception of people who participate in it if we cross that line. Now, we could choose to cross that line. It is a choice. I personally don't think we should do so.
Let me just add one more thing briefly, and that is, Richard, I think made a very valid point, which is if we are concerned about the overall progressivity of taxation, we don't necessarily have to try to pursue that through the Social Security payroll tax. We can pursue that through the income tax, totally separate from Social Security. And we can do that with respect to the tax rates that we charge. We can do that with respect to the tax benefits that we--now the differential tax preferences that we now give to income in the form of dividends and capital gains. And I think that should be on the table, and I think it should be discussed very seriously. We have in the past, in 1986, eliminated tax preferences for dividends and capital gains and taxed them as ordinary income. Personally, I would do that again.
Wolff: Yeah, well, I'm glad that we see eye to eye on that last point. But I really can't let go of the earlier point. Social Security is not in danger of becoming a political football. It has been. It has been attacked systematically by a whole source of people who could care less about the fine points of financing. I want to remind you of those pictures we all saw not so long ago of people carrying signs saying they don't want the government to meddle in their Medicare program and so on. People in the United States, given the quality and quantity of the news the mainstream media provide them (present company excepted) don't understand a lot of these questions real well. But they do know that either there is a public pension system awaiting them at the end of their work lives, towards which they have made a major contribution, or they don't. I think we are far from the target we need to talk other than about the actuality of whether that money is there and whether that money will be used for that purpose. Of course we could use the regular income tax. Of course we could tax all kinds of income that we don't tax now. Give you another thought. We could tax wealth at the federal level, which we don't do at this point, both as a property tax, just the way we do land and businesses at the local level in the United States. We have all kinds of tax bases that we exempt, most of them in the hands of the richest people in our society. And the fundamental question for me always comes back to: are we the kind of society that will provide a decent pension for the people as they get old if they've given a lifetime of work, or are we not? And the rest is details that I don't think in the end cut the mustard about the central question, do we or don't we. And I am very depressed and very sad that a Democratic president would begin to go down the road of cutting Social Security just after having provided the biggest bailouts in American history to the people at the very top of the system, watching the recovery of the stock market, of bank balance sheets, of profit statements, while the average Americans are figuring out how to get their kids through college. What a thing to do to go after the benefits of older people. It is a sad day in this country's history, in my opinion.
Jay: Joseph, let's just end up by talking about the specific proposal President Obama made, this idea of a chained CPI index. Maybe just quickly explain to viewers what it is and what you think of it, 'cause earlier on you said you wouldn't have gone about it this way.
Minarik: Oh, okay, you would like me to explain it.
Jay: Yeah, just very quickly, and then what your take is on it.
Minarik: Sure. Basically, the chained CPI recognizes the fact that people do not buy the same commodities over and over and over again when their prices change. If somebody buys apples, walks into the supermarket one day, and discovers that the apples that he or she normally buys are much more expensive this month, that person might buy pears instead because they have not increased in price. All of us make those kinds of choices and make those kinds of substitutions.
The consumer price index, as it stands now, assumes that people will continue to buy apples instead of pears, even if the apples are much more expensive and the pears have remained lower in price. So in that sense it's pretty much a no-brainer that the consumer price index, because it assumes that people make no adjustments, would overstate the rate of increase in prices.
So what the president would do would be to apply a so-called chained CPI, a different formula that would take into account the fact that people will change their consumption patterns if some goods or services become more expensive and other alternatives do not.
Jay: And do you favor this policy?
Minarik: I would favor it. I would note that when I said that I would do this differently, I believe that if we rather than doing a kind of a drive-by approach to Social Security instead dealt with the long-term financing problem in a comprehensive way, we could do some other things, which are included in the president's budget, but they are kind of lost in the discussion, that would not only compensate low-income and particularly long-lived elderly for the effect of a switch to the chained CPI, but also could make low-income beneficiaries better off than they are today. We have a minimum benefit in Social Security which has eroded over time. There are proposals out there which have taken the chained CPI proposal and put them together with increases in the minimum benefit that in fact would exceed the effect of the chained CPI. And then, in addition to that, as people get into their older years and as the effects of the chained CPI occur over a period of time, you could make adjustments in benefits that would compensate for the continuing effects of the lower rate of increase in the chained CPI. There are packages out there that do all of those things and make other policy changes that affect upper-income people, like, as Richard suggested earlier, increasing the amount of wage and salary income that is subject to the payroll tax, that would at the end of the day make low-income beneficiaries better off. And in addition to that, it would make the Social Security system sustainable for the long haul. And if we did that, if we took out the growing deficits that will occur in Social Security, the erosion of the trust fund, the eventual elimination of the trust fund, at which point we cut Social Security benefits across the board by law for the lowest-income beneficiaries, for the oldest beneficiaries, if we could avoid that risk, if we could take that risk off the table, I believe that the public respect for Social Security would be significantly greater, and it would be easier to protect Social Security from the kind of pressures that Richard fears over the long haul.
