Cutting Social Security

 

The economy created just 88,000 jobs in March, down from close to 200,000 in other recent moths, for one main reason: The January 2 budget deal and the March 1 sequester that hiked taxes on working people and cut public spending.

In the January deal, payroll taxes on working people were raised by some $120 billion. The more highly publicized tax hike on the top one percent raised less than $65 billion. The sequester added another $85 billion of budget cuts. The combined economic contraction will be about $270 billion this year, and according to the Congressional Budget Office the result will be to cut economic growth roughly in half.

But the deal that Obama is trying to coax the Republicans into accepting would cut the budget at this rate for an entire decade. The economics are just insane. There is no evidence that banks are waiting to lower interest rates (which are already rock bottom) or businesses waiting to invest, pending progress on a grand budget bargain. Businesses are hesitating to invest because customers don't have money in their pockets -- and a deflationary budget deal will only make the economy worse.

The politics are worse than the economics. President Obama, violating every rule of smart negotiating, has put his final proposal on the table -- cuts in Social Security and Medicare in exchange for the Republicans' (still imaginary) agreement to raise taxes -- before the Republicans have made a single concession.

The Republican habit is well-established -- take Obama's "final" offer as the new starting point and demand further concessions. With this strategy, our president has let them take him to the cleaners for more than four years now, and is still hoping that sweet reasonableness will produce compromise. It never has and never will.

If Democrats stand for anything, it is defense of Social Security and Medicare -- America's

two most broadly beneficial and most beloved government programs -- and the president just gave away this last bit of product differentiation. You have to wonder where he is getting his advice.

Social Security benefits should be increased, not cut. The share of workers with traditional pensions is down to about 15 percent. The rest either have no pensions or have 401k plans that are not pensions at all. 401k's, like IRAs and Keoghs, are tax-sheltered savings plans. More than half of people between 55 and 64 have no pension and no retirement plan at all other than Social Security.

What we need is an increase in core Social Security benefits, and a second tier of Social Security as a universal, fully portable pension. It could be funded by raising taxes on the rich, whose effective tax rates have been steadily cut for four decades, and who now command more of our national income than ever before.

A must read:  "Expanded Social Security,"

The Beltway pundits and supporters the view that the economy can deflate its way to prosperity love to take the president and the Republicans to task for "kicking the can down the road," meaning refusing to make a grand bargain that trades cuts in social insurance for increases in taxes. But that can looks pretty good compared to what's under discussion.

Every Democrat in Congress should be standing up to the White House and refusing to back a budget that cuts a nickel from Social Security or Medicare. Yes, we need to reform those programs, but not in the context of an ill-advised set of general budget cuts that will only sandbag the fragile recovery. In the case of Social Security, reform means increasing, not cutting the income support of the elderly. In the case of Medicare, reform is spelled National Health Insurance.