Undoing the New Deal?

Remember when Barack Obama campaigned for president on a platform of cutting Social Security and Medicare? Probably not, since the first time he spoke about that was well after the election, just a few weeks before his inauguration, in fact.

On January 7, 2009, the New York Times reported, “President-elect Barack Obama said Wednesday that overhauling Social Security and Medicare would be 'a central part' of his administration’s efforts to contain federal spending, signaling for the first time that he would wade into the thorny politics of entitlement programs.”

From there, things developed slowly in fits and starts. But the pace has picked up considerably of late, and a House vote just before the July 4th weekend reaffirmed plans to vote on a set of deficit-reduction proposals after the mid-term elections.

No one knows what those proposals will be. They're being worked on in secret by a presidential commission established this past February that's heavily weighted with member hostile to Social Security and Medicare.

So far, the public isn't buying it. On June 26 and 27, the Pete Peterson Foundation, which has been campaigning to privatize Social Security for decades and has provided support for the deficit commission held town hall meetings in 19 cities across the country under the banner, “America Speaks,” hoping to drum up support for massive cutbacks as a buildup to the commission report but came away disappointed.

“The exercise was intended to show convince people that there were no options other than large cuts to Social Security and Medicare to hit their deficit targets,” explained economist Dean Baker, who co-authored the 1999 book, Social Security, The Phony Crisis and offered a detailed critique of the misleading information provided to participants.

Public opinion scholars Benjamin I. Page and R. Jacobs warned in advance that poorly-designed deliberative forums could significantly distort actual public opinion and pointed out that large majorities opposed Peterson's agenda. Among other things, they noted:

• When asked to trade off deficit reduction and spending reductions in education, health care, or Social Security, majorities of Americans (often by wide margins) consistently oppose the spending cuts.

• Large majorities want to strengthen Social Security and keep it solvent but prefer to raise or eliminate the payroll tax “cap” that currently exempts high incomes from taxation rather than reduce benefits.

• Support for Social Security is strong and widespread across the population; the alleged “generation gap” on this issue is mostly a myth. Majorities of young Americans, who are imagined by some to be engaged in conflict with the elderly, favor the Social Security program and do not want to cut it back.

• Many more Americans want to increase spending on Social Security, rather than decrease it – this has been true for decades. Virtually any sort of benefit cut is opposed by substantial majorities of Americans.

But in the end, participants were only modestly swayed by the propaganda they were exposed to. They came away supporting a mix of mostly progressive measures, including raising taxes on corporations and those earning more than $1 million a year, creating a carbon and securities-transaction tax, and cutting military spending by 10 to 15 percent.

“This was a good day for democracy,” Baker wrote afterwards. “The America Speaks gang tried to shove their agenda down the public's throat and the public pushed back.”

The secretive deficit commission could be another matter. It includes a defense industry CEO, and no middle-income Americans, so don't expect its recommendations to look similar. What's more, its members may be seriously misinformed. Co-Chairman Alan Simpson-a Republican Senator from 1977 to 1997-clearly is seriously misinformed, as was revealed in an impromptu video interview outside the commission’s secret meeting nine days before the America Speaks events. Simpson said a number of things to Alex Lawson of Social Security Works that were confused, if not outright false, veering into Stephen Colbert territory when he said, “They never knew there was a Baby Boom in [19]83”–the year that payroll taxes were raised (2.5 percent phased in over several years) precisely to build up a reserve to pay for the Boomer's retirement.

But more than factual confusion, economist James Galbraith saw a confusion of mission.

“We’re really working on solvency… the key is solvency,” Simpson said at one point. But “Social Security and Medicare 'Solvency' is not part of the Commission's Mandate,” Galbraith responded in subsequent testimony to the commission. “Your mandate is strictly limited to matters relating to the deficit, debt-to-GDP ratio and fiscal stability of the U.S. government as a whole,” Galbraith continued. “Social Security and Medicare are part of the government as a whole, so it is within your mandate to discuss those programs -- but only in that context.”

Galbraith's point might seem like technical bickering, but it's not. Officially, the commission is supposed to be concerned about overall debt levels, but its recommendations are widely expected to disproportionately target Social Security and Medicare for cuts, using “solvency” as the justification. But these two programs have very high levels of popular support and the public has previously supported raising taxes rather than cutting benefits to keep them solvent. The results coming out of “America Speaks” are further proof that this remains true.

While Bush-era tax cuts and wars are the biggest deficit factors over the next decade, the biggest long-term cost problem is health care, not just Medicare. When Obama first expressed his concern, Baker wrote in UK Guardian, “The way to address Medicare's shortfall is to fix the private healthcare system, as Barack Obama has pledged to do. If healthcare costs are contained, so that they only grow due to the aging of the population, and otherwise move in line with per capita income, then Medicare will be an affordable programme. The problem is not the aging of the population. The problem is a broken healthcare system.”

Although health care reform produced some cost savings, it included deals with monopolistic drug-makers, hospitals and insurance companies that continue keeping our costs much higher than other countries. And it excluded a public option, which could have played a major role in keeping costs down. As a result, United States’ health care costs remain much higher than elsewhere.

Baker's organization, the Center for Economic Policy Research, has a “Health Care Budget Deficit Calculator” on its website, showing the long-term budget outcome if the United States had health care costs matching any of about 30 other countries or groups of countries. The long-term outcomes –beyond 2080– range from a deficit of 40 percent of gross domestic product if we do nothing to a surplus of 25 percent of GDP if we matched Chile's health care costs. (Chile's life expectancy is one half year longer than ours.) Matching the Euro area's costs would produce a surplus of 10 percent of GDP.

In short, the most basic long-term budget problem our government faces is rooted in private health care costs, a problem we've just shied away from really getting serious about. If, after the election, Congress decides to slash Medicare instead, there's no telling what the public reaction could be.