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.
