Sunday, October 30, 2016

Hillary Clinton’s Plan to Gut Social Security

For what seems like time immemorial, candidates running for president of the United States could debate almost any issue, except for what were termed “unmentionable topics” — Medicare, Medicaid and Social Security. Unmentionable, because to bring them up for questioning meant stepping into voters’ crosshairs on an ultra-sensitive topic.

To raise the prospect of reducing any of these benefits in the past while running for office has been tantamount to committing political suicide, and yet, within the government’s budget, these programs account for the bulk of government spending.

Social Security accounts for 24 percent of the federal budget for 2014 and Medicare and Medicaid an additional 24 percent. Programs such as food stamps and unemployment accounted for another 12 percent while defense spending was just 17 percent of the budget.

Medicare, Medicaid, Social Security, Disability Insurance, Temporary Assistance for Needy Families (TANF), State Children’s Health Insurance (SCHIP) and Supplemental Security Income (SSI) all are administered by the same government department, the Social Security Administration. In 2013, the various Social Security funds that pay the benefits for all of these programs (except for retirement Social Security) began paying out more than they took in.

As members of the Baby Boomer generation continue to retire, retirement Social Security will also flip and like the other funds, begin to draw on the emergency trust reserves set up for it. Under current calculations, the Disability Insurance trust fund will be fully exhausted by 2018 — in just two years. The Medicare trust fund is projected to be exhausted by 2023. And the retirement Social Security trust fund will be fully depleted by 2033 by some estimates. Clearly, this is a crisis, and it has been building for some time.

Because even debating these issues can be considered politically “radioactive,” candidates for president have been loath to talk about them, thus ignoring what is effectively an “elephant in the room.” The causes of the shortfall are debatable, but the solutions are few.

Either benefits will have to be cut (politically the least attractive choice), fraud must be minimized (this would only result in “kicking the can down the road” for a few years), or taxes must be increased (also political suicide).

Both Republican presidential nominee Donald Trump and Democratic nominee Hillary Clinton have pledged not to touch Social Security — knowing this is a “third rail” issue for voters, but at the same time, something needs to be done.

Trump is hoping to rev up the economy by lowering taxes on the middle class and for businesses. The idea is this will stimulate spending and get our economy growing again at a clip seen prior to President Obama’s term in office. A growing economy will, in turn, produce more tax revenue (even at lower tax rates) and help make up the shortfall that these programs will experience soon.

Hillary Clinton’s plans are to raise taxes on high-income earners only — but knowing how many of those citizens (many of whom are her largest donors) take all possible steps to avoid paying taxes, it seems unrealistic that Clinton won’t have to raise taxes on the middle-class as well eventually.

Raising taxes means that middle-class earners, who are already getting squeezed economically, will spend even less, creating a downward spiral in the economy as less tax revenue comes in and taxes must be raised higher still.

Perhaps recognizing this, Clinton’s odds-on favorite to become the Secretary of the Treasury in her administration, Blackstone hedge fund CEO Tony James, wrote to Clinton’s campaign Chairman John Podesta in an email exposed by WikiLeaks, saying, “We do not believe the problem can be solved by making Social Security better funded and/or adding a higher minimum benefits for several reasons. Social Security was designed as a safety net for those facing poverty in old age. It was never meant to be a vehicle to guarantee a middle-class retirement.”

James thus has a different view of the program than that of the Social Security Administration, which says on its website that Social Security was created to “assure workers that their years of employment entitled them to a life income.”

James further detailed a plan whereby Social Security would be entirely restructured and managed through “mandatory savings accounts” administered by Wall Street companies like his own. This would represent a massive windfall for Wall Street banks and financial companies and a huge new risk for workers who are used to zero-risk accounts that the government holds.

Specifically, the Wall Street accounts would be invested in hedge funds, private equities and other risky vehicles that create the potential for losses in the accounts. There would also be significant management fees for the banks and financial institutions to manage the money.

Could this be one of the reasons why Wall Street has donated so heavily to the Clinton campaign thus far and paid Hillary Clinton so much to speak?

James was so excited by the possibility of the restructuring that he crowed to Bloomberg Businessweek, “If this gets enacted, there are going to be thousands and thousands and thousands of asset managers that will benefit… because more savings and more investment benefits all asset managers of every stripe.”

Compared with George W. Bush’s plan in 2005 for Americans to have “voluntary savings accounts” that would be essentially the same thing, this plan is not voluntary — it would be mandated by the government. Bush’s plan died a quick political death shortly after it was announced, and since that time, the issue of Social Security reform has not been discussed seriously by any presidential candidate.

Congress has tried to tackle the issue, and in 2010, it formed the Simpson-Bowles commission, which put together a plan (endorsed by President Obama) that would substantially cut $1.4 trillion in benefits from Social Security. In a paid private speech to investment bank Morgan Stanley, Hillary Clinton endorsed the Simpson-Bowles plan, saying it “put forth the right framework.”

In 2013, in another paid private speech — this time to the National Multi-Housing Council — Clinton referred to Social Security as an “entitlement program,” indicating that she clearly has a different view of Social Security than those middle-class Americans who need the funds to get them through their retirement.

In yet another paid speech, Clinton said, “Do we have to do something about entitlements? Yes. Do we have to figure out what we want to be as a nation and then pay for it? Yes. Do we have to restrain spending so that we don’t bankrupt ourselves and undermine our position at home and abroad? Yes.”

Even though Clinton has made public pledges not to touch Social Security, her statement to investment bank Goldman Sachs that it’s OK to have one position in public and another in private should strike fear into the hearts of anyone who wants to see their Social Security untouched. For many voters, this is the number one reason not to trust Hillary Clinton and not to vote for her.

The Center for Economic and Policy Research says that a primary reason for the Social Security fund shortfalls is upward redistribution of the country’s wealth — a trend that’s only accelerated in recent decades as more of the nation’s income goes to the top 1 percent of earners.

Given that Hillary Clinton is supported and funded by most of those people (and is most definitely one of them), it should make sense to the average voter that those people’s interests do not coincide with those of middle-class Americans. This is one of the most important issues of this presidential race.



No comments: