“We Don’t Have to Go After the Middle Class” in Order to Reduce the Deficit

Rep. Jan Schakowsky (D-IL) is a member of the President’s bi-partisan commission on deficit reduction, but she’s not happy with the proposals put forward by the commission’s Co-Chairs, Erskine Bowles and Alan Simpson. They would reduce the deficit by cutting Social Security, Medicare, Medicaid, and health care for the military.

“Social Security is not part of the deficit problem,” Schakowsky declares. “To take it out on the elderly, who have an average income of $18,000  [including social security, pensions, investment income]  . . .  I think that is, frankly, immoral,” she adds. “The average benefit is $14,000 a year. Nobody’s getting rich.”

Schakowsky has put together her own deficit-cutting strategy. She would close loopholes in corporate taxes, raise taxes for the wealthy, and cut funding for Cold War weapons systems that we no longer need. She also would lower health care costs–but not by cutting health care benefits for seniors, the poor, or our armed forces. Instead, Schakowsky would “put a public option back on the table, which would lower health care costs” and let Medicare negotiate with pharmaceutical companies, as the Veteran's Administration does.

In order to stimulate the economy, we need to put money in the pockets of the middle-class, who will spend the money, says Schakowsky. In particular, she emphasizes the importance of extending unemployment benefits.

Schakowsky appeared on the Lehrer Report Monday evening. You can hear what she had to say by clicking here.

11 thoughts on ““We Don’t Have to Go After the Middle Class” in Order to Reduce the Deficit

  1. Add a means test to Social Security and a Medicare sliding scale cooinsurance fee and she has a very good set of ideas.

  2. odd that the deficit plan suggests raising social security benefits for such people, yet Jan and this post somehow construe it as cutting the benefits such people receive. such misrepresentation of what bowles and simpson suggest makes finding a compromise that much more difficult.

  3. I can go for a sliding Medicare scale but no Social Security means test.
    Let the benefits be taxable if necessary but don’t ask me to pay in and then tell me I can’t draw because I have too much other income.

  4. I’ve posted this so often it seems like a broken record but it’s too easy to grasp, too important to miss and off the radar of most discussions of Social Security—
    It’s called SOCIAL Security, not INDIVIDUAL Security, for a reason. The “social contract” is that a population of working people is being taxed to help support a population that for whatever reason is not working. Originally that meant “widows and orphans” but as time passed it covered a variety of disabilities, aid for survivors of a lost breadwinner as well as those who for a variety of reasons take advantage of “early retirement.”
    INDIVIDUAL security plans include a host of other sources of income including (but not limited to) IRA’s, 401k’s, savings accounts, inherited assets, individual net worth that can be liquidated, rental income, etc.
    That list of individual security sources is not available, unfortunately, to most older people. Moreover, declining health, cognition, mobility and the ravages of age await all who fail to, as Alan Grayson said, “die soon.”
    I tire of that line about having “paid in” all those years. It is irrelevant to the discussion, especially as long as the highest earners stop “paying in” every year as they pass the Social Security tax limit, the best-kept secret in America.
    An overwhelming majority of those contributing payroll taxes for Social Security and Medicare have no clue that their bosses and executives stop making similar contributions from their much larger incomes every year, sometimes as early as the first quarter of the year!
    I know because I paid the max into Social Security over twenty years in an environment where fifty or a hundred subordinates often earned near or below the poverty wage. Each year when I received the first check without any deduction for Social Security I promised myself that when the time came I would never be churlish or resentful of a single dollar anyone received from Social Security, no matter what the circumstances.

  5. Jim–
    I’m afraid that you are misrepresnting the Commission’s recommendations.
    I’m surprised, Usually you have your facts nailed down (and you have corrected me, in the past, when I let something slip.)
    On this issue, here are the facts:
    The commission suggests a tiny increase in benefits for thevery poorest seniors ( –while calling for what will ultimately be a 10% cut in benefits for the statistical middle class (those living on the 3rd step of a five step income ladder) as well as a smaller cut for the lower middle clas (those on the second step from the bottom of a five step ladder.)(See p. 49 of Co-chair’s report).
    These are the very people Jan is talking about– median income seniors who live on the 3rd step of that 5-step ladder) with an — and who are getting an average benefit of $1400 a month (which is part of that $18,000).
    Jan’s point is that it would be very hard for a middle-income senior to live on less than $18,000.
    Most importantly, the commission recommends raising the retirement age to 69. This might seem to make sense– after all, many Americnas are living longer
    The GGovernment Accountabity Office (GAO ) points out that the middleclass and working class will take the hit from this cut:
    “As a Government Accountability Office report recently obtained by the AP found, ‘Raising the retirement age for Social Security would disproportionately hurt low-income workers and minorities.'(See http://thinkprogress.org/2010/11/19/bowles-social-security-2037/)
    ” Almost all of the gains in life expectancy over the past few decades have been among upper income earners. If current trends continue, middle and lower class Americans will see very little gain in life expectancy by the time the co-chairs plan to hike the retirement age. (For evidence that upper income wokers have enjoyed almost all of the gains in life expectancy, see the charts in this report: http://www.cepr.net/documents/publications/ss-2010-10.pdf
    In addition, the commission would slice spouseal bnefits by 50%(see p. 50 of report.)
    This means that if a 75 year old woman was a housewife, stayed home and raised children, and her husband dies, she no longer gets his full SS check– she gets 50% of that check.
    What does she do then?

  6. Interesting.
    To close a revenue to payout gap ranging from 1.92% to slightly over 2% so much has to be done to the populace who depend on Social Security??? Not likely.
    Raising the age limit for senior has “no” impact on benefits today. Raising the age limit disinfanchises those who work in occupations that result in shorter life spans and also those who have shorter life spans such as Black Males. Here again, Simpson and Bowles wish to balance a perceived short fall by riding on the backs of the middle class (if one considers Median Income Middle Class) and those who would not reach 69 years of age.
    A means test for both SS and Medicare does not solve the issues of state and regional disparity in income. A family of 4 qualifies for SCHIP/CHP with an income at $72,000 while a similar family in North Dakota needs a qualifying income of ~$29,000. The same would show up in for qualfying seniors in such a manner for either SS or Medicare. Neither is SS or Medicare a welfare program to be divied up according to income. Leave Social Security and Medicare alone. The biggest fear of the top brackets of income is having to pay back the TF which was borrowed from in place of higher taxes to balance the Unified Budget and also given out as tax breaks skewed to them in 2001/2003. There is “no” compromise to touching either Social Security or Medicare.
    If you wish to resolve much of the issue of paying out more than the revenue coming in, then start investing in industries that create jobs rather than capital appreciation. Change what SCOTUS did in 1978 with Marquaette Nat. Bank versus First Mutual of Ohmaha. Change the paradigm from profits achieved from asset appreciation to profits received from product or services labor intensive. More people working result in more people paying taxes. This would do more to shift the short term balance outwards for years to come in both programs.
    As far as the revenue to payout gap that has appearred in 2041 and now 2037 and who knows when next? It is a moving target. Sitting here and forecasting what the economy will be doing in 2037 or 2041 is close to impossible. And what if we do nothing and draw down the TF which would expire at some year in the future? Congress would be forced to cut benefits unless they raised taxes. The benefit cut would be ~20% and the payout wiould still be far greater than what it is today. If you wish to maintain a pay-go scenario, the gap could be closed by raising Withholding Taxes 1 tenth of 1% per year for 10 years for both individuals and companies. Coberly at Angry Bear estimates this would result in 40 cents per week for average (or median) income citizens. Social Security is not in a crisis mode and Medicare issues are more an issue of the healrhcare and hospital industries.

