Contest Backfires on Social Security Privatizer

(via AFL-CIO Now)

Oh, the sweet irony.

Pete Peterson is the conservative billionaire who is a major financier in the effort to dismantle, cut and privatize Social Security, Medicare and Medicaid. Recently he and his foundation held a contest asking folks to submit videos on why it is important to “fix” the national debt of which, he and his foundation falsely claim, Social Security is a major contributor.

Sometimes the best-laid plans for a propaganda campaign can go awry. The winner of the $500 grand prize determined by popular vote on the website came from the completely opposite side of Peterson’s cut Social Security argument.

The “Just Scrap the Cap” winning video features rapping seniors rhyming their way to the conclusion that the way to shore up Social Security’s long-term finances isn’t through cuts or privatization but by scrapping the payroll tax cap on Social Security. That means billionaires like Peterson and rich CEOs would pay the same Social Security tax that low- to upper-middle-income workers do. Currently, any income above the $113,700 cap is exempt from the Social Security tax.

Peterson’s check went to Robby Stern of Social Security Works, the group that produced the video. Stern signed it over to Social Security Works and said:

“We will use the $500 to finance our education efforts and our Scrap the Cap campaign. We want to save Social Security from Peterson and his band of wealthy supporters.”

Retiree group protests Social Security Chained CPI proposal in Conway, SC

From WPDE News Channel 15 in Conway, South Carolina

‘Scrap the cap’ to keep Social Security fair

From the Everett Herald:

Grandpa and childThe kids are all right. And so are their grandparents. Why? Because Social Security is there — for all of us. And we can make that promise even better by making sure we all pay the same tax rate for the same guarantee.

The Social Security Trustees report shows solid funding for the next 23 years. Signed into law by Ronald Reagan, one purpose of the 1982 Social Security reforms was to build up a trust fund to fund the retirement of the baby boomers. As they retired, the trust fund would eventually be spent down. Right now, the trust fund holds $2.7 trillion and is projected to grow to $2.9 trillion. After that, it will slowly shrink, as designed. And after us baby boomers fade away, Social Security will continue to be funded through payroll taxes, as it has for much of the past 75-plus years.

We need Social Security more than ever today. Half of private sector workers work for employers who don’t have any retirement plans. Only three percent of workers in the private sector have a defined benefit pension. A typical worker between the ages of 55 and 64 with a deferred contribution account has $40,000 in that account. That’s good for a monthly payment of about $280! So the only thing that soon-to-be retirees can depend upon, without question, is Social Security.

In Snohomish County, 101,000 people receive Social Security benefits — one out of seven people. Of those, seven out of 10 are retirees over age 65; 7,000 are children who have lost a working parent or live with their disabled parent or retired grandparents; and 15,000 are disabled workers.

Altogether Social Security pumps $1.5 billion a year into the Snohomish County economy. So if you want to hobble our economy and take away a job multiplier, just start cutting Social Security benefits. Unfortunately, that is exactly what President Obama, House Speaker John Boehner, most Republicans, and some Democrats, all buried inside the Washington D.C. beltway, are proposing to do.

They are trumpeting a new way of calculating inflation called the “Chained CPI.” It’s an apt name, because it chains retirees to the edge of poverty. Most of us know at least a few Social Security recipients. Their average benefit is $1,215 a month. That’s less than $15,000 a year. Two-thirds of all retirees depend on Social Security for more than half of their retirement income. Under the “Chained CPI” proposal, if you retire at age 65 and live to 90, you stand to lose over $20,000 in benefits.

Proponents tout the Chained CPI as a more accurate index of inflation. But the fact is, the existing index already underestimates necessary cost-of-living adjustments, because it assumes seniors are buying things like iPads and cars — for which prices are falling — while not giving enough weight to the cost of drugs, health care, and housing.

Taking an already inaccurate measure of inflation and reducing it further is both immoral and irresponsible. Instead of planning back-door cuts, our leaders should be working on increasing benefits. Luckily, there is an easy way to do this: it’s called “Scrap the Cap.”

Right now we pay Social Security taxes (FICA) on all wages up to $113,700. Anything above that amount is not taxed. As more income has migrated from middle class workers to the already wealthy, a lesser amount of national income is contributed to Social Security. A simple way to solve this problem is to just “scrap the cap” — that is, get rid of the tax cap on wages, so high-income executives pay the same Social Security tax rate as the typical clerk, barista, machinist, nurse, teacher, or sanitation worker. Then those additional contributions could be used to switch to the CPI-Elderly inflation index, which takes into account the spending of retirees on health care. Sen. Maria Cantwell has proposed this very idea.

Congressman Rick Larsen, for his part, has cosponsored legislation to oppose switching to the “chained CPI” and has pledged his support for “scrapping the cap.” Rep. Larsen understands the value of Social Security, and he doesn’t just proclaim this as a campaign slogan to get votes. With more people like him and Sen. Cantwell representing us in Congress, perhaps our kids’ kids will be all right, too.

John Burbank is the Executive Director of the Economic Opportunity Institute ( He can be reached at

Rep. Rick Larsen and Rep. Jim McDermott cosponsor bill to oppose chained CPI

The Chained CPI, which we’ve written about any number of times, is getting support from Congressional Republicans, President Obama, and even some Democrats. The chained CPI itself is a bit convoluted, but here’s the quick and dirty: it’s a backdoor benefit cut that will reduce Social Security benefits – and it gets worse as you get older.

The graph below shows just how big of a benefit cut the chained CPI would represent for the average retiree.

chained cpi

Given the  implications for retirees, many Democrats (and a few Republicans) have voiced strong opposition to the chained CPI, but now David Cicilline (D-RI), has proposed a bill that pushes back against the chained CPI.

