Obama “expands” the Social Security Conversation

President Obama’s statement last week that he supports expanding Social Security was indeed a watershed in the discussion of the program’s future. What happens next is not clear, however, not least because “expand” can mean so many things to people of different political persuasions.

We should be strengthening Social Security,” the president declared during an economic speech in Elkhart Indiana. “Not only do we need to strengthen it, it is time we finally made Social Security more generous and increase the benefits so that today’s retirees and future generations get the dignified retirement that they have earned.” Expansion, he said, should be financed by “asking the wealthiest Americans to contribute a little bit more.”

The location was important: Elkhart was the first city Obama visited after assuming the presidency, in the midst of the worst economic downturn since the Depression. Last week’s speech itself was meant to highlight the progress the economy has made since then. In staking out his new position on Social Security, “Obama is getting on board a movement that’s been brewing within the Democratic party for a while now,” write Nancy Altman and Eric Kingson, co-directors of the advocacy group Social Security Works, noting that a host of prominent figures including this year’s presidential candidates Bernie Sanders and Martin O’Malley and even Hillary Clinton (somewhat guardedly) have endorsed the idea and that Sanders and Elizabeth Warren, among others, have proposed action in Congress to expand benefits and pay for them by extending payroll tax to cover higher incomes.

Obama’s statement was a real watershed event in the long, long Washington struggle over Social Security. For more than 35 years, that discussion has been propelled by voices that want to cut back benefits and compromise their capacity to keep up wth the cost of living, reducing the program to insignificance over time. For a decade, roughly from 1996 to 2005, Washington moved dangerously close to a bipartisan consensus to partially privatize the program—until George W. Bush ventured outside the Washington bubble in an attempt to drum up grassroots support for the idea. His efforts an embarrassing failure, the rest of the capital right and center-right returned to the idea of cutting the program, pure and simple.

Pushback from the progressive wing of the Democrats has kept Social Security intact for decades, but it’s only more recently that lawmakers like Sanders and Warren have concluded that the best defense is a good offense, moving to shift the legislative conversation toward expanding the program. Obama’s statement last week brings their position into the political mainstream.

But let’s not get carried away. Republicans and the Democratic center-right aren’t going to change their positions overnight based on what an outgoing president chose to say in a quasi-valedictory speech. The only thing we know for sure is that the conversation has shifted. That doesn’t change the essential nature of the arguments, only how they are presented.

In one respect, last week’s speech only added to the conflicting signals from a president who has always operated as a centrist dealmaker. Just a few weeks ago, Obama renominated to the Social Security Advisory Board Charles Blahous, a Republican policy hand who has been promoting the downsizing of the program for decades. During his early years in office, Obama repeatedly dangled the Chained CPI as a revised formula for calculating annual Social Security benefits adjustments, in an effort to bring congressional Republicans to the table for a “grand bargain” for reducing federal deficits and indebtedness. Such a move would have significantly whittled down vital benefits for future retirees and many current ones.

If we want to understand what’s really changed, we need to ask ourselves first where Obama’s new support for expanding Social Security came from. CREDO Political Director Murshed Zaheed chalked it up to “relentless grassroots activism” in support for Social Security, and he’s undoubtedly correct. But popular support for the program—in polls, in popular mobilizations ever since the first trial balloons about cutting it under the Carter administration almost 40 years ago—has always been strong. Zaid Jilani, in The Intercept, credited the effect of Sanders’ campaign on the White House and on Hillary Clinton, as did Politico.com:

Democratic presidential front-runner Hillary Clinton’s evolution on the issue could also be traced to Sanders. Clinton initially shied away from the question of expanding the program, issuing only noncommittal statements on the issue. But after being directly challenged on the Social Security program this past February by the Sanders campaign, Clinton tweeted, “As always, I’ll defend it, & I’ll expand it.”

On Bloomberg.com, Sahil Kapur and Mike Dorning took an inside-baseball perspective. “Budget deficits have plunged since 2012, reducing pressure to cut entitlement spending,” they write, while “years of partisan warfare have meanwhile killed appetite in both parties for painful political compromises”—like, for example, sacrificing Social Security to the gods of fiscal responsibility.