  7. run 75411, Joe Says, ginger R, John Ballard . .
    run 75411, Raising withholding taxes by 1/10 of 1% for ten years (both for employer and for employee) is a good one.
    As you say, Social Security is not in big trouble. It needs only a small fix.
    Even low-income families would barely feel the increase, adn over time, the money would compound.
    You are also right that sitting here and trying to figure out where the economy will be in 2037 is a futile exercise.
    I disagree, though, about investing Social Security funds– whether in labor-intensive
    industries or other industries.
    The stock market is a casino. (See my book Bull!)
    The history of the market shows that the S&P 500 (a good proxy for most stocks) can fall by 50% in a fairly short period of time.
    And then it can take 12-15 years to recover that 50% (This is what happened during the 1970s– it was virtually impossible to make money in the stock market By the end of the 1970s, Business Week ran a cover story titled “The Death of EQuities” saying that “only old fogies buy stocks.” U.S. stocks were completely out of fashion–and for good reason.
    (Depending on what happens to the economy over the next few years, I can see the Dow and the S&P losing 30% to 40% of its value– and staying down for a long, long time. This is not a prediction–but it is a reason to diversify, investing retirement money in foreign stocks funds, foreign bond funds, commodities (commodity funds), etc. There is no guarantee that U.S. stccks will always rise, even if you “buy and hold.”
    I once interviewed Robert Rubin and asked him what he thought about investing Social Securitiy funds in stocks. He shoook his head: “The market is too psychological,” he said, very quietly (He was the Treasury Secretary at the time, and probably hated to say this out loud. But as an experienced trader, he knew that this was (is) true.).
    . The market is not rational–or put it this way, it is only as rational as we are. (And when it comes to money, greed and fear, we’re not very rational.)
    Regarding regional disparities in income and the effect on SS: If you
    live in an expensive region for most of your life, you will earn higher wages, put more into Social Security, and get higher payments when you retire. If you live in an inexpensive regions, your wages will be lower, you will contribute less, and get smaller checks when you retire.
    What you DON”T want to do is live in an inexpensive region while working, and then retire to an expensive region.
    If you live in an expensive region while working, you will also earn more and put more into Medicare. You’ll get the same benefits as everyone else, but the doctors and hospitals in your expensive region will be paid more because their overhead and the cost of labor is higher.
    So, in a Very rough way, things work out.
    You are, of course, right that raising the retirement age will have no immediate effect. (though I worry that if Congress votes to raise the retirement age, a few years from now conservatives may decide to move up the date when this takes effect.)
    Erskine and Bowles do give a break to people who work at physically exhausing jobs (earlier retirement age) but not to black males. (Thnough black males die younger than white males even if they have desk jobs. Longevity tends to be tied to how you lived as a child–how much stress you endured, nutritiou, air quality, etc. The majority of black males still grow up poor or working class, so they will die sooner.
    We don’t want to “means-test” Social Secruity or Medicare because if we do, we lose the solid support that these programs now have from most Americans- rich or poor (see my responses below to Joe SAys, etc.
    Joe Says–
    Means testing Social Secruitiy and instituting a sliding scale for Medicare co-pays (which we have already begun to do) sounds very fair.
    But there is one big problem: if the rich receive less in SS benefits (after contributing a large amount, based on their relatively high salaries) and if they have to pay higher co-pays for Medicare, they are likely to become less enthusiastic about both programs.
    Both Social Security and Medicare have enjoyed solid support from the vast majority of Americans because they are not seen as “welfare” programs for the poor or the middle-class.
    Everyone receives the same benefits– in the case of SS the benefits are based on how much you earned and put it. To most people, this seems fair.
    In the U.S. many wealthy and upper-middle-class people resent paying for programs for the poor. I may disagree with them, but this is how they feel.
    So if we turn SS and Medicare into programs that provide lower benefits for wealthier peopole, it is very likely that upper-class and upper-middle class people will begin to vote for politicans who want to cut Medicare and Social Security.
    Ginger $–
    I think many people feel the way you do about SS.
    If they put a large amount into the SS system, they feel (understandably) that they should get larger payments.
    And I’m afraid many people feel that way about Medicare. If they had a relatively high income, adn paid more in Medicare taxes, they won’t feel it is fair if they have to pay higher co-pays.
    See my response to Joe Says.
    I agree that Social Security deductions should appply to a larger share of a high-income workers’ income.
    But I think we need to raise the level of income that is taxed gradually–over ten years or so.
    We’re never going to apply the tax to 100% of income (for those earning $600,000 a year, the change would be too great and people might begin making large contributions to politicians who promised to repeal Social Security–or down-size it to a point that the middle-class wouldn’t be able to live on it.
    Perhaps, over a period of time (10 or 15 years), Social Sec taxes could apply the the first $150,000 or even $175,000 of income . . . But we need to be careful; we don’t want to undermine support for SS.

