The Stealth Attack on America's Best-Loved Program

As Obama's Fiscal Commission prepares for its June 30 hearing, the Roosevelt Institute's New Deal 2.0 blog invited me to participate in its Social Security's Fiscal Fitness series, which examines the soundness of the program, its relationship to the federal deficit, and the vital role it plays in America's economic future.

Washington bipartisan elites have been working to weaken Social Security since the mid-Clinton Administration. Clinton, prodded by his Treasury Secretary Robert Rubin, was on the verge of cutting a deal with Newt Gingrich to partially privatize America's most successful retirement program.

The intermediary was Clinton's White House chief of staff Erskine Bowles. The same Bowles is now the co-chair of Obama's fiscal commission -- which also has designs on Social Security. Corporate Democrats keep turning up, like bad pennies.

As I reported in my 2007 book, The Squandering of America, liberals can thank Monica Lewinsky for saving Social Security from that earlier bipartisan deal. Why? Because when the frisky Clinton was being impeached, and Congressional liberals were holding their noses and reluctantly saving him from ouster, they were in no mood to have him trash Social Security. New details have been reported in the recent book, The Pact, by Steven Gillon, about Clinton's dealings with Gingrich.

But what is it with Democrats like Bowles, Rubin, and Rubin's protégé Peter Orszag, now director of the Office of Management and Budget and another of the deficit hawks who would weaken Social Security in order to cut the deficit? Don't they get that Social Security, along with Medicare, is one of the Democrats' crown jewels? Don't they appreciate that two-thirds of elderly Americans depend on Social Security for at least half their income?

As Nancy Altman pointed out earlier in this series, the argument that Social Security is adding to the federal deficit is a bum rap. Ever since Congress in 1983 acted to anticipate the retirement of the baby boom generation by raising Social Security taxes and pushing back the retirement age from 65 to 67, Social Security has contributed trillions of dollars to a government surplus. The intent was to pre-fund the additional cost of the boomers. George W. Bush pilfered that surplus for his wars and his tax cuts for the rich, but even so, Social Security is still in great shape for at least 30 more years.

Social security taxes wages. Get wage growth back to historic postwar norms, and Social Security is in surplus forever. Restore the traditional fraction of wages that are taxed, so that affluent people do not get a free ride on part of their income, and the proclaimed crisis disappears. There is no need to further cut benefits, or further raise the retirement age, or raise taxes on working Americans. If only Citigroup's balance sheet were as healthy as Social Security's!

So why the continued political threat to America's best loved and most successful government program?

The main reason is that Wall Street looks at all that money and imagines the fees that could be collected if it were diverted to private accounts. It's no wonder that Democrats like Robert Rubin (Goldman Sachs and Citigroup) and Republicans like Peter G. Peterson (Blackstone Group) are the mainstays of the bipartisan crowd proclaiming a crisis of Social Security and promoting a cut in benefits, or privatization -- both of which would produce more reliance on Wall Street products.

These are the guys who brought us the financial collapse, with its devastating effect on pension savings, 401k's, home equity, and other private resources on which retirees depend. Now, with no sense of shame, they are going after the one part of the system that was not undermined by the calamity -- public Social Security.

This is appalling economics, but happily it is dumb politics.

Politicians relying on superficial poll results may think the American people care more about the abstract goal of budget austerity than the very real one of protecting Social Security. They are in for a big surprise.

Remember the voters who, with no appreciation of the contradiction, warned the government not to mess with Medicare? Just wait till the government tries to mess with Social Security.

If the Obama fiscal commission, as reliably reported, comes in with a grand scheme to cut social spending, including Social Security, and raise taxes on working Americans, the commissioners will be rewarded with a resounding Bronx Cheer.

Cross-posted from New Deal 2.0.