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The ‘Fiscal Cliff’ Fix—Good, Bad, and Ugly

There’s a lot of good news in the deal negotiated by the White House and Congress that resulted in the passage of the American Taxpayer Relief Act, signed yesterday by the President.

First, we should mention as really good news, the bad stuff that is not in the deal. There is no increase in the Medicare eligibility age or a cut in the Social Security cost of living adjustment (COLA) based on an inaccurate inflation index for the elderly, the chained CPI. In other words, this deal did not target the basic programs that retirees and many of the disabled, including disabled veterans, rely on. These benefits have not been cut. This is good news because so many Americans, especially older women, who are the majority of the elderly, rely on these programs for the vast majority of their income. This is a huge victory for the large coalitions of organizations working to protect these programs from cuts and to improve their benefits. Although many pundits, CEOs, and newspaper editorial boards assume that cuts in these programs are needed to reduce the deficit, that is simply not so. Without more effective cost controls on health care in general, cutting Medicare benefits would simply shift costs from a government program paid for by workers’ life-long contributions to other retirement resources they may have and increase health care costs overall. Similarly, cutting Social Security benefits would force retirees to rely more on other retirement income or assets, which—for most retirees—have been shrinking due to the Great Recession and the slow recovery. Many retirees would simply see their standard of living fall—some would fall into poverty. The solution is not cuts to these programs, but controlling health care costs and raising more revenues. For example, removing the cap on earnings so that all workers pay the same tax rate for Social Security (the cap for 2013 is $113,700—dollars earned above that amount are not assessed any Social Security tax) would solve all of Social Security’s long-term funding shortfall (a shortfall not expected to occur for another 20 years anyway).

More good news: Important Obama tax credits for low and middle income families, such as the expanded child tax credit, the expanded Earned Income Tax Credit, the American Opportunity Credit–a tuition tax credit—are renewed for five years. And the Bush tax cuts for the rich, which President Obama had previously agreed to extend for two years through the end of 2012, have now been eliminated for individuals making more than $400,000 per year and married couples making more than $450,000 per year. The ending of this cut for the rich, in place since the early years of the Bush administration, amounts to the first significant increase in income tax rates in many years. In addition some cuts in allowable exemptions will affect those earning above $250,000. Compared with policy current as of December 31, tax rates on dividends and capital gains are also higher than they were for higher income filers (increased from 15 percent to 20 percent).  The tax rate on estates valued at $5 million and up ($10 million for married couples) has increased from 35 percent to 40 percent. These higher rates, along with the lower income taxes for everyone earning less than $250,000, have been described as “permanent,” which should provide some sense of security going forward. (Of course, Congress could change these rates at any time—but they don’t have a sunset date as the original Bush tax cuts did.)

Another important positive is the extension of federal unemployment benefits for those looking for work for more than 26 weeks, preventing cutting off benefits for 2 million unemployed and giving them a lifeline for another 12 months.

Some of these provisions are also the bad news: had the fiscal cliff not been negotiated away, we would have fallen over the cliff, and tax rates on estates, dividends, and capital gains would be higher yet, and the income level for the elimination of the tax rate cuts would have corresponded to the level the President campaigned on ($200,000 for individuals, $250,000 for married couples), so some critics may feel the White House lost tax revenues here that it should have held onto. After all, reducing a deficit can be done either by cutting spending or by increasing revenues, and, for women, who depend so much on government programs (Title X family planning funds, for example, or services for domestic violence victims) any loss in potential revenue and failure to harvest new revenues likely means bigger future cuts to programs they rely on.

Other bad news: the payroll tax cut was not extended.  For the past two years, most workers paid a contribution deducted from their paychecks of 4.2 percent of their earnings for Social Security instead of the normal 6.2 percent. This reduction, always seen as temporary and originally passed for one year, and then extended for a second, helped to stimulate the economy during the weak recovery of 2011 and 2012, by adding about $120 billion to consumer demand each year (not counting multiplier effects). What this means is that many low and middle earners will actually see their taxes increase—they will still get the income tax rate cuts that are now permanent and the Obama tax credit expansions but those will be more than offset by the payroll tax increase that supports Social Security. This is bad news for millions of families and for the overall economy, which still needs more stimulus, not less.

