Apocalypse tomorrow: The debt ceiling crisis and Social Security

The immediate crisis facing Washington D.C. is a looming August 2 deadline concerning the national debt ceiling. If Congress does not authorize an increase in the national debt, the federal government will be unable to pay out on its obligations and essentially will go into default and enter shutdown mode.

This will affect, among other things, the ability of the government to pay Social Security benefits to retirees and the disabled, and to meet its payroll obligations to federal workers.

The inability to reach a budget agreement is being labeled by many in the press as a bipartisan failure.

While many of Washington’s failures indeed are bipartisan, in this instance we have Democrats willing to cut public benefit programs way beyond what popular opinion actually supports, while Republicans are barely moving an inch on their insistence that these programs be slashed through the bone. Hardly anyone is talking about even modest tax increases on the most fortunate.

So, to the extent that the Democrats aren’t willing to capitulate completely and the Republicans aren’t willing to move much at all, you could call this a bipartisan failure to negotiate and engage in compromise.

But more accurately, the field of play right now — despite a Democratic Senate (if barely) and a Democratic President (ditto) — is clearly to the right of center. The Republicans, who often manage to outflank the Dems even when they are in the minority, are flexing muscles rippling from the 2010 midterm elections, while the Democrats act like they’re afraid of getting sand kicked in their faces.

Regardless, in the midst of all the political posturing and cowering, we’re ignoring the bigger picture here, and what’s being put on the table is scary.

It’s about (in part, at least) Social Security

Have you noticed there’s not a lot of detail in the news coverage of this situation about program and spending specifics? The (justifiable) concerns about a government shutdown and default and the aftershocks it would create on Main Street and Wall Street have obscured any national discussion about what’s at stake beyond keeping the lights on.

But make no mistake about it: One of the biggest items on the table is Social Security, even though the program has enough money to fully fund benefits for some 20 years, without raising the payroll tax or reducing scheduled benefits. President Obama, in one of his invertebrate moments, is open to “compromise” on Social Security, meaning he’s willing to negotiate over reductions in benefits.

D.C. and Social Security in 2011

Picture an America where millions of Baby Boomers are hurtling towards their retirement years. Stung by the market meltdown of the Great Recession, their own spending and buying habits, and persistent, high unemployment rates, very few are on a safe path towards building retirement savings sufficient to allow the kind of retirement they anticipated in some hazy mind’s eye. Some are now responding to this realization by devoting larger portions of their paychecks to their 401ks, IRAs, and savings accounts — assuming they are gainfully employed, that is.

For many Boomers, it means that Social Security will be a significant, perhaps primary, source of retirement age income. I say “retirement age” because it’s not clear they’ll be able to retire.

The folks in D.C. — GOP and Dems alike — know this, but we’re not hearing much about the long-term, because that’s not how the Beltway works. They also know that raising the income cap on Social Security payroll taxes would do wonders toward ensuring the long-term solvency of the program, without any reduction in anticipated benefits to individuals. Nevertheless, asking people earning more money — you know, those who are responsible for a disproportionate share of campaign contributions — to add a bit more to the public coffers is out of the question.

Meanwhile, in America’s heartland, some of the folks who are joining the clamor towards “belt-tightening” have no idea that they are endangering a major source of their eventual retirement age income.

D.C. and Social Security in 2021

Picture an America where millions of Baby Boomers now have hurtled into their retirement years. Even those who engaged in frenzied savings at middle age to build up 401ks, IRAs, and savings accounts fell short of what they really needed to save, because the game of saving for retirement strongly favors those who started young and managed to invest presciently in our casino economy.

Those assessing their retirement readiness find that Social Security benefits are a lot less than they anticipated. Many, justifiably fearful of running out of money in retirement, decide to stay at their jobs later. Accordingly, older workers are remaining in the labor force way beyond traditional retirement age. Younger folks trying to break into the job market find that there’s not a lot of room for them, in part because workers at the senior level aren’t leaving.

Meanwhile, a small percentage of older Americans — those who managed to save and invest well while benefiting from a tax structure rigged to their advantage — will retire in relative peace and comfort.

That’s America in 10 years. And 20 years, for that matter. Cuts to Social Security benefits today will only make the situation worse.

America, breathe easy

My guess is that the immediate crisis will be averted, that we’ll see some sort of budget “compromise,” and that everyone will breathe easier knowing the government won’t be closing its doors.

Having dodged that bullet, we’ll continue to ignore the bigger challenges facing us in the not-too-distant future.

***

Related posts

The humane way to fix Social Security

The press discovers the coming Boomer retirement crisis

When Boomers retire (or try to): America’s coming train wreck

3 responses

  1. David,
    You are entirely right here. After working for Social Security for 30 years I know that raising the cap would take care of the program as the actuaries have advocated for a number of years. The problem is that Congress doesn’t want to do anything to irritate the wealthy. It is also true that many SSA recipients have little to no savings or other income. It’s more true today than it was in the early years of my career when generous pensions and health insurance plans from employers provided comfortable retirement incomes. Today, it’s everyone for themselves and most folks are left with SSA benefits alone in an economy where there are few jobs for the elderly. In addition, as long as the elderly continue in jobs they can get; there will be fewer jobs for the younger members of the population. Congress’ actions have catastrophic consequences to the entire economy. They certainly aren’t acting in our best interests!

  2. Great article! There’s even another aspect. Many older workers have been “early retired:” offered the opportunity to retire with an extra bonus and advised to volunteer rather than be laid off without the bonus. This form of downsizing naturally and legally targets older workers. The worker who is over 40 and also unemployed has two strikes against him in a job search. For these people it’s not a matter of whether they can or can’t afford to retire at that age. Once out, they may not be able to get back in again.

  3. Thus is why we must do what we can to reach out to each other. If there are those we can assist with food, shelter, financial assistance, a job – anything… do so. We are in this together and can make a difference each and every day.

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