Friday, June 24, 2011

AARP: Craven or Clever?

-- Posted by Neil H. Buchanan

The late Spring is usually accompanied by breathless news coverage of the Social Security Trustees' annual reports, which summarize the financial conditions of the Social Security and Medicare programs. The headlines almost always highlight the so-called "depletion dates," which are the years in which the various trust funds for the programs will reach a zero balance. In the last couple of years, those dates have been going down, because of the short-term effects of the Great Recession and its grueling aftermath: fewer tax collections, more payouts.

This year, the depletion date for Social Security (in the "mid-range scenario," the forecast using conservative assumptions that -- although not as extreme as those in the "high-cost scenario" -- are still decidedly less favorable than the experience of the last 50 years) was reported to be 2036, down from 2037 last year and 2038 the year before. Nothing surprising or dramatic there. What was interesting is that the report garnered only passing coverage from the major news organizations. (A quick search of the New York Times website, a few days after the report was issued, turned up only a news article about the Medicare side of the report, mostly because Medicare's financial forecasts are highly sensitive to changes in the law that might come from Republican efforts to de-fund or repeal parts of the ACA.)

In previous years, a change in the Social Security depletion date was cause for national primal screams, with politicians of both parties making baseless claims about Social Security's certain doom and its dire effects on future generations. This year, a big yawn. That is, in the scheme of things, progress.

It is worth noting, by the way, that the focus on the depletion date is misguided. As some analysts have noted, the effect of Social Security's finances on future generations -- even under the most orthodox of approaches -- is driven by the long-term gap (if any) between revenues and benefits. What none have pointed out (so far as I have seen) is that the depletion date might actually have no importance even on its own terms. That is, the depletion date represents the time at which (under current rough forecasts) there is no longer money in the trust fund to cover the difference between benefits and revenues. Under this year's forecasts, for example, starting in 2037 there would be only $77 of revenues for every $100 of promised benefits. Without a trust fund, there is no source from which we could cover the remaining $23.

Or is there? The standard assumption has been that the financing shortfall would trump the promise to pay benefits, so that retirees at that point would have to live on the lesser amount of money that concurrent revenues would cover. There is, however, a plausible argument that $100 in promised benefits is legally enforceable. If so, the federal government in 2037 would have to pay full benefits, funding any shortfall either by increasing taxes, cutting other spending, or adding to that year's deficit. (I spoke with a lawyer in one of the relevant offices, who said that the consensus was that full benefits would not have to be paid. That consensus is, however, evidently fragile, with no one feeling confident that there is a definitively right answer. In any case, the arguments on both sides are strong enough to make litigation certain.)

Moreover, as Bruce Bartlett pointed out recently, it would take the 124th Congress in 2036 about five minutes to pass a bill protecting Social Security benefits from a 23% cut. This would have the same effect as a lawsuit that required the government to pay full benefits, with the cost to be financed (as Congress then chooses) by tax increases, spending cuts, and/or increases in deficits. While such an outcome would deviate from the legal fiction that Social Security is a stand-alone program -- a fiction that I continue to believe is important to maintain -- this is simply a prediction that the depletion date would not result in the 23% cuts that are assumed under current analyses.

Given all of this good (or, at least, neutral) news hiding under the conventional wisdom about Social Security contributing to a long-term budget "catastrophe," "tsumani," "disaster," or "Armageddon" -- all terms that have been used recently, not just by pundits and journalists, but by academics in otherwise-sober scholarly papers -- one would think that now is the worst possible time for the defenders of Social Security to give ground. Even so, as I noted in a post last week, many Democrats have been preparing the ground for years to capitulate to Republican demands to cut Social Security benefits. Among my predictions about the things that Obama might sell out in order to win reelection, my second pick was Social Security. (My first pick was extending the Bush/Obama tax cuts for upper-income taxpayers past 2012, which still seems to be the most likely retreat.) While the arguments for cutting Social Security are just as weak as ever, Social Security seems to be the next place for Democrats to betray their principles.

In this context, one might think that AARP, the lobbying organization that focuses on elder issues, would be standing firm. With their proud history of standing up not just for current retirees, but for future retirees as well, it would make sense to see AARP using its considerable influence to wall off Social Security from misguided (and, in many cases, pretextual) attacks in the current debate over budget cuts. Yet the big Social Security news last week (again, in an environment where the release of the Trustees' annual report barely makes a ripple) was that AARP has decided to change its stance on Social Security benefit cuts. AARP has now announced that they might be willing to support benefit cuts, under some conditions, to "save" Social Security.

This was, indeed, huge news. Social Security's longtime attackers, such as Deficit Commission co-chair Alan "T*ts" Simpson, were delighted. Reports indicated that the internal debate at AARP was contentious, and they expect to lose membership over their decision. Ultimately, their long-time policy director, John Rother, won the day. Rother's argument sounded eerily Obaman (or, in the original, Clintonian), conceding the argument that benefits must be cut, but arguing that AARP needed "a place at the table" to make sure that the cuts were not gratuitously deep.

Rother's argument, in other words, was Obaman not just in giving ground on the underlying issue, but in offering a genuinely plausible reason not to be too rigid. In this view of the world, the enemy is the extremists who ask for everything and get nothing (or worse). There are crazies on the left, we are to believe, who are simply mirror images of Tea Partiers. Needless to say, I generally find this equivalence to be false and infuriating. The idea that holding the line on Social Security benefits, given the fundamental weaknesses in the arguments against Social Security, is somehow radical or goo-goo-eyed is preposterous.

All of this might suggest that AARP was simply overreacting to the current conventional wisdom, giving away the store in the vain hope that somehow they might save a few crumbs and maintain their credibility with the Beltway crowd. In the Clinton/Obama mold, this takes the form of starting negotiations by giving the Right more than it asked for, then giving away more and more as the process continues. If that is what AARP is doing, then they are cowards, or worse.

The good news, however, is that the AARP's announcement was accompanied by some very non-Clintonian/Obaman conditions: "Reductions in benefits should be 'minimal,' they should not affect current recipients and instead should be directed 'far off in the future,' and they should be offset by increases in tax-generated revenue." Means-testing is also off the table, according to these reports. Moreover, AARP continues to insist that changes in Social Security are not part of the debate over future deficits. They will only agree to changes to guarantee the program's long-term solvency (i.e., pushing the trust fund depletion date indefinitely into the future -- as it already is in the Trustees' moderate "low-cost scenario"), not to offset tax cuts for the wealthy.

I agree with those who worry that AARP's move will carry symbolic weight pushing in the wrong direction. Given that they have decided to "come to the table," however, I have to give them credit for being willing to take a principled, aggressive negotiating position. They are in a position of strength, both on the facts and the politics. They need not waver.

7 comments:

egarber said...

To draw a wider connection, it seems we need to talk about how the debt limit debate affects all this.

Under a scenario where we default -- or lose our credit rating by coming close to it -- it becomes immensely more expensive to fund both Social Security and Medicare. That's because the resulting higher interest rates (and lower principle value of Treasuries) would make replenishing trust funds costlier overall for the Treasury.

So I'd love to hear how not increasing the debt limit is somehow the answer to ensuring our fiscal health, including entitlement solvency. If anything, it would hasten the end, if I've defined the dynamic correctly.

Neil H. Buchanan said...

The comment by egarber is absolutely correct.

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