Jay: And just to be clear, this raise in the minimum is something you're suggesting. It's not in the budget proposal.
Minarik: Actually, there is a proposal in the budget that would do so. The problem is that because the budget is not dealing with the entire Social Security financing problem, you don't have a big comprehensive package that you can look at as a whole. And people are not paying attention to that. And if you did all of the necessary changes to Social Security at one time, you could balance everything and you could protect low-income beneficiaries in a way that you know would endure, because you would have the system taken care of.
Jay: Okay. Richard, your take on--this, I think, going to be our final statement. We're about out of time here. Your take on the chained CPI, and then any final words.
Wolff: The problem in economics is every time you try to calculate an index like this, a measurement, all kinds of measurement problems get involved. You can try to deal with them as if they didn't have political and moral and social implications, but usually you're fooling yourself, and that's the same way here. The story that was told about apples and pears and the price changing is very nice. But here's another example of where this can go. If the price of something goes down and people shift to buy more of it, part of the reason may well be that their income is lower and that they have, really, little choice but to shift from the upper price thing that they prefer and need and want to the cheaper alternative that their income now requires.
Under the plan that Obama proposes, we would then give these people already suffering an income drop that drives them to buy cheaper goods also suffer a decrease in the Social Security benefit they get because of measuring it in this way that takes into account that they bought more of the cheaper goods, not because they wanted it, but because they were forced by all kinds of circumstances to do that, which would mean that the cut in the Social Security worsens their already deteriorating economic situation. The notion of what they choose to do and why they do it is a very dangerous and slippery slope upon which to calculate the benefit to a person who's put in a lifetime of contributions.
So, again, my basic argument is: we have the resources as a society to be decent and honorable to the older folks who put in a lifetime of contributions. It is a remarkable situation at a time when the mass of people are suffering the sixth year of an economic crisis to come up no better than raising the payroll tax on January 1, hitting the people again with a sequester on March 1, and now capping it off in April by taking away what they had expected to get in Social Security. That is American austerity economics, and it is a shame that we should debate as such.
Jay: Alright. I said Richard had the last word, but Joseph, Richard disputed one thing you said about your apple-pear thing, so I'm going to give you, like, one minute just--if you want to come back on that.
Minarik: Well, I'll just take a second. I mean, if one interpreted what Richard said the wrong way, I think one could get a bad impression. The Social Security indexation of benefits has a lower bound of zero. If prices go down, benefits do not go down. If a price goes down, the rate of increase of the index might be somewhat lower, but we're not talking about cutting anybody's benefits. I'll just stop at that.
Jay: Alright. Do we agree on that as a point of fact, Richard?
Wolff: No, because the adjustment each year is--the adjustment to take into account changing prices means it will affect how much money people get. If you measure how much prices have gone up in a new way so you get a lower measurement, the increase year after year that people on Social Security gets is less than it would otherwise be if you didn't make this adjustment.
And the only reason that the Obama administration is proposing the change is precisely to save money on paying out to Social Security people. And when they show you their graphs in the president's report, it shows clearly how much he expects to save [incompr.] for Social Security benefits over the ten years that the budget foresees.
Jay: So I think we actually are agreeing here. We're agreeing that what this is is there will be less increase, which means there's less money in relation, because inflation is not completely zero. But we're agreeing on this point of fact, are we?
Jay: Okay. Cool. This is just the beginning of this discussion. And we're going to continue these kinds of discussions and debates on The Real News Network.
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Thank you very much, Joseph. Thank you, Richard.
Wolff: Thank you for the opportunity.
Jay: And thank you for joining us on The Real News Network.