Obama willing to trade big Social Security cuts for token tax hikes

After reportedly ruling out an increase in the Medicare eligibility age, President Barack Obama has offered House Speaker John Boehner a new deal to avoid a combination of spending cuts and tax increases scheduled to go into effect at year-end.

Obama’s latest offer involves painful Social Security cuts for the poor and middle class but tax increases only for people who won’t notice the difference, because they make more than $400,000 per year. This kind of bargain is exactly what Senator Tom Harkin has been warning against when he’s said “no deal is better than a bad deal.”  

The president’s latest proposal would include:

a movement on revenue demands to $1.2 trillion from an initial $1.6 trillion, a permanent extension of Bush-era tax rates for incomes less than $400,000 (Obama initially set the threshold at $250,000), $1.2 trillion in spending cuts, a “fast track process” for corporate and individual tax reform once the new Congress convenes, permanent extension of tax extenders and the alternative minimum tax, an extension of unemployment benefits set to expire at the end of the year, additional stimulus in the form of infrastructure spending and a two-year debt limit increase.

The White House proposal would also allow the payroll tax cut to expire, and call for $130 billion in savings from Social Security benefits by adjusting the program’s inflation index. The offer would include protections for the most vulnerable recipients, the person said.

Social Security should not even be on the table, because it does not contribute to the federal deficit.

Furthermore, using the “chained Consumer Price Index” to calculate benefits would “cut the real value of Social Security benefits by 10% or more over the course of a retirement, starting almost immediately,” as Doug Henwood explains. Harkin warned last month that senior citizens in lower tax brackets would be particularly hurt.

Joan Kuriansky and Paul Nathanson wrote last year,

This proposal is anything but a small technical fix. The chained CPI would jeopardize the already fragile economic status of many of the most vulnerable seniors and others dependent on Social Security and SSI as a primary, albeit, inadequate source of income. Adoption of the chained CPI would diminish the core income security benefits promised to every American.

One in three seniors relies on Social Security as 90% or more of their income. Average Social Security income for older women amounts to a little over $12,000 for women and slightly under $16,000 for older men. Small benefits cuts that compound over time will increase economic vulnerability and financial hardship among aging and disabled Americans and most of all for women.  

For today’s Social Security recipient who begins receiving benefits at 65, use of the chained CPI would result in a $560 annual benefit cut by age 75. Cuts would disproportionately harm older women who tend to live longer and on lower incomes. For an older woman living on $1,100 a month, the median Social Security benefit, the chained CPI would reduce her benefits by an estimated $672 per year by the time she reaches age 80, $1,044 by age 90 and $1,212 by age 95.

The president should be ashamed to make this offer, especially since he’s asking so little from the wealthiest Americans.

Now we’ll see which Congressional Democrats have the courage to stand up to Obama. I am seeking comment from Representatives Bruce Braley (IA-01), Dave Loebsack (IA-02), and Leonard Boswell (IA-03 during the lame-duck session) and will update this post as necessary.

UPDATE: Afghanistan War veteran Richard Allen Smith comments,

disability compensation payments for disabled Vets also receive an annual COLA based on the CPI. At the end of fiscal year 2011, 32% of disabled Veterans were under age 55. Gulf War II Veterans are filing for disability compensation at a much hire rate than Veterans of any previous era, 50% of all post-9/11 Veterans by some estimates. Therefore, in the next five to ten years, that number is likely to increase far beyond the 32% figure.

So, chaining the CPI and decreasing monthly Social Security payments would be awful for seniors, but much worse for disabled Vets, as they would receive decreased monthly payments over a longer period of time due to being less advanced in age. A disabled Veteran in his/her mid-20s who lives to the US life expectancy of 78 would experience decreased payments for 636 months.

Chaining the CPI literally could rob disabled Vets of hundreds of thousands of dollars person. And those negotiating this “deal” are willing to chain the CPI so they can save tax breaks for the top 2% of earners in America.

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