The tweaker

Dean Baker:

When President Obama links arms with Romney on Social Security, it is not good news for supporters of the program. Nor was the situation made better by the desire to “tweak” the system.

In Washington, tweak is a code word used by people who want to cut Social Security but lack the courage to say it explicitly. For example, their favorite “tweak” is changing the cost of living adjustment formula in a way that reduces retirees’ benefits by 0.3 percentage points annually. This would add up to a 3 percent cut in benefits after 10 years, a 6 percent cut after 20 years and a 9 percent cut after 30 years.

In other words, this tweak is real money, especially for the oldest beneficiaries who also tend to be the poorest. In fact, this tweak of Social Security is likely to have more impact on the income of most retirees than taking back President Bush’s tax cut on the wealthy would have on their income. The other items that are usually part of the tweak package are phasing in a further increase in the age for getting full benefits (beyond the increase to age 67 which is already in current law) and a reduced benefit formula for workers who earned more than $40,000 a year in their working lifetime.

The public has every reason to be furious at President Obama for suggesting that he would cut Social Security. We know that the retirees and near-retirees are not wealthy as a group. A recent study by the Pew Research Center found that the typical elderly household had net wealth of just over $170,000. This is slightly less than the median house price of $180,000.

That means that if the typical household headed by someone over age 65 took all of their money, they would have almost enough to pay off the mortgage on their house. They would then be entirely dependent on their Social Security check, which averages $1,200 a month, for their income. And President Obama wants to cut these people’s Social Security.

The situation is especially infuriating because the poor state of the finances of retirees and near retirees is largely the fault of the people in both the Obama and Romney camps who steered the economy into a huge ditch. In the 90s, they thought the stock bubble was cool and in the last decade they thought the housing bubble was the way to boost growth.

As a result, many middle class retirees and near-retirees saw much of their savings disappear when the stock bubble burst in 2000-2002. They took another hit when the markets crashed again at the start of the last recession. And many saw the equity in their home vanish when the housing bubble burst. In addition, recent spells of unemployment has forced many older workers to dip into their retirement savings. In other words, people who took the advice of the experts and tried to do the right thing got nailed.

The government has also badly failed workers in pushing them to rely on 401(k)s for retirement instead of traditional pensions. These tax subsidized accounts can easily siphon off more than one third of annual returns as administrative expenses. While this allows the financial industry to pocket tens of millions annually from these accounts, few workers are able accumulate substantial savings by the time they reach retirement.

Given all the harm that economic policy has done to the current generation of retirees and near-retirees, it is incredible that President Obama would tell us that we have no choice; we have to vote for someone wants to kick them in the face yet again.

6 thoughts on “The tweaker

  1. Incredible – yes. Surprising – no. Obama wants this so bad he can’t even obfuscate: “Yeah, Mitt and I are essentially agreed on SS.”

    But Biden has said there will be “no cuts” to social security.

    If you’re looking for hopey, there it is. Wonder what he’ll say tomorrow, if anything. And remember ole Joe was out ahead of the curve on DADT repeal.

    Now comes Chuck “In the pocket of Wall Street” Schumer with a declaration that the “bi-partisan consensus” on the Grand Bargain is bullshit. Whoa, Chuck, Jamie didn’t invite you to his daughter’s graduation party? Or maybe a little maneuvering around the coming battle to replace Dick Durbin as Whip. Aiming even higher?

    Anyhow, forget Dems and Republicans. They’re either corporatist supporters of the plutocracy or not. Hint D- Gang-of-8 Members Durbin, Bennett, Warner, and Conrad are long on catfood.

  2. Civics lesson: Congress spends all the money and passes all the laws. Obama can tweak or want to tweak all he wants. He can be a corporatist, a 1 percenter and a raving laissez faire Capitalist and it doesn’t mean shit to a tree. Congress spends all the money and makes all the laws. Obama doesn’t matter. Where Obama does matter is in making war. On that front Obama is far superior to ANY Republican ever born.

  3. Agreed Obama is better on FP. Still an exceptionalist eternal war militarist. But no Bomb, bomb, bomb, bomb Iran.

    That’s not really the point though, is it? Or did I miss Dean’s reference to Syria?

    Obama commissioned the Catfood Commission and appointed co-chairs Bowles and Simpson. He tried to seal the Grand Bargain with Boehner and came close to getting it done. Probably the wingnut teapartiers saved us with their intransigence on tax increases. His avatar Durbin is serving on “the Gang of 8” to bring Pete Peterson’s solution to us poor peasants.

    You guys really wore out the old “president is powerless” theme on Health Care Reform. Turns out he wasn’t powerless to cut all the backroom deals with the industry that excluded the Public Option even while he was still touting his support for it.

    I call bullshit.

  4. Most of those backroom deals were cut by aides like Emanual without Obama’s input. Or by the Congress who got what they could from the obstructionist Republicans who had the power to put a hold on all legislation put on the calendar. As you rightly state the Gang of 8 will present Obama with a finished compromise Grand Bargin which he can embrace or reject. Again, Obama can only do what the Congress allows him to do. As for Syria (forget about Dean), and Libya, you can blame the mess (civil wars) on Hillary and her partner in crime Suzanne Nossel and their “Smart Power” nonsense. They and the CIA started those wars way under everybody’s radar. As the CIA has a history of doing.

  5. Deals cut by Emanual, Geithner and Summers without Obama’s input? Someone lives in an alternate universe! I call bullshit too.

  6. imhotep:

    Poor Barry. Sounds like he was lucky if Rahm and Hillary let him walk the dog

    Rahm last night on Frontline: “Health care, even though I advocated different, he doubled down, even when the chips were down, to get something that had been elusive to other presidents for 80 years.”

    On being in the room where the sausage is made: “You know, first of all, he’ll read the brief the night before. I mean, he usually starts with, “Here’s what I think the main argument is; here’s what I think the premise of your argument,” because usually meetings don’t start without having gotten material the night before to read and study. And he’s read it, and he’s got the assumption of every argument. He may start asking the principal policy person: “What does this mean? Why is it like this? What is the consequence? Why do you think that this is as many people we can insure, this is what’s going to happen?” He’ll want to know that.”

    Yep, sounds pretty disengaged to me.

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