The ugly is what remains to be negotiated: the sequester and increasing the U.S. Government’s borrowing authority. The sequester is a nine-year planned cut in expenditures of approximately $110 billion per year, including both defense spending (50 percent) and discretionary non-defense spending (50 percent) that would have gone into effect automatically on January 1, 2013, had this fix, which extends that deadline 2 months, not gone through. A two-month delay is good because those are huge cuts in spending that could trigger an economy-wide downturn, but the delay may not be long enough to allow the crafting of good alternatives.  In fact, the just-inked deal includes $12 billion in spending cuts that are a down payment on future anticipated cuts.

At the same time, Treasury Secretary Timothy Geithner has announced that the U.S. Government has now reached its borrowing limit and is using extraordinary measures to make sure we can pay all our bills. While many of the pundits and CEOs mentioned above, as well as some centrist members of Congress from both parties, are arguing for cuts in spending rather than more revenues as a way to downsize our deficits, it is the Republican members of Congress aligned with the Tea Party who are demanding significant cuts in federal spending, particularly in Social Security, Medicare, and Medicare, in exchange for raising the debt ceiling. Perhaps they have not seen the survey research that shows that adults of all political parties (including the Tea Party) oppose cuts in benefits provided by these programs.

In the next two months we are certain to see some more really big battles to protect critical programs for all Americans, programs which are even more essential for women.

Heidi Hartmann is the President of the Institute for Women’s Policy Research.

An Unbalanced Debt Deal: Cutting Vital Programs Does Not Address the Deficit

The deal to raise the debt ceiling that may or may not have been reached between President Obama and Speaker of the House John Boehner should be rejected by members of the House and Senate if it is as unbalanced as is being reported in the press. Supposedly it includes no tax increases and that makes it unbalanced on its face. Rather it includes a promise of future tax reform in exchange for immediate cuts to vital programs.

In general, the White House has been trying to get agreement with Republicans in Congress to balance budget cuts with tax increases as a way to tame annual deficits and contribute to bringing the accumulated debt down as a share of Gross Domestic Product (GDP). The White House was asking for $4 trillion in cuts and revenue increases over 12 years, but numbers discussed recently are somewhat more modest and talk of cuts, not tax increases, has dominated.

While the Republicans have refused to accept tax increases, the President has been willing to put large cuts on the table, even suggesting significant cuts in well-loved programs such as Social Security and Medicare. This inclination exists despite the White House’s insistence that Social Security does not contribute to the budget deficit and its Trustees projection that the program will have sufficient funds to pay benefits in full through 2036, even if no changes are made. While Medicare’s future shortfalls are expected to contribute to future budget deficits—if health care costs are not brought under better control—the Trustees of the two plans project that Medicare can pay all benefits through 2024, and an Actuary Office within DHHS moved their estimate from 2017 to 2029 due to the passage of health care reform, even if no further changes are made on the benefit or revenue side.

Any deal that makes significant cuts to the benefits provided by these programs should be rejected. Women are the majority of those receiving benefits from both Medicare and Social Security, primarily because they live longer than men and these programs primarily serve those in their 60s and beyond. IWPR research shows how much women rely on Social Security. More than two-thirds of all women aged 65 and older rely on Social Security for half or more of their income. For men that age, the share is more than half.

Among the cuts to Social Security that may be included in the deal, as reported in the media, is a shift in the cost of living adjustment (COLA) to a smaller measure of inflation which is less accurate than the current price index used to adjust Social Security benefits. Health and aging experts agree that elders face higher than average price inflation because they consume so much health care, yet the proposed switch to the “chained CPI” would reduce benefits.  According to the National Women’s Law Center (NWLC), at age 65 the chained CPI would reduce benefits by 1 percent and, by age 95, it would result in a 10 percent reduction of benefits. Women are twice as likely as men to live to age 95, meaning a benefit cut that accumulates over time, as the chained CPI does, would especially hurt women.

