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Home Publications Blogs Beat the Press Why Is It So Acceptable to Lie to Cut Social Security Benefits?

Why Is It So Acceptable to Lie to Cut Social Security Benefits?

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Friday, 15 October 2010 03:52

We aren't supposed to use the word "lie" in Washington, probably because the practice is so common, but let's just use normal English for a moment. NYT Roger Cohen devotes his column to a tirade against the French for their opposition to raising the retirement age. This opposition has taken the form of a general strike that has seriously disrupted the economy.

Cohen is a huge proponent of the increase -- he calls it a "no-brainer." This is fine, he is a columnist and this is his opinion. But how about getting the basic facts right? The headline and discussion in the article focus on a raise in the retirement age from 60 to 62. Cohen argues that this is necessary because life expectancy has risen 15 years since 1950.

Age 60 is not in fact the age for getting full retirement benefits in the French Social Security system. It is age 65. Age 60 is an early retirement age at which it is possible to retire with reduced benefits. It is comparable to the age 62 early retirement age in the U.S. system. Cohen is not alone in failing to make this point clear, but he certainly does raise this distortion of the debate to a higher level.

The 15 year increase in life expectancy is also deceptive. The implication is that the French expect to be retired on average for 15 years more than in 1950. Actually, much of the increase is due to reduced infant mortality rates. This does not directly affect the arithmetic of the retirement system. Much of the increase is due to more people living until retirement. This improves the finances of the retirement system. Only a portion of the increase is due to people living longer post retirement. (I don't have the breakdown for France, but here's the U.S. story.)

Cohen also includes the bizarre assertion that France has to raise its retirement age because "the Chinese don’t get the notion of retirement." Unfortunately this sort of junk is often used in arguments for cutting wages and benefits for ordinary people.

Is Roger Cohen a Neanderthal protectionist? Does trade make the world poorer? That is not standard economic theory. If it would have been possible for people to enjoy early retirement benefits in France at age 60 without trade with China, then it should be even more possible now that the French have the benefit of low-cost goods made in China.

Unfortunately Cohen's misrepresentations (we're being polite again) are the norm in this debate. Billionaire investment banker Peter Peterson routinely goes around saying that there is no Social Security trust fund. This blatant untruth should put Peterson on the top pedestal of the Economics Flat Earth Society. Instead, he is treated reverentially in elite DC circles and even wins himself invitations to the White House. 

The world is not getting poorer. Productivity is improving year by year. (France's productivity level is only slightly lower than the United States.) It is perfectly reasonable for a society to opt to take the benefit of higher productivity growth in the form of longer retirements.

This does have to be paid for, presumably primarily through taxes on wages -- in effect workers pay for their own retirement. In the United States, while Social Security cuts are talked about all the time in Washington's elite policy circles, polls routinely show that workers are actually willing to pay higher taxes to finance their retirement benefits, and that they prefer taxes to cuts. This is not a problem of people being childish. This is a problem where the elites have arbitrarily ruled out one of the key options.

Of course it is also possible to support a retirement system in part with more progressive taxation. In the United States, raising the cap (currently $106,000) on taxable wage income would go a long way to reduce the projected long-term shortfall in funding.

It is also possible to raise money from directly taxing those who have been the big winners in the current economy. A financial speculation tax could raise as much as 1 percent of GDP in the United States ($145 billion a year). This is twice the size of the projected shortfall in the Social Security benefits.

Financial speculation taxes are almost never discussed in the media even though they have been widely used. (The United Kingdom still raises 0.3 percent of GDP [$40 billion a year in the U.S.] from a tax that only applies to stock trades.) They are politically difficult because of the power of the financial industry in the United States and elsewhere.

But talking about cutting Social Security benefits, rather than raising financial speculation taxes, or other progressive taxes, cannot honestly be called making tough choices. It is making a cowardly choice. It is serving the interests of the rich and powerful at the expense of the vast majority of the population. That may be what politics is about, but it should be described accurately.

 

 

 

Comments (24)Add Comment
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written by izzatzo, October 15, 2010 6:23
This opposition has taken the form of a general strike that has seriously disrupted the economy. ... serving the interests of the rich and powerful at the expense of the vast majority of the population.


