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Social Security and Medicare on the Chopping Block

Despite the many expressed fears that the Apocalypse awaits us and the alarmist predictions that we are about to go over the proverbial cliff when it comes to funding Medicare, Social Security and the other safety net programs, the fact is that the U.S. is awash in money, as proven by the fact that the banks and major corporations are sitting on several trillion dollars which could be used to solve the funding crisis for safety net programs in a heartbeat.

Despite the many expressed fears that the Apocalypse awaits us and the alarmist predictions that we are about to go over the proverbial cliff when it comes to funding Medicare, Social Security and the other safety net programs, the fact is that the U.S. is awash in money, as proven by the fact that the banks and major corporations are sitting on several trillion dollars which could be used to solve the funding crisis for safety net programs in a heartbeat. [Please see below for a list of additional sources for such funding.] There is absolutely no justification for cutting any of these programs. In fact they should be expanded and improved.

But the stark reality that all supporters of maintaining and expanding Medicare, Social Security, Medicaid and other safety net programs must face is this: There is a clear-cut consensus among major Congressional leaders “on both sides of the aisle” ─ and with the president being a principal actor ─ on the need to make significant cuts in these programs in the period ahead.

They are all on record in favor of imposing such cuts. The only differences are over how deep and wide the cuts will be and whether they will be coupled with an increase in revenue. But there is a growing recognition within ruling class circles that if anything is going to be achieved in shredding the safety net ─ which from their perspective is an absolute must ─ it will require bipartisan agreement. And they have proven in the past that when push comes to shove, they know how to forge such an agreement.

Consider what happened to Social Security in 1983. With President Ronald Reagan leading the way, Congress enacted sweeping changes in the Social Security system., which included raising the eligibility age for receiving full benefits from 65 to 66 and years later to 67, reducing the benefit for those who chose early retirement at 62 from 80% of full benefits to 70%, and making one-half of social security income subject to federal income tax.

Now, dial back some two years previously when Reagan’s talk to the nation addressed the need for adequately funding Social Security. On September 24, 1981, he noted:

“Some have suggested reducing benefits. Others propose an income tax on benefits, or that the retirement age should be moved back to age 68. And there are some who would simply fund social security out of general tax funds, as welfare is funded. I believe there are better solutions.”

So how did we get from there to here? The answer is simple. Reagan struck up a close relationship with the Democratic Speaker of the House Tip O’Neil and the two partnered in building public support for the changes, the rationale being that Social Security would go broke without them. An overwhelming majority of Congressional members ─ 243-102 in the House and 58-14 in the Senate ─ voted their approval.

Reagan insisted all along that cutting Social Security benefits had to be done on a bipartisan basis and he got his wish. The Democrats voted by a margin of 163 to 54 in the House and 26 to 6 in the Senate for the cuts.

Now fast forward to July, 2011 and the negotiations between President Barak Obama and Republican House Speaker John Boehner on a “grand bargain.” Both agreed on the need for significant cuts in “entitlements.” But Obama’s position was always that there would be no entitlement cuts without tax hikes and Boehner’s position ended up being no tax hikes ─ period. The opposing points of view were not reconciled and the negotiations unraveled. So there would be no reprise, at least for now, of the Reagan/O’Neil experience of the early 1980s.

So where do we go from here? It is a fact that funding for Medicare and Social Security is not sustainable in the long run without fundamental changes. But neither of the two corporate parties that run our government are even thinking about or at least talking about what those changes must be.

Exposing the False Claim That Social Security Faces a Crisis Because of Too Many Retirees and Not Enough Workers

When Social Security was adopted by Congress in 1935, there were millions of workers and no beneficiaries. As the decades rolled by, the ratio kept changing all the time. Reagan declared 1981, “Thirty years ago there were 16 people working and paying the Social Security payroll tax for every one retiree. Today that ratio has changed to only 3.2 workers paying in for each retiree. For many years, we’ve known that the program faced an unfunded liability of several trillion dollars.”

But that was because the Social Security system ─ and the same is basically true for Medicare ─ was established on a “pay as you go” basis instead of benefits being guaranteed by the federal government and paid for, if necessary, out of the general fund, irrespective of the ratio between active workers and retirees. That is why it is so imperative to demand that the federal government guarantee that all retirees, present and future, receive the federal benefits that they have worked a lifetime to earn ─ starting with Medicare and Social Security ─ without cuts imposed by politicians doing the bidding of the corporate elite.