Raising the eligibility age for either Social Security or Medicare amounts to a disastrous cut to seniors and future retirees, who have paid for these benefits throughout their lives. Every one year increase in the eligibility age for Social Security amounts to a seven percent cut in benefits across the board. Lack of health insurance is an enormous problem for older adults. Rates of employer-sponsered health insurance coverage decline beginning at age 50—and continue to decline until the Medicare eligibility age (65) is reached. Raising the eligibility age for Medicare would prolong the period without insurance coverage that many experience just as their health care needs are increasing.

The debt ceiling needs to be raised to enable the federal government to meet obligations it has already incurred. Congress has already approved the budget expenditures that require the ceiling to be raised and they should lift the debt ceiling to allow the budget they voted for to be fully implemented.

Cutting essential programs that do not contribute to the deficit now and will not for at least a decade is a completely unnecessary part of any deal on the debt ceiling. There are many ways of bringing the nation’s debt under control without attacking programs that Americans rely on for survival. Moreover, Americans strongly support these programs and would be willing to pay more in taxes if necessary to preserve current levels of benefits.

Members of Congress who vote for cuts such as these may well find that voters do not agree with their actions.

Heidi Hartmann, Ph.D., is the President of the Institute for Women’s Policy Research. he has published numerous articles in journals and books and her work has been translated into more than a dozen languages. She lectures widely on women, economics, and public policy, frequently testifies before the U.S. Congress, and is often cited as an authority in various media outlets.

Back to the Future: Young Voters Support Social Security, But Fear for its Preservation

This blog is also posted on the Social Security Media Watch Project.

By Leah Josephson

As an undergraduate student readying myself to enter the workforce in a struggling economy, I was interested in the panel discussion, “Engaging Younger Voters on Social Security,” hosted by the Economic Policy Institute (EPI) on Wednesday, July 20. With Social Security possibly on the table as a target for budget cuts, I wondered if I would be protected by the program in retirement, more than 45 years from now.

Panelists described how to best explain the importance of retirement security programs to young people and explored polling results regarding young peoples’ feelings about the Social Security program.

Showing Young Voters a Future for the Program

EPI Research Assistant Kathryn Edwards, who co-authored “A Young Person’s Guide to Social Security,” spoke to the struggles young people face in understanding the current nature and the future Social Security. Younger generations sometimes see the program as something they won’t need—or that simply won’t be available by the time they reach retirement age.

Edwards has seen success in framing Social Security as a type of insurance. Just like car owners and homeowners buy insurance, Social Security offers protection in the event someone is unable to work, and the investment remains as workers shift between jobs. Social Security also serves as risk insurance for individuals unable to work due to disabilities and for the children of deceased parents. “Because you are an actor in this economy, you are at risk,” said Edwards. “The answer to risk is to protect yourself against it.”

Edwards also addressed the widespread myth that Social Security is “running out.” Social Security currently costs around four percent of GDP and will rise to a little less than six percent by 2035. This increase in cost is not a crippling adjustment, and similar increases have been absorbed by the economy in the past. Defense spending increased by 1.5 percent from 2001–2007, a much shorter period of time, and the economy was able to support it.

“This isn’t a problem with the program, it’s a problem with the politics,” said Edwards. She said the framing of Social Security as a problem is a political strategy rather than an economic reality.

Younger Generations Don’t Need Convincing on the Importance of Social Security

There was also some myth busting on young people’s understanding of Social Security. An accurate portrayal of my generation’s feelings about the program: we care. Most young people understand the importance of government retirement insurance, but fear for its preservation.

Celinda Lake, a political strategist, advisor, and pollster, presented the results of her study of around 5,000 voters’ attitudes toward the Social Security program. Nation- and state-wide phone surveys were conducted in May 2010 and March 2011. Focus groups and dial tests were held in March and April 2010.

While many advocates believe young people have little interest in retirement insurance, Lake’s research showed that younger voters have surprisingly strong, positive feelings about Social Security. In fact, the younger the voter, the more likely she or he is to oppose raising the retirement age.

Support for Lifting the Cap on Payroll Tax Strong Among Young Voters

Voters under 30 also strongly supported eliminating the cap on payroll tax  that exempts Americans making more than $106,800 (just six percent of the population) from paying Social Security taxes on wages above that threshold. Seventy-two percent of younger voters surveyed said they would support a candidate who supported lifting the cap.

