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Why Democrats Shouldn’t Put Social Security and Medicare on the Table

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Posted on Mar 21, 2013

By Robert Reich

This post originally ran on Robert Reich’s Web page.

Prominent Democrats — including the President and House Minority Leader Nancy Pelosi — are openly suggesting that Medicare be means-tested and Social Security payments be reduced by applying a lower adjustment for inflation.

This is even before they’ve started budget negotiations with Republicans — who still refuse to raise taxes on the rich, close tax loopholes the rich depend on (such as hedge-fund and private-equity managers’ “carried interest”), increase capital gains taxes on the wealthy, cap their tax deductions, or tax financial transactions.

It’s not the first time Democrats have led with a compromise, but these particular pre-concessions are especially unwise.

For over thirty years Republicans have pitted the middle class against the poor, preying on the frustrations and racial biases of average working people who can’t get ahead no matter how hard they try. In the Republican narrative, government takes from the hard-working middle and gives to the undeserving and dependent needy. 

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In reality, average working people have been stymied because almost all the economic gains of the last three decades have gone to the very top. The middle has lost bargaining power as unions have shriveled. American politics has been flooded with campaign contributions from corporations and the wealthy, which have used their clout to reduce marginal tax rates, widen loopholes, loosen regulations, gain subsidies, and obtain government bailouts when their bets turn sour.

Now five years after the worst downturn since the Great Depression and the biggest bailout in history, the stock market has recouped its losses and corporate profits constitute the largest share of the economy since 1929. Yet the real median wage continues to fall — wages now claim the lowest share of the economy on record — and inequality is still widening. All the economic gains since the trough of the recession have gone to the wealthiest 1 percent of Americans; the bottom 90 percent continue to lose ground.

What looks like the start of a more buoyant recovery is a sham because the vast majority of Americans have neither the pay nor access to credit that allows them to buy enough to boost the economy. Housing prices and starts are being fueled by investors with easy money rather than would-be home buyers with mortgages. The Fed’s low interest rates have pushed other investors into stocks by default, creating an artificial bull market.

If there was ever a time for the Democratic Party to champion working Americans and reverse these troubling trends, it is now — forging an alliance between the frustrated middle and the working poor. This need not be “class warfare” because a healthy economy is in everyone’s interest. The rich would do far better with a smaller share of a rapidly-growing economy than a ballooning share of one that’s growing at a snail’s pace and a stock market that’s turning into a bubble.

But the modern Democratic Party can’t bring itself to do this. It’s too dependent on the short-term, insular demands of Wall Street, corporate executives, and the wealthy. 

It was Bill Clinton, after all, who pushed for repeal of Glass-Steagall, championed the North American Free Trade Act and the World Trade Organization without adequate safeguards for American jobs, and rented out the Lincoln Bedroom to a steady stream of rich executives.

And it was Barack Obama who continued George W. Bush’s Wall Street bailout with no strings attached; pushed a watered-down “Volcker Rule” (still delayed) rather than renew Glass-Steagall; failed to prosecute a single Wall Street executive or bank because, according to his Attorney General, Wall Street is just too big to jail; and permanently enshrined the Bush tax cuts for all but the top 2 percent.

Meanwhile, over the last several decades Democrats have allowed Social Security taxes to grow and its revenue stream to become almost as important a source of overall government funding as income taxes; turned their backs on organized labor and labor-law reforms that would have made it easier to form unions; and then, even as they bailed out Wall Street, neglected the burdens of middle-class homeowners who found themselves underwater and their homes worth less than what they paid for them because of the Street’s excesses.

In fairness, it could have been worse. Clinton did stand up to Gingrich. Obama did get the Affordable Care Act. Congressional Democrats have scored tactical victories against social conservatives and Tea Party radicals. But Democrats haven’t responded in any bold or meaningful way to the increasingly concentrated wealth and power, the steady demise of the middle class, and further impoverishment of the nation’s poor. The Party failed to become a movement to reclaim the economy and our democracy.

And now come their pre-concessions on Social Security and Medicare.

Technically, a “chained CPI” might be justifiable if seniors routinely substitute lower-cost alternatives as prices rise, as most other Americans do. But in reality, seniors pay 20 to 40 percent of their incomes for healthcare, including pharmaceuticals — the prices of which are rising much faster than inflation. So there’s no practical justification for reducing Social Security benefits on the assumption inflation isn’t really eating away at those benefits as much as the current cost-of-living adjustment allows. 

Robert B. Reich, chancellor’s professor of public policy at UC Berkeley, was secretary of labor in the Clinton administration. Time magazine named him one of the 10 most effective Cabinet secretaries of the last century. He has written 13 books, including the best-sellers “Aftershock” and “The Work of Nations.” His latest, “Beyond Outrage,” is now out in paperback. He is also a founding editor of The American Prospect magazine and chairman of Common Cause.


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