Some commentators believe that there is no crisis for Social Security because its Trust Fund has $2.7 trillion dollars in reserve, which could be used to take care of any shortfall. But Jack Rasmus, Professor of Economics at St. Mary’s College and Santa Clara University in Northern California, contends otherwise:

“The cash payroll tax contributions have been ‘taken out’, and non-negotiable Treasury IOUs are in the Social Security Trust Fund (SSTF), but they can’t be sold or redeemed. So they are de facto IOUs. Should there be a deficit in the SSTF, the U.S. government would have to sell bonds to the private sector, increasing government debt by $2.7 trillion. It is extremely unlikely that this will happen. If the SSTF money had been invested in, say, a government public corporation (alternative energy, infrastructure, etc.), then it could have created a flow of additional income that would have added to the cash in the fund.

“The government officials cover themselves by saying they merely exchanged the payroll tax generated cash for treasury bonds, so it looks like nothing has changed. Yes, there are treasury bonds there but they are of a special type that cannot be sold to generate cash. And whatever cash returns they generate are also taken from the fund, like the payroll tax cash. Should a true deficit occur in the SSTF (sometime after 2016, or earlier if they keep payroll tax cuts going), then there’s no cash and no way to ‘cash in’ the treasury bonds to raise cash. New bonds would have to be issued which, as I said, is extremely unlikely to happen because it will increase the federal deficit by at least another $250 billion a year over ten years.

“In short, no cash in the SSTF, no way to sell securities in the fund to raise cash, no real possibility of increasing the debt hugely to generate cash when the fund starts hitting a true deficit. Thus, the only ‘alternative’ is to cut benefits, as both major parties see it. The cuts will come first for those with at least five years to go before retirement and earlier, also in the COLA for Social Security, and especially targeting social security disability recipients.”


We’re now told that the Medicare program will go broke in 12 years unless something is done to save it (proponents of the Affordable Care Act contend that legislation will extend the life of Medicare by eight years.). “The issue,” according to The New York Times (August 19, 2012), “is whether the Medicare trust fund that pays hospital bills will run out of money in 2024, as now projected, and require the program to live on the annual payroll tax revenues it receives.” The Republicans’ answer is to privatize the program through a voucher system that would enrich the insurance companies by hundreds of billions in additional profits while leaving seniors to fend for themselves. And the Democrats’ long term solution to the funding crisis? Well, they really haven’t come up with one yet.

Meanwhile support for Bowles-Simpson has re-surfaced. This proposal provides the “balance” that Obama and the Democrats have been looking for: significant cuts in federal benefits coupled with increased revenue, including additional taxes on the wealthy. A growing chorus of voices from the establishment worry that continued government paralysis and dysfunction could discredit the “free enterprise” system so severely that it could lead to independent mass action by the system’s tens of millions of victims and their supporters. They hope that after the November 6 elections, some sanity will emerge (from their point of view) and the gridlock will at last be broken, based on some variation of Bowles-Simpson. But regardless, since there is bipartisan unity among legislators (with only a relatively small number of dissenters) calling for cutting entitlements, the prospects for preventing severe cuts in the safety net from being enacted are not encouraging ─ in the absence of mass education and mobilization spearheaded by an independent movement uniting labor and its allies

The ELN’s Program for Resolving the Crisis

The Emergency Labor Network calls for:

  • Medicare For All to ensure universal coverage;
  • No cuts in Medicare, Social Security (including disability benefits), Medicaid and other vitally needed safety net programs;
  • Get rid of the Social Security payroll deductions cap so that the rich pay the tax on all their payroll earnings (wages and salaries), not just on the first $110,100;
  • Extend the levy of the payroll tax to include capital gains, interest, dividends, rents, and carried interest (which hedge fund managers make);
  • Medicaid expansion in every state;
  • Strengthen and increase Social Security so that those who end up with no pensions or reduced pensions from their years of employment will have a greater measure of retirement security;
  • Federal guarantees that the safety net programs will be adequately funded, whatever the source may be;
  • Slash the astronomical Pentagon budget, bring all the troops home now, and redirect war spending to fund safety net programs in the U.S.; no to a U.S. war on Iran or intervention in Syria.

Needless to say, it will take a struggle of massive proportions to win key parts of this program but there are no short cuts. At the same time, the growing call for establishing labor-community coalitions around demands of dire concern to the working class and the great majority of the population is a positive development. The recent call by AFL-CIO president Richard Trumka for building an independent labor movement and working more closely with labor’s partners can give impetus to this development.

Basically, there is no substitute for forming and bringing to power a new political party that speaks for the 99% instead of the two party duopoly, which represents the corporations and the rich. The need now is for the labor movement and its allies to move forward without delay to construct such a party.

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