Younger voters see Social Security as a promise, a government covenant made to all generations to provide a basic and reliable retirement. Before Social Security was passed in 1934, many lower income Americans had to either work until they died or live their final years in poverty. Social Security instilled in Americans a basic belief in older individuals’ right to a modest guaranteed income after lifelong employment.

Lake speculated that stability is an important value to young voters because of difficult experiences navigating the job market during and after the recession. She was confident policymakers could sell younger voters on the importance of Social Security because her survey findings showed they already strongly value the program. “We’re not convincing young people,” she said. “We’re tapping into existing attitudes. We’re mobilizing them.”

Cuts made to Social Security now will not directly affect Americans who already receive benefits or those who will receive benefits in the next few decades – they’ll affect the younger generations. Edwards summed up the program’s relevance to younger voters: “If you’re a young person, Social Security is yours to lose.”

Leah Josephson is the Communications Intern with the Institute for Women’s Policy Research.

National Council of Women’s Organizations Launches “Respect, Protect, Reject” Campaign

By Heidi Reynolds-Stenson

In effort to reach a budget deal by the debt ceiling deadline on August 2, leaders in Congress have indicated they are willing to make cuts to vital programs such as Social Security, Medicare, and Medicaid. The cuts would harm women and families who rely on these programs for their survival. In response, the Older Women’s Economic Security (OWES) Task Force of the National Council of Women’s Organizations (NCWO) launched a nationwide campaign, “Respect, Protect, Reject 2012.”

Through a public petition, the task force is asking lawmakers to respect women’s contributions to the economy and their need for economic security, protect Social Security, Medicare, Medicaid and other programs that are vital to women, and reject any budget plan that will impoverish vulnerable women and families. The task force wrote to congressional leaders on Tuesday to warn of the consequences of cuts to such programs for women and for the national economy and to urge the leaders to “place women’s circumstances and concerns at the center of their analysis and response.”

To help spread the word about the new campaign and bring more attention to these issues, NCWO held a conference call on Tuesday, July 12 moderated by NCWO Chair Susan Scanlan. On the call, Congresswoman Donna Edwards of Maryland’s 4th District—who recently signed onto a letter with 69 other Democrats urging President Obama to oppose cuts to Social Security, Medicare, and Medicaid—emphasized that although the national debt clearly needs to be dealt with, it is important that it not be done at the expense of critical social safety net programs. She explained that for many of her constituents, women in particular, “Social Security is their security. Social Security is their groceries…It’s their day-to-day-expenses and so it’s not an option.”  

National Organization for Women (NOW) President Terry O’Neill reminded leaders to look not to Social Security, Medicare, and Medicaid when deciding how to reduce the national debt but to what is really contributing to the national debt— joblessness (because less jobs means less income tax revenue), Bush-era tax cuts for the wealthy, and unfunded wars. She also shared a startling statistic—if the chained-CPI adjustment is made to Social Security, 73,400 more people will be in poverty by 2020 as a result, over 54,000 of which will be women.  Asked by a reporter if she thought everything should be on the table in the debt negotiations, O’Neill responded, “Emphatically, no. We do not agree.”

Joan Entmacher, Vice President for Family Economic Security at the National Women’s Law Center (NWLC) brought attention to how much women have been suffering in the recovery since the end of the Great Recession.  While men have been gaining jobs since the end of the Great Recession, women have actually been losing jobs, mainly due to lay-offs in the public sector.  Cuts to vital programs will worsen an already difficult situation for women resulting from policies such as deregulation and taxes on the middle class.

Retired worker and member of the board for the Older Women’s League, Margie Metzler shared a moving personal story of what Social Security and Medicare have meant to her. Laid off at age 62, she found that no one was willing to hire an older woman. Without health insurance or family to support her, she began receiving Social Security, and then Medicare after she turned 65. Hearing talk of cuts to these programs terrifies Margie because she knows she has nothing to spare.  “The reality is they’re saying to me, ‘It’s perfectly fine if you just die.’”

