Social Security, FDR and The Word "Progressive"
May 17, 2011 - 8:53pm ET
It’s time progressives patented the term “progressive,” and the use of Franklin Delano Roosevelt’s name and legacy. Both have been repeatedly exploited for the purpose of cutting Social Security benefits.
In “What Would FDR Do,” a paper for the Progressive Policy Institute, retirement policy expert Sylvester Schieber not only gets FDR’s legacy wrong—he gets the facts about Social Security wrong. And in exaggerating Social Security’s shortfall to make the case for regressive benefit cuts like raising the retirement, Schieber also gets the meaning of the word “progressive” wrong.
Schieber argues that Democrats are unwilling to confront Social Security’s modest funding gap, and thus are betraying FDR’s “rigorous sense of fiscal responsibility and intergenerational justice.” He accuses them of not living up to their “progressive” moniker for not more aggressively hawking Social Security “reforms.”
There is no doubt that FDR possessed a “rigorous sense of fiscal responsibility and intergenerational justice,” as Schieber says.
But it is hard to believe that Roosevelt would be as obsessed with the 75-year financial horizon of Social Security as fiscal hawks like Schieber are now. For FDR, the financing of Social Security was always a means to the end of providing workers with greater, well, Social Security. And he advocated expanding Social Security even at a time when the program’s funding was inadequate. Although Congress failed to authorize scheduled payroll tax increases four times from 1942 to 1944, drastically underfunding the program’s future expenses, in the President’s budget message on January 3, 1945, Roosevelt urged Congress to expand Social Security to workers who were not yet covered.
And while FDR isn’t alive today, his grandson James Roosevelt Jr. is, and he has an entirely different idea than Schieber of FDR’s legacy. In his testimony before the Senate Finance Committee last week, Roosevelt denounced what he called fear-mongering about Social Security’s finances. Roosevelt said that the way fears about the deficit were being used to force cuts on Social Security and Medicare was exactly the kind of demagogy that his grandfather FDR was trying to assuage when he warned that we “have nothing to fear but fear itself.” “Critics of Social Security call it ‘insolvent,’ and say ‘it’s paying out more than it’s taking in’ or there is no surplus in there.’ Fear, my grandfather said, is ‘nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance,’” Roosevelt Jr. said at the hearing, drawing a clear comparison between today’s fears about Social Security and the fears his grandfather confronted. (Click here to read the full transcript of his remarks.)
Ironically, one can hear the stoking of what FDR called “nameless, unreasoning, unjustified terror” in Schieber’s very own characterization of Social Security’s finances and their relation to the federal budget deficit. Why else would Schieber call the United States Treasury bonds in which all Social Security contributions are invested “IOUs”? Sure, it’s true that Treasury bonds are IOUs in the literal sense; they are promises that an amount of money will be paid back to a creditor. But Treasury bonds are not just IOUs that some friend has written you—they are IOUs backed by the full faith and credit of the United States government, in principal and in interest.
In practice, the effect of calling Treasury bonds IOUs in the context of Social Security is to diminish their significance and undermine public confidence in Social Security. If Schieber really thinks Treasury bonds are like regular IOUs, then he should at least be consistent, and call them that when speaking about the bonds owned by China and other foreign investors. That way it won’t unfairly single out Social Security, and add to the already epically low confidence of the public that Social Security, a program it loves, will be there for it.
Schieber even gets it wrong when comes to Social Security and the deficit. He criticizes Majority Leader Harry Reid (D-NV) and Budget Director Jacob Lew for claiming Social Security does not contribute to the deficit. Schieber admits that, when the interest on its bonds is counted, Social Security ran a surplus in 2010. “In a unified federal budget, however, interest paid on bonds is considered income to Social Security as well as an expense for government; the two exactly offset each other,” Schieber writes. What Schieber fails to note is that the federal budget has not been unified, and Social Security has been off-budget, since 1990.
Schieber errs further in asserting that Social Security begins contributing to the deficit once it is in internal deficit. In reality, even if Social Security were to go into deficit as a program, it can never contribute to the federal budget deficit, because, by law, it is not authorized to borrow. That is the source of concern about funding Social Security after 2035; once the trust fund is exhausted, it must reduce benefits immediately, rather than finance them through borrowing.
Score: Truth 3, Fear 0.
What’s more, the solutions Schieber proposes to “fulfill FDR’s legacy,” are hardly the progressive solutions he purports them to be. First, Schieber dismisses the most progressive solution for closing Social Security’s funding gap: scrapping the cap on taxable payroll for Social Security, a plan that enjoys the support of over two-thirds of the American public. He claims that making the rich pay FICA taxes on all of their earnings would “change the fundamental character of the program, and there is no serous proposal to do so.” Given the alternatives I think most Americans would disagree with his charge that scrapping the cap would destroy the fundamental character of Social Security, though I appreciate his concern for the link between benefits and earnings that ensures the program’s universal fairness. As for his second claim, I would direct him here, here and here, for evidence of serious proposals to scrap the Social Security cap.
Schieber’s idea of a more viable progressive reform is to reduce benefits for high earners. But as the Strengthen Social Security Campaign’s means testing fact sheet shows, cuts would need to dip way down to the middle class in order to achieve serious savings.
Schieber also suggests raising the retirement age to “match gains in longevity.” But as many have noted, gains in longevity have been limited to earners in the upper half of the earnings distribution. And since lower- and moderate-income workers being more likely to work in physically demanding jobs that prevent them from retiring later, raising the retirement age discriminates against the non-wealthy, by penalizing them financially and possibly forcing them onto the disability and welfare rolls. (For more on the arguments against raising the retirement age, click here for the Strengthen Social Security Campaign’s fact sheet on raising the retirement age.)
In short, there’s nothing wrong with what Schieber is trying to do. He has a lot more policy knowledge and sensitivity than other people proposing major Social Security cuts. I have seen him speak before Congress. He is an intelligent man, and is genuinely committed to the health of the program.
But Schieber’s arguments should speak for themselves. He does not need to enlist FDR or the progressive cause on his behalf, as so many other budget hawks have already tried to do—unsuccessfully.
Because Schieber does, his case is weaker.
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