President Obama definitely had a bad night when he faced Gov. Romney in Denver for the first presidential debate. However, for many listeners the worst moment was not due to his atypical inarticulateness. Rather the worst moment was when he quite clearly told the country that there was not much difference between his position on Social Security and Gov. Romney’s. He also expressed his desire to “tweak” Social Security to improve its finances.
This is very bad news to the tens of millions of people who depend on Social Security now or expect to in the near future. It’s also bad news to the hundreds of millions of people who have been counting on the Social Security system to provide a degree of financial security to their retired or disabled family members.
After all, Gov. Romney clearly does not seem to have warm feelings toward the program. His vice-presidential pick, Paul Ryan, has been the most ardent proponent of privatization in the House. If Romney is committed to Social Security, picking Representative Ryan as his running mate would be a strange way of showing it.
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.
Last month, Vice President Joe Biden took the opposite position, assuring an audience there would be no cuts to Social Security in a second Obama administration. Biden was completely unambiguous; he pledged no changes whatsoever and told his audience that he guaranteed it.
Tens of millions of people will be much happier after the next debate if President Obama can assure us that Biden was speaking for the administration. Bad economic policy from both parties has done much harm to retirees and near-retirees.
If our politics were not dominated by Wall Street we would be talking about raising Social Security not lowering it. A renewed commitment to protecting Social Security from the tweakers would at least be a big step to limit further damage.