June 3, 2010

(Image courtesy of Danziger cartoons)

There's rumblings afoot over the deficit, "entitlements" (a term I take exception to), and how best to cut spending and debt in as painless a fashion as possible.

This is where we all get to grow up a little, because both sides are right. The debt is too high. Certainly wars and defense budgets are part of it, but there's also the pesky little fact that for far too long, high wage earners paid far too little in taxes. Two years ago I wrote a post warning that taxes need to go up. That was before the recession, the stimulus package, the health care reform package and the newest natural disaster in Louisiana.

The problem isn't taxes. The problem is the tendency of politicians to slam those who can least afford the increase while claiming they're doing it to preserve our "benefits". Whether it's a power pander or just the mistaken belief that the middle class will suck up whatever it's handed without a peep, this time it needs to be different.

Check out this New York Times debate about increasing the Social Security retirement age. There isn't anything I can think of that would be more ill-advised than that, especially now. It's a cheap money grab that looks pretty on paper but carries far too high an economic and political price. Yet, look how it's being framed:

Peter Baldwin, History Professor at UCLA:

If only all our debates were about such wonderful problems as raising the retirement age!

Ken Dychtwald, Author

Recent research has shown that the modern retirement experiment is simply not working for most people.

Veronique de Rugy, Mercatus Center

The best option is to cut benefits. One way to do that is to raise the age of eligibility to at least 70 and then progressively increase it to track with life expectancy. This won’t be popular, but Americans’ dependency on government programs is less entrenched than that of Europeans.

Donald R. Grimes, research specialist, University of Michigan

Houston, we have a problem! The only solution, ultimately, involves providing fewer benefits than current law insures, or continuously increasing tax rates on a smaller and smaller share of the population, which, of course, is not sustainable politically or economically.

The only panelists with a point of view even close to realism:

Beth Almeida, executive director of the National Institute on Retirement Security:

...not only can we still afford retirement, we can afford even more of it if that’s what we want. That’s good news. Yet somehow, longer lives have become an economic bogeyman. A look at the data shows how wrongheaded this thinking is.

Thomas Geoghegan, labor lawyer

So far as I can tell from my clients, when the U.S. goes from 65 to 67, it means that lots of people will actually retire at 84 instead of 79. And after 84, we have some of our old people trying to live on just $600 a month in Social Security.

The reasoning behind pushing the Social Security Retirement Age back is easy: If the legal age is 67 and you claim benefits at age 62, your benefits are reduced. If you targeted age 65 to retire and the age is pushed to age 67, that's two more funding years for the trust fund, dropping liabilities and making the budget look pretty.

While it might be a pretty sleight of hand maneuver, it ignores reality, especially for workers age 50 and above. That reality is simple: No one wants to hire us. Employers don't want older workers, even older workers with a proven track record and experience when they can get younger workers for far less cost in benefits, salary and health insurance.

Pushing the Social Security retirement age out farther might as well push older unemployed workers right onto the welfare rolls. The pundits I quoted above make a big deal out of the fact that life expectancies have widened. Yes, they have, but older workers are not staying in their jobs, they're not accumulating pension benefits, and they've been squeezed by the transition from pensions to 401k plans, with 401k plans losing value over the past few years.

As someone who has administered pension plans for 30 years, I'm here to tell you that the only people with adequate private retirement savings are executives and owners. The self-employed, the middle manager, the line workers, the non-union service workers have nothing. No medical insurance, very little retirement savings, and after the last mortgage meltdown, it's unlikely they have a home with equity.

Social Security is the safety net. Moving it away from those who need it most is a mistake. Period.

There are other solutions that work better. Cutting defense budgets. Lifting the cap and phasing in Social Security taxes on all compensation, instead of only covered compensation would fund the baby boomers and leave a surplus in there for the generations to follow. Roll back the tax cuts for those earning in excess of $250,000. I'm sure there are lots of others. These were just ones that came to me quickly.

Whatever is done, pushing older workers onto the welfare rolls is not an answer to the budget deficit. It's time to cross that one off and move on to others.

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