It's time to storm the Bastille. Someone call Robespierre and have the guillotines brought out from the Senior Center Wolf's Lair, then lure Marie Antoinette out with some supply side tax breaks. We're going to have a French Revolution that makes teabagger protests look like ... a tea party.
"Billionaire investment banker Peter Peterson routinely goes around saying that there is no Social Security trust fund.", Low-rated comment [Show]
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written by frankenduf, October 15, 2010 8:05
the other telling undertheme here is Cohen's sneering at functioning democracy- in a democracy, it will reflexively occur that when the majority of citizens are being exploited by an opulent minority, they will fight for corrective legislation- this is the anti-democratic essence of austerity measures- the majority of citizens are just supposed to put their heads down and take it when legislation drafted by minority moneyed interests is enacted- another oft used meme here is the antagonism against sovereignty- how dare the french, the iraqis, the afghans try to run their own countries, without propaganda pundits pontificating about how the us system is the greatest 'democracy' in the world
..., Low-rated comment [Show]
...
written by skeptonomist, October 15, 2010 8:54
What Peterson and Cohen are talking about is not paying for SS - it has already been paid for and the money is in the Trust Fund and as Dean says, workers are perfectly willing to pay more if adjustments are necessary. What Peterson and Cohen are talking about is the overall deficit and workers paying through increased SS taxes or decreased benefits for the past, present and future tax cuts for the rich. It is impossible to say how much pundits like Cohen are lying and how much they are just confused (confused people always show up in comments here), but certainly there must be a conscious strategy on the part of people like Peterson to confound the two issues. They are always looking for issues to support the contention that SS must be cut - when the economy was good it was the supposed better returns from the stock market, now it is the overall deficit. When anyone talks about "saving" SS by cutting benefits it should probably just be assumed that they are lying.
the trust fund
written by MB, October 15, 2010 9:16
About this: "Billionaire investment banker Peter Peterson routinely goes around saying that there is no Social Security trust fund."

I've been reading Kevin Phillips' Politics of Rich and Poor---well, re-reading in the sense that my eyes passed over the words while I was in college but I did not have enough life experience to appreciate the details. So a big ah-ha was learning that the Social Security payroll tax rate spiked in the 80's, officially to strengthen the program but in fact served to finance the tax cuts on the most wealthy. Kevin Phillips explains it better (http://www.amazon.com/Politics...006097396X).

So I now see the scare-nomics about the Trust Fund from a different perspective. A lightly taxed community of extremely wealthy financiers are campaigning to elbow ordinary Americans out from legitimate claims to the pie. First, the large payroll tax during the years of SS surplus reduced capacities of ordinary earners---not just from spending but also from savings. The surplus was then used to finance tax cuts, the military budget, and other largess that advantaged the group at the top at the expense of those below. And now payment is due---as planned and anticipated. They cry poor house and beneficiaries are expected to not remember the history; to not comprehend that decades of payments into a system legitimately "entitle" claimants to the commitments made for their pre-paid retirement funding. If Social Security was an underwater mortgage (which it isn't, not even close), those same financiers would fully expect the mortgagors to pay the full amount on the note, regardless. And they will go to great lengths to make that happen. But on the flip side, they expect the ordinary public to accept strategic default on Social Security, no questions asked. There is a bit of a con game going on at the same time as there are very real, very serious problems.

Good points about the increase in life expectancy as related to declines in infant mortality and how increased life spans increase the amount of workers supporting the retirement system.
...
written by brunssd, October 15, 2010 9:47
Please, all you SS trust fund deniers out there, answer the question - why is money borrowed from the working people of this country and held in USG bonds any different that money borrowed from rich folks and the Chinese government (among others)? So bonds held by the SS trust fund are worthless since it has all been spent while bonds held by others, even though THAT money has been spent as well, must be honored with the full faith and credit of the USG?

Bullshit. This is bait and switch on a cosmic level.
...
written by Matt, October 15, 2010 10:29
Great post, Dean.
..
written by purple, October 15, 2010 10:38
Roger Cohen says we should love international trade because it decreases living standards ?
...
written by pete, October 15, 2010 10:50
Well, lets just take all our future government payments and call them trust funds, if it makes you feel better. The defense trust fund, the highway trust fund, and so forth. Add em up, call them funds, create some bonds to launder the payments. It really doesn't matter. It is perhaps nice once in a while to think of the present value of our future outlays in this sense. I just don't see the benefit in calculating the present value of our futures outlays. Bottom line is taxes will pay for these SS payments, whether or not they are money-laundered through a SS administration or not.

In fact, it would make more sense to talk about the present value of future real government spending, such as defense and medical payments and so forth. It makes no sense to worry about transfer payments like SS since these do not affect output/income directly. Just taking money from one group and giving to another. This could be infinite and not really affect the economy directly. Real spending, taking rubber and steel and gasoline and shipping it overseas to murder folks, now that is truly finite.

Anyway Dean is closer to the truth now, in suggesting that other taxes can (and of course will) be used to pay social security. The admittance that the SS tax and SS payments are not linked (read your benefits statement). Once you come to this realization, the rest is easy, the fund is an interesting money laundering scheme...we are the hook for all of it, not just the shortage.
Financial Speculation Tax
written by Greg, October 15, 2010 12:14
A Financial Speculation Tax would go over well. The average American wants Wall Street to invest in businesses that'll increase job opportunities and foster economic growth, he or she doesn't want Wall Street to continue to engage in wild speculation (or computer driven flash trading) with no regard for the American economy.

Wall Street has been free riding for close to three decades as our infrastructure and economy crumbles, it's time the arrogant welfare kings on Wall Street pay their fair share. We've already bailed them out for their foolish behavior to the tune of hundreds of billions of dollars in TARP funds and with trillions of dollars from the Fed. Now is the time for a speculation tax.

