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Obama's 'New Deal' offers to cut Social Security

Common Dreams

By Jon Queally

Reports indicate that Obama has willingly affronted public opinion, sound economics, and his political base of supporters by agreeing to make significant cuts to Social Security, health programs, education, and other programs while at the same time making some of the most odious benefits for the nation's financial elite permanent.

In a new deal - though certainly out of step with "the New Deal" - offered by the White House late Monday, President Obama showed that he'd rather cut health and social service programs for the nation's poor and elderly than allow tax rates for some of the nation's wealthiest individuals to go up.

Long holding that tax rates should go back to previous and modestly higher rates for all individuals making $250,000 or more, Obama has now given that popular promise away by offering to make the Bush tax cuts permanent for all those making $400,000 or less in exchange for a deal with Republican Speaker of the House John Boehner.

In addition, reports the Washington Post's Ezra Klein in his review of what may be in the final agreement, he says, the payroll tax cut, which middle class workers have enjoyed during the current economic down turn - and what Klein classifies as "one of the most stimulative policies" - will be allowed to lapse. Klein called it "perverse" to do such a thing.

To make up for this loss of revenue, Obama has put cuts to Social Security benefits on the table by changing the way cost-of-living adjustments are calculated. The change, known as the "chained CPI" which would alter the way payments are calculated, is a cynical ploy by the White House, say most critics, because politicians likely feel they can get away by calling it an "adjustment" rather than a "cut."

But make no mistake, say economists and experts, it's a cut. And, over the long-term, a significant one. As a recent brief by the Center for Economic and Policy Research explains:

Over time, changing to the Chained CPI would result in significant cuts to Social Security benefits: a cut of roughly 3 percent after 10 years, about 6 percent after 20 years, and close to 9 percent after 30 years. In addition, lower-income retirees would lose much larger proportions of their income than wealthy ones.

Progressives were rightly outraged by Monday's announced offer.

"Using the debt ceiling to hold the country hostage to exact otherwise unacceptable cuts in education and other vital domestic programs is disreputable policy and politics," said Campaign for America's Future co-directors Robert Borosage and Roger Hickey.

Their clear message to the Obama and other Democrats considering accepting this kind of economic plan: "No deal."

Alex Lawson, executive director of Social Security Works, which opposes cuts to the program, told the Huffington Post that moving to the chained CPI is terrible and painful policy. "Almost every elected official just spent an entire election season saying they wouldn't cut the benefits of those 55 and older. The truth is the chained CPI hits everyone's benefits on day one," he said. "It hits the oldest of the old and disabled veterans the hardest. If it wasn't being bandied about as being 'on the table,' I would guess that it was created as an office joke to see who could create the most noxious and offensive policy possible."

And as Richard Eskow, also from the Campaign for America's Future Blog, writes: "The deal being floated uses the sneaky 'chained CPI' to cut Social Security benefits - a lot - for current and future recipients. This supposed 'correction' in calculating annual cost-of-living increases makes an already-inadequate formula even less fair to the elderly and disabled."

It's a drastic cut, too: a 3.7 percent cut for the average 75 year old, a 6.5 percent cut for 85 year olds, and a 9.2 percent cut for 95 year olds.

As Rep. Keith Ellison noted in a press release, this backdoor benefit cut would result in a "$6,000 loss for retirees in the first fifteen years of retirement and adds up to a $16,000 loss over twenty-five years."

That's draconian, especially for a program that's not in immediate crisis and doesn't contribute to the deficit. And as we've written elsewhere, the "chained CPI" targets women, minorities, the very elderly, and the poor. It also his veterans and their families hard.

It's stunning that it's even being discussed.

And the Social Security cut is just a sample of what else the President included in what will be widely viewed as unnecessary concessions to the Republicans.

As the Huffington Post reports: Obama's offer would allow the payroll tax holiday to expire, meaning middle class workers will see smaller paychecks in 2013. Economists have warned that the recovery is too fragile to risk a broad tax hike on workers. It would also gradually reduce Social Security, pension and Medicare benefits seniors are due to receive, taking a small bite up front, but building up to much larger cuts over time.

Obama's concession to Republicans is opposed by a majority of Americans, according to a HuffPost/YouGov poll. Fifty-two percent of survey respondents said the payroll tax cut should be extended to avoid raising taxes on the middle class, while 22 percent said that it should be allowed to expire to help pay down the debt. Extending the payroll tax cut received bipartisan support: 64 percent of Democrats and 57 percent of Republicans in the survey said they supported the extension.

Despite widespread opposition not only within his base, but among many Republicans and independent voters, a deal along these lines looks very close to being reached.

As the The New York Times reports: "The two sides are now dickering over price, not philosophical differences, and the numbers are very close."

Eskow, for his part, a deal with this kind of outline sends the exact wrong kind of message by giving legitimacy to "right-wing myths" and repeatedly debunked economic talking points. He writes:

A deal like this would also distract the nation from the real sources of our economic difficulties - like wealth inequity, a shortage of good middle-class jobs, and the misdeeds of under-regulated banks and corporations.

No deal is acceptable that undermines our social contract - our common agreement to work together and help each other - as this one would. They've made us strong and prosperous and they must be protected.

To economic progressives, like Demos senior fellow Robert Kuttner, the reported offer from Obama fulfills the fears and worst-possible outcomes that they repeatedly warned against. That is, would Obama fall for victim, again, to Republican hostage-taking and make a terrible deal, caked in poor economics, simply to look like he was being "bi-partisan" and willing to compromise.

As Kuttner wrote just weeks ago, when Obama seemed to taking a firmer negotiating stance: The budget deal of 2011 - the one that created the automatic sequesters - has already taken $1.7 trillion out of domestic spending over a decade. There is almost nothing left to cut on the spending side of the equation, except Social Security and Medicare-which are not the prime drivers of the current deficit and which do not belong in this debate at all.

As Obama points out in his moments of resolve, we just had an election to decide whether to raise taxes on the rich, or to cut Social Security and Medicare. He won. The party that would favor the wealthy and sock the middle class yet again lost.

As the bargaining gets serious, the president has a very strong hand. But he needs to play it a lot better than he has been doing.

In that piece, Kuttner wondered if Obama could be "saved from his own impulses to cave in for the sake of splendid bipartisanship (and needlessly appeasing Wall Street)."

It looks like we have the answer. No.

Jon Queally is a staff writer for commondreams.org.