Margie is committed to fighting for these programs that have been such a lifesaver for her and cautioned against reforms such as means-testing that might discourage women in need from applying for aid through programs such as Social Security. “I am not one of those people who says, ‘I have mine. I don’t care about the rest of you… I am going to be fighting for the people behind me,’” said Margie.  “From my standpoint, how can I feel anything but terrified and angry, but I also feel galvanized into action.”

Heidi Reynolds-Stenson is a Research Intern at the Institute for Women’s Policy Research.

Telling the Real Story on Social Security

This blog is also published on IWPR’s Social Security Media Watch Project.

by Caroline Dobuzinskis

In political debates and media reports, the dialog on Social Security has recently focused on budget numbers. The program is often mistakenly tied to the deficit despite the fact that by law it cannot borrow money to pay for benefits and thus cannot contribute to the deficit. But the bigger story is being missed: the fact that Social Security directly affects the lives of many Americans including seniors, the disabled, and widows and children who are eligible for survivor benefits.

The program has a long history, and across its nearly eight decades it has expanded to include more people under its protective umbrella.  Fundamentally, once a person becomes eligible as a permanently disabled worker, retiree, or spouse or widow of a retiree, benefits last as long as one lives and are adjusted for inflation each year. While the benefits of Social Security are especially important to women because of their lower lifetime earnings and longer lives, men are becoming increasingly reliant due to shifts in retirement saving patterns and the recent severe recession. Many children, whose parents have died or become disabled, rely on Social Security insurance benefits, as do disabled children, including the adult disabled children, of working parents or grandparents who worked.

Many organizations have begun to tell this important part of the Social Security story.

The National Women’s Law Center (NWLC) recently began collecting input about how people had been affected by Social Security on its Facebook page—you too can tell your story here. By completing the sentence “Because of Social Security, I can…” respondents have offered insight into their specific needs that the program is currently meeting. “Because of Social Security, I am able to get the medical attention that I need, eat, buy toiletries, pay my electric bill as I am disabled,” said one commenter.

One perhaps somewhat harsh reality is that Social Security benefits, which are very modest (the typical woman 65 or older receives $10,915 annually),  give enough support to lift many Americans out of poverty—more than 14 million Americans aged 65 and older would be poor without Social Security benefits. Another commenter on NWLC’s Facebook page said that she would be homeless without access to Social Security insurance benefits.

The program also offers support to those with disabilities or supporting disabled individuals. “I am able to take care of my autistic grandson who would be in foster care or a group home without me,” said one commenter on NWLC’s Facebook page.

The Older Women’s League (OWL) collected similar narratives for a video that shows the range of women who receive benefits from Social Security.

To celebrate the 75th anniversary of the program in 2010, the Frances Perkins Center started the Social Security Stories Project:  “an opportunity to join thousands of Americans in showing that you are part of how Social Security has transformed our country, our economy and our people – young and old.”

The center is named for Frances Perkins who observed the Triangle Shirtwaist Factory Fire in 1911 and went on to become Secretary of Labor under Franklin Delano Roosevelt in 1932. Perkins helped establish the Social Security program, which FDR called “a cornerstone of his administration.”

Visitors to the website can submit their stories directly to the site.  See them all on their webpage and watch the video.

We hope that by continuing to spread these stories, the focus can shift to the dire impact that cuts to the program would have on many Americans and their families.  Besides, we are a wealthy country that can well afford to take care of our elderly and disabled and their families.

Other related videos:

Don’t Make Us Work ‘Til We Die

A new video from Social Security Works looks at the alternate reality of older workers who would be  unable to retire, and would have to keep on waiting tables, drilling construction sites, and working other strenuous jobs if the Social Security retirement age were raised further.

Scrap the Cap

Produced this year by OWL National, an animated video starring fictional versions of Whoopi Goldberg and Glenn Beck debating the importance of the Social Security program.

Social Security: Real Stories

Produced by the Social Security Administration’s Open Government Initiative, a video collection of testimonials from Americans about how Social Security has been a source of support.

President Obama’s Weekly Address: Honoring Social Security, Not Privatizing It 

In his address on August 13, 2010, on the occasion of the 75th anniversary of Social Security  President Obama told Americans that he would “honor” Social Security—not privatize it.

Caroline Dobuzinskis is the Communications Manager at the Institute for Women’s Policy Research.

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