If they want to speculate, they are free to do so, but it'll cost them a small fee. If it dissuades them from speculation for speculation's sake, everybody wins. Maybe then they'll invest in business opportunities that are actually real, or have a real possibility for long term growth.

Their fragile egos will have to realize they won't be coddled anymore by the average tax payer.
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written by diesel, October 15, 2010 12:21
Well written, Dean.

"It is perfectly reasonable for a society to opt to take the benefit of higher productivity growth in the form of longer retirements." And just because it is reasonable, we can be sure that this won't get done here.

"This does have to be paid for, presumably primarily through taxes on wages -- in effect workers pay for their own retirement." Shhhh! You're never supposed to say anything that even hints at the notion that mere workers could in some way deal with their live's problems and by implication, the problems of society at large. You don't want them to get the subversive idea that they can be EFFECTIVE.

"Financial speculation taxes are almost never discussed in the media even though they have been widely used." Which (speaking of lies) is one of omission.
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written by liberal, October 15, 2010 12:51
pete wrote, There is absolutely no link.

Of course there's a link. Just because the link can be broken by thugs in Congress doesn't mean there's no moral link.
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written by pete, October 15, 2010 2:52
Why insist on a link? That is the conservatives trying to adjust the payouts due to the "link." Instead, just stick to the agreed payouts , thats the moral part. I don't care who they tax or why to pay me. They can tax carbon, imports, land, whatever, increase the flat tax and put it on all income, not just salary....just pay me what they owe me. No link.
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written by diesel, October 15, 2010 8:05
For thirty years we have been told by pundits like Cohen that capitalism unleashed, freed from the stagnant layers of government restraint, would benefit all of us. Now here we are, facing retirement, and we are told there is no money in our retirement account and that because of high unemployment, it is impossible to tax the current crop of workers to cover our needs. Further, it is our own fault, since so many of us chose to be born in such a short span of time. To add insult to injury, we are told that we must work for another five years or maybe longer--we'll let you know.

Where is the promised prosperity? Is this the boon unfettered capitalism rewards us with? Where is "the good life" that was supposed to flow from the vaunted rational market? This avowed bastion of rational planning could not even anticipate the statistically predictable economic effects that accompany the baby boom's retiring.

Every thing we were told about "unregulated" capitalism has proven to be false. Why should we believe Cohen now? When someone or someones are so consistently wrong, they are either blundering incompetents or unredeemable liars. To fix a problem we first have to see things clearly, and label them what they are.
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written by BS, October 16, 2010 6:29
There is a Social Security Trust fund. Too bad all the money has been spent...

And what happenned this year when the cash out was larger than the cash in? The Trust Fund gave some bonds back to the Treasury and the Treasury then borrowed money in the marketplace (sold more US Bonds) to get cash to give to Social Security.
Lying.
written by Jim, October 16, 2010 4:34
Everything is lied about, distorted, spun and lied about again. Everything, not just SS.
Hedonics & Substitution
written by Bob D, October 16, 2010 10:05
It is through the use of Hedonics and Substitution in calculating inflation that the BLS, with emphasis on BS, manipulates the numbers to get desired results. This lowers the amount of increases that would otherwise be required.
Chinese retirement
written by Iain, October 17, 2010 4:34
Cohen also includes the bizarre assertion that France has to raise its retirement age because "the Chinese don’t get the notion of retirement."


I was recently informed by a Chinese person that, in China, there is mandatory retirement at age 60 for men, and at age 55 (if I remember correctly) for women.
Timberland boots sale
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written by Béatrice, October 20, 2010 1:00
I felt relieved reading that ! Thank you, really. Tha matter is we're fed up with 'experts' from our right-wing government telling us that there is no other solution... It's just unbearable.
Get your facts right
written by Alan Kahan, October 20, 2010 11:24
"Age 60 is not in fact the age for getting full retirement benefits in the French Social Security system. It is age 65. Age 60 is an early retirement age at which it is possible to retire with reduced benefits. It is comparable to the age 62 early retirement age in the U.S. system."

WRONG. It is not.
You get the full benefits you have earnedin France today at 60, and post-reform at 62, IF, and here there is no parallel in the US system, you have worked for 40 years as of now, and 41.5 years post-reform. If you have not spent 40 years in the workforce, even with credits for bearing children, then you are entitled to full benefits at 65 now, regardless of how long you have worked, and 67 under the post-reform system.
who do we believe?
written by john, October 22, 2010 9:55
Alan Kahn, please cite your source for the claim that the retirement age for full benefits is 60. According to NYT 'the bill raises the minimum retirement age to 62 from 60 and the age for a full pension to 67 from 65." I am dubious about the NYT claim, but equally so of WSJ's. What's your source.

Mine (from NYT) is http://www.nytimes.com/2010/10...tml?src=me
oops
written by john, October 22, 2010 9:58
What's the source for the claim that 'full benefits are due at 62.' Apologies bad for typing 60 above.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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