Columns » Jonathan Weiler

Floating over the fiscal cliff in golden parachutes

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President Obama's apparent new spine is a positive development. In the current debate about how to avoid the so-called fiscal cliff, the president appears to have shifted tactics from 2011. At that time, Obama bent over backward to appease Republicans during the fight over the debt ceiling, offering, among other things, to reduce Social Security benefits, even though Social Security is fully self-financed and does not contribute to the deficit.

Now that Obama has won a solid re-election victory, he appears to be in less of a giving mood than he was 18 months ago when it comes to indulging Republican fiscal priorities. Given the GOP's woeful three-decades-long record on deficits, they should long ago have lost all credibility on the subject.

But the threat to a sensible and humane budgetary path and the specter of counter-productive "entitlement reform" comes not only from Republicans. Influential business forces are determined to push cuts to Medicare and Social Security in order to solve our fiscal problems. One high-profile effort to do so is an organization called Fix the Debt, founded by ex-UNC system President Erskine Bowles and former Wyoming Sen. Alan Simpson (yes, those two). The group's current chairs are one-time Pennsylvania Gov. Ed Rendell, a Democrat, and former New Hampshire Sen. Judd Gregg, a Republican. These prominent political figures are the public face of a group comprising mainly CEOs of large corporations including, for example, Lloyd Blankfein of Goldman Sachs and Jamie Dimon of JPMorgan Chase.

Fix the Debt bills itself as a nonpartisan effort to make the hard choices that our elected officials will not. The group and its allies are spending tens of millions of dollars to push their ideas, including raising the eligibility age of Medicare to 67 and "adjusting" the cost-of-living formula by which Social Security benefits are determined.

This group of CEOs, it's important to note, is far removed from the lives and concerns of ordinary Americans. According to the Institute for Policy Studies, the 71 CEOs of publicly traded companies that are part of Fix the Debt have average retirement assets of more than $9 million per person and net wealth many times larger than that of the typical American.

Blankfein, one of the most outspoken members of the group, has estimated retirement assets in excess of $20 million and a net worth of $450 million, whereas the total wealth of a typical American household is about $73,000. While Blankfein and his ilk won't have to rely on Social Security in retirement, many millions of Americans will depend virtually solely on those benefits for theirs.

One central reason for this is the decades-long attack on workers' pensions. And according to the Institute for Policy Studies report, those Fix the Debt CEOs are right in the middle of that attack, having under-funded their workers' pensions in order, in part, to divert more profits into their own coffers and those of other company executives.

"Reformers" contend that because of increases in life expectancy over the past several decades, it's sound policy to increase the eligibility age for Medicare; a proposal, it's worth noting that is opposed by an overwhelming majority of Americans, including Republicans. The increase in life expectancy over time is substantially a function of reduced infant and child mortality.

Among those who actually survive to age 65, the increases have been less dramatic. In fact, there has been a significant divergence in life expectancy between those in the lower half of the income distribution and those in the upper half over the past generation. In 1986, the typical male in the lower income bracket who survived to age 65 could expect to live to be 80 years old. By 2006, that figure had only risen by one year. Those in the upper half who survived to 65 lived on average to 81.5. By 2006, the wealthier cohort lived an average of five years longer, to 86.5. Meanwhile, for whites without a high school diploma, life expectancy has declined over the past 20 years.

Raising the Medicare age achieves some short-term deficit reduction, though a much more meager amount than would be achieved by modestly raising income tax rates on high earners, as the president has proposed. Increasing Medicare's eligibility age shifts costs onto vulnerable families, but it does not make the health care system more efficient. In fact, it does the opposite. If a bunch of 65- and 66-year-olds postpone necessary treatments awaiting eligibility, when they do qualify, they will likely be much more expensive to treat. And their health will be worse, too. This is a classic lose-lose policy.

As for "adjusting" the cost-of-living benefit formula for Social Security, economist Dean Baker estimates that the fix will reduce the typical benefit by 3 percent, a greater hit than raising the top income tax rate to 39.6 percent will mean for many upper-income Americans. Recall, too, that the Social Security eligibility age is already going up to 67 for those born in 1960 or later.

Given these realities, Blankfein adds new meaning to the word chutzpah when he says, "[Social Security] wasn't devised to be a system that supported you for a 30-year retirement after a 25-year career ... You're going to have to do something, undoubtedly, to lower people's expectations of what they're going to get, the entitlements, and what people think they're going to get."

Contrary to Blankfein, the typical American works closer to 40 years and lives about 15 years after retirement.

Unencumbered by the challenges facing most Americans and apparently convinced that, as the Pulitzer Prize-winning journalist David Cay Johnston has caustically put it, "only the rich deserve a comfortable retirement," this agglomeration of CEOs proposes to fix our problems by further squeezing those who have little left to cough up.

"Entitlement" is an arguably inapt description for our major social insurance programs, since workers who benefit from them paid into them. But it describes well a view of the world one would expect from folks floating over a cliff in a golden parachute.

Jonathan Weiler is director of undergraduate studies and adjunct assistant professor of global studies at UNC-Chapel Hill, where he received his doctorate in political science in 1999. He also contributes to Huffington Post.

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