The bill, H. Con. Res. 15, “expresses the sense of the Congress that the Chained Consumer Price Index should not be used to calculate cost-of-living adjustments for Social Security benefits.” Although the bill has 100+ cosponsors, currently only two representatives from Washington state have signed on to the bill, Rep. Rick Larsen (D-2) and Rep. Jim McDermott (D-7).

If you are represented by either of these two Congressmen, please let them know you appreciate their support for protecting Social Security and seniors. If not, please write to your congressional representative and ask them to support H. Con. Res. 15!

Social Security and Medicare Reports Little Changed from 2012

The projected shortfall in Medicare has fallen by almost 70 percent since 2008.

The 2013 Social Security and Medicare Trustees’ reports were little changed from 2012. The Social Security Trustees report showed a slightly larger shortfall over its 75-year planning horizon, with the projected shortfall rising from 2.67 percent of payroll in the 2012 report to 2.73 percent of payroll in the newest report. The reason for this small increase was the change in the 75 years covered with 2087 replacing 2012 in the projection period.

The projected date of trust fund depletion remained at 2033. After this date the program is projected to be able to pay slightly more than 75 percent of scheduled benefits if no changes are ever made. This ratio changes little over the remaining decades of the projection period.

The Medicare report had some positive news in that the projected shortfall dropped slightly from the 2012 report. In 2012 the projected shortfall was 1.35 percent of payroll. In the 2013 report it was down to 1.14 percent of payroll. The main reason for this decline is a slower rate for the projected growth in health care costs. The 2012 report assumed that per person Medicare expenditures would average $16,530 in 2021. The 2013 report assumes that per person expenses in 2021 will be just $16,276. This projection incorporates some of the slowdown in health care cost growth that we have seen over the last five years.

The improvement in the trustees projections for Medicare over the last five years have been striking. In the 2008 report the trustees projected a shortfall equal to 3.54 percent of payroll. This means that projected shortfall has been reduced by almost 70 percent since 2008. This is in spite of the fact that the change in the projection period would have added at least 0.2 percentage points to the projected shortfall.

One item that is often missed in the discussion of these reports is that projections of higher future costs for these programs is accompanied by projections of higher wages. Both reports include explicit projections of real wage growth in their analysis. Over a long enough time, even modest wage growth will have a large impact on living standards.

cepr SS graph

The trustees’ wage growth assumptions imply that the average real wage in 2045 will be over $68,000 (in 2013 dollars), or 55 percent higher than the $43,800 average real wage in 2013. In addition, because the trustees assume that the average work year will fall modestly through time, workers on average will enjoy the equivalent of four more days of vacation each year than workers today.

If the trustees’ assumptions about the cost of these programs prove correct and even if the projected shortfall in the programs were to be met entirely through a 5.12 percentage point increase in the payroll tax (as opposed to alternative sources of revenue or cuts in benefits) then the projection of rising wages would be little affected. Average annual wages, after deducting payroll taxes, would still be more 46 percent higher in 2045 than in 2013 ($59,400 in 2045 compared to $40,500 in 2013).

It is important to emphasize that these numbers refer to average wages. In the last three decades, the vast majority of wage growth has gone to those at the top end of the wage distribution. As a result, workers at most points along the wage distribution have seen little gain in real wages over this period. If this pattern of upward redistribution continues, workers in 2045 will see little, if any, gain in real wages. In that case, the effect of the distribution of wage gains over the next three decades will swamp the impact of any tax increases that may plausibly be implemented to support Social Security and Medicare.

It is also worth noting that even in this scenario, the projected increases in payroll taxes over the next three decades would not be hugely different than over the last three. Since 1980, the Social Security tax rate has increased by 2.24 percentage points (or about 2.8 percentage points when factoring in the higher rate on the self-employed) and the Medicare tax rate has risen by 1.9 percentage points. The total effective increase in the payroll tax since 1980 of 4.7 percentage points is only slightly less than the 5.1 percentage point increase for 2045, assuming no other changes in the programs, that would be implied by the projections in these reports.

Social Security Works WA wins video contest sponsored by conservative billionaire

pete peterson

Pete Peterson

The Peter Peterson Foundation won’t advertise this, but the winning video in their “I’m Ready” Video campaign – which had the goal of “compiling videos of people across the country letting Congress and the President know why fixing our national debt is so important” – represents the antithesis of Peterson’s “austerity agenda.”

Peterson, a Wall Street billionaire who has spent $500 million in five years  in an attempt to generate public support for slashing Social Security, Medicare, and Medicaid, sent a $500 check to Robby Stern, Chair of the Social Security Works Washington Coalition after Social Security Works – WA’s video Just Scrap the Cap won Peterson’s web video competition.

The video is a humorous plea to shore up Social Security’s long-term finances by eliminating the current FICA wage cap of $113,700. Also known as “Scrapping the Cap”, this change would require billionaires like Peterson to pay the same Social Security tax rate as the guy who shines his shoes.

“We are delighted!” said Robby Stern, winner of the contest and chair of Social Security Works Washington. “The $500 will help in our work to expose Peterson and his campaign, “Fix the Debt”, which is simply a plot to protect corporate tax breaks and the wealthy. He wants to balance the budget on the backs of senior citizens, the disabled and the rest of the 98% in our country who are struggling to get by. We will use the $500 to finance our educational efforts and our Scrap the Cap campaign here in Washington state. We want to save Social Security from Peterson and his band of wealthy supporters.”