Daily Archives: May 18, 2009

The Politics of Social Security and Medicare by Gregory Hilton

This 2008 AFL-CIO brochure said John McCain would destroy Social Security. The union offered no alternative to saving the system.

This 2008 AFL-CIO brochure said John McCain would destroy Social Security. The union offered no alternative to saving the system.

“Saving Social Security and Medicare” has long been a winning issue for politicians. Survey research has consistently shown seniors worrying about the security of their benefits, and campaign ads focusing on a threat to the system are highly successful. Ironically the lawmakers who claim they are saving the system have actually wanted to do nothing at all.
These politicians really want to ignore the problem and pass it on to another generation. This has meant no progress on Capitol Hill, no meaningful reforms to the system, and our lawmakers have been ignoring looming problems by claiming there is no crisis in Social Security of Medicare.
In past years politicians were eager to spend Social Security surpluses on other programs. We are now well into another spending spree, but beginning this year the annual surplus will start to shrink. Politicians often talk refer to the Social Security Trust Fund, but what they don’t tell you is that it contains no actual assets. The Trust Fund has no money. It is just an IOU from one branch of government to another. It contains government bonds that are simply IOUs, a measure of how much the government owes the system.
Why is nothing being done? Former Speaker of the House Tip O’Neill’s (D-MA) observation about the politics of social security has proven to be correct. O’Neill said Social Security was “The third rail of politics, touch it and you die.” A Social Security compromise was achieved in 1983, but it is hard to imagine a similar initiative being passed by the present Congress.
It is politically very popular to ignore this crisis, and the Social Security track record is well known to politicians in both parties. This was a major theme in the 1964 Democratic landslide when GOP nominee Barry Goldwater and his surrogate Ronald Reagan both suggested that Social Security could have “voluntary features that would permit a citizen to do better on his own.”
President Lyndon Johnson’s campaign ran a TV ad showing a pair of hands ripping a social security card in half as a narrator says: “On at least seven occasions, Senator Barry Goldwater said that he would change the present social security system. But even his running mate, William Miller, admits that Senator Goldwater’s voluntary plan would destroy the social security system. President Johnson is working to strengthen social security.”
A group of wealthy California conservatives purchased a half hour of national television time to show a Ronald Reagan speech during the last week of the 1964 campaign. Goldwater managers balked because Reagan repeated criticisms of Social Security. Throughout the campaign Reagan said “For years we have been told we are contributing to an old age insurance fund which is being set aside for our retirement years. In fact, there is no ‘fund’ at all. It is a compulsory tax producing revenues Congress produces for any purpose it desires while letting the reserves needed for future benefits fall in the hole.” Goldwater ended up receiving only 38% of the vote, but the speech launched Reagan’s political career.
It can be argued that Social Security was responsible for Reagan’s loss of the 1976 Republican presidential nomination. President Gerald Ford said Reagan’s proposal to make aspects of the system voluntary would be harmful, and he used this theme to narrowly defeat the Californian in the Florida primary. Ford received 53% of the vote statewide, and 60% among those 65 years and older.
President Jimmy Carter wanted to avoid a debate with Reagan in 1980. He agreed to only one joint appearance and this debate was held on October 28, 1980, just one week prior to election day. Social Security was one of the major issues. In his memoirs Reagan said “The debate went well for me and may have turned on only four little words. They popped out of my mouth after Carter claimed I had once opposed Medicare benefits for Social Security recipients. It wasn’t true and I said so: ‘There you go again . . .'”
Carter said Reagan “began his political career campaigning around this nation against Medicare. . . Although Governor Reagan has changed his position lately, on four different occasions he has advocated making social security a voluntary system, which would, in effect, very quickly bankrupt it.”
Reagan responded by saying he supported the alternative Medicare which was being debated in 1964:

Now, again this statement that somehow I wanted to destroy it, and I just changed my tune, that I am for voluntary social security, which would mean the ruin of it.
Mr. President, the voluntary thing that I suggested many years ago was that a young man, orphaned and raised by an aunt who died, his aunt was ineligible for social security insurance, because she was not his mother. And I suggested that if this was an insurance program, certainly the person who’s paying in should be able to name his own beneficiaries. And that’s the closest I’ve ever come to anything voluntary with social security.

Social Security had eleven ‘deficit’ years between 1960 and 1980. At the start of his administration, with Social Security teetering on the brink of insolvency, Reagan attempted to push through a reform agenda. His first message to Congress on this subject in 1981 said: “As you know, the Social Security System is teetering on the edge of bankruptcy. Over the next five years, the Social Security trust fund could encounter deficits of up to $111 billion, and in the decades ahead its unfunded obligations could run well into the trillions. Unless we in government are willing to act, a sword of Damocles will soon hang over the welfare of millions of our citizens.”
In 1981 a bipartisan National Commission on Social Security Reform was established by Reagan and chaired by Alan Greenspan. The Democratic Congress blocked all reform proposals prior to the 1982 election when Social Security returned as a major issue.
The nation was coping with a recession and Democrats won 26 seats. Progress did occur in 1983 and the end result was a $165 billion tax increase over seven years which dramatically increased payroll taxes on employees and employers.
The payroll tax pays for Social Security and Medicare hospital insurance. For the first time, Social Security benefits on upper-income recipients were taxed, and the retirement age was raised from 65 to 67. These changes did not resolve the long term structural problems, but they bought time, which was unfortunately squandered. The public was told that the extra revenue would be used to build up a trust fund dedicated to the preservation of Social Security benefits, and the system’s future would be secured. This was the only substantive Social Security reform of the century.
President George W. Bush made Social Security and Medicare reform his signature issue in 2005 but all of his attempts to save these systems met with a stonewall of opposition on Capitol Hill. It was a smart move politically and combined with opposition to the Iraq war, the end result was a Democratic Party capture of both the House and Senate in the 2006 elections.