All this is a bit myopic. The National Academy of Social Insurance was suggesting ways to expand Social Security as early as 2010, and the Center for Global Policy Solutions, among other groups, was in the discussion a year later. These rumblings had little to do with presidential politics or Washington budget wrangling. Americans’ ability to fund their own retirement, outside the benefits Social Security provides, was clearly eroding. Meanwhile, more and more Americans are becoming, chronologically, elderly—whether or not they are in a position to stop working. The majority of women over 70, for example, rely on Social Security for over half their income. As Kapur and Dorning note,

A 2014 Federal Reserve survey published last year found that 42 percent of American workers earning under $40,000 a year, and a quarter earning between $40,000 and $100,000, have no retirement savings.

Also last year, the White House itself released a scathing report on the advice Americans receive about their retirement savings. “An estimated $1.7 trillion of IRA assets are invested in products that generally provide payments that generate conflicts of interest,” the report concluded. “Thus, we estimate the aggregate annual cost of conflicted advice is about $17 billion each year…. A retiree who receives conflicted advice when rolling over a 401(k) balance to an IRA at retirement will lose an estimated 12 percent of the value of his or her savings if drawn down over 30 years.

The old three-legged stool of Social Security, personal savings, and employer-sponsored pensions, while far from perfect, has been reengineered into a stingy and deeply flawed system that leaves Social Security a more crucial defense than ever against old-age poverty.

Fortunately, this shift hasn’t been lost on mainstream media. While most big-media reporting on Social Security itself is still run off the business desk and therefore tends to pump up the arguments for cutting the program (just read the Washington Post’s editorial response to Obama’s speech), other departments have been documenting the disturbing evolution in the situation of the elderly and their families. A steady stream of stories in the New York Times and the Post have highlighted the plight of families stuck caring for parents who’ve run out of resources, underpaid home health care workers, and women.

Personal finance reporting has become more sensitive to the importance of Social Security in recent years as well, proffering advice on when and how older workers should apply for benefits if they want to maximize their income from the program. Even Larry Kotlikoff, an economist who has spent decades scaring the public into believing Social Security is bankrupting the nation via a model he calls “generational accounting,” has remade himself as a PBS (no less) contributor, explaining what are the best claiming strategies. (He’s changed none of his thinking on the program’s fiscal prospects, however.)

All of which highlights a basic point that occurred to many observers as early as the Reagan administration: that the window of opportunity for cutting Social Security was destined to be a short one, bounded by the baby boomers’ working years. Once that 70 million-plus generation started claiming benefits, the chances of persuading Americans—not just retirees but their already overburdoned familes—to accept a drastically pared-down program would dwindle.

This accounts for the slightly spluttery, exasperated tone of much of mainstream Washington’s response to Obama’s speech: consternation that “counterproductive” ideas like across-the-board improvements to Social Security are gaining a toehold, in the words of the austerity-minded Committee for a Responsible Federal Budget.

Cleverer minds in the anti-Social Security camp, however, understand that if the conversation is changing, they must recast their ideas to stay in it. What does it mean to make Social Security “more generous”? to “increase benefits”? Andrew Biggs of the American Enterprise Institute has proposed a plan that would gradually replace Social Security, and its progressive benefits system, with a universal, flat-rate benefit set at the poverty threshold, indexed to increase with the cost of living. Access to 401(k) accounts would be expanded, and workers over 62 would not have to pay payroll tax. Biggs would also boost benefits for current retirees with benefits below the poverty line.

There’s plenty not to like about this plan, but the most important objection is that it would turn a universal social insurance program into a poverty program—exactly the kind Republicans and center-right Democrats have enjoyed eviscerating in recent decades. Yet, it would certainly be possible, by some measures, to describe it as making Social Security “more generous”—for some recipients, at least—and better “targeted” at those who need it the most.

Doubtless, this is not what Obama had in mind in Elkhart last week. And it’s possible that his speech really will strengthen the hand of Sanders, Warren, and the many other voices hoping to achieve a more generous Social Security system—one that can better serve today’s workforce. Throughout his career, however, Obama has not been a policy innovator: rather, and often to his misfortune, he attempts to direct the conversation, then let the leadership fight over the details. Different sides of the Washington establishment will read this words in different ways, and relay their spin back out to the public. It’s quite possible that, except for some of the grumpier austerity advocates, “everybody” in town will be talking about the best way to “expand” Social Security in the coming weeks and months. If you don’t want to get stung, however, be sure to take a careful, close-up look.

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