  8. Thanks for your thoughtful input, Maggie.
    Maybe you can clarify this business about raising the retirement age. That seems to me a red herring with only psychological effect. We have an option for receiving “early retirement” by accepting a lower benefit so it makes little difference what the official “full retirement age” is or becomes. Moreover, there is an option of delaying retirement past the official age and getting an even higher award. It’s all a matter of actuarial arithmetic as far as I can see. Unless there is something more involved, that business about increasing the age of retirement is a smoke screen.

  9. John–
    Most people do wait until the full retirment age (now 66 for my generation)
    because their SS checks will be so much lower if they take SS earlier.
    Taking SS early makes sense only if you’re pretty sure you will die when you’re relatively young.
    Should you live to 80 or 85, the amount that you lose by taking retiremnt early is huge.
    So, the official age really is important.
    But I would add that there are many other cuts to SS that are also very impt- they’re cutting the cost-of-living-adjustments (COLA) by using a different formula to measure inflation, and they’re cutting the widow’s benefit.
    Most people are just focusing on the fact that they’re hiking the retirement age . .

  10. I understand, and what you say is mathematically true. But there are two factors not mentioned, both of which are unpredictable and widely variable.
    First, because of inflation dollars received sooner are worth more than those received later, even with a COLA adjustment. That aside, the aggregate amount received ahead of time over, say, two or three years, when subtracted from years after full retirement are such that the beneficiary must live several years past that age simply to “break even.”
    When I ran the numbers for myself the difference between two years early versus full retirement was about thirteen percent. Quite a sacrifice, as you say. My wife and I decided to split the difference and opt for one year early because we were barely making ends meet with my small pension and part-time, low-paying jobs.
    Second, a little known fact is that the so-called “penalty” for earning more than a certain threshold when benefits are received early is subject to adjustment when the beneficiary reaches the full retirement age. In other words, should someone getting early (lower) benefits get a job paying over the earnings “limit”, by the time he reaches full retirement he may only have received fifteen or twenty SS checks instead of twenty-four or thirty-six. At that time SS does a lookback and adjusts the benefit to a later “anniversary” date for accounting purposes. So the sacrifice of having received a lower benefit is eased somewhat.
    Of course one must live to full retirement for that to happen, but if he failed to live that long every dollar collected would still have been more than he would have received otherwise.
    As I said, all this is actuarial arithmetic which for me, a layman, is devilishly abstruse. I could be wrong, but you get the idea. I’m thinking of a large population of unemployed older workers so financially strapped that early SS benefits can mean the difference between keeping or losing a place to live. Or worse, facing medial or nutritional challenges financially out of reach. My points are aimed at tossing out whatever hope may be left for that group rather than arguing the merits of getting early benefits.
    Something else… The Catfood Commission recommends a different method of computing COLA using “chain” figures which I assume means a trailing two or three year average rather than one preceding year. That, of course, would mean a more modest number, but over time might be more even (like averaging utility bills for a flat, year-round monthly amount). Had such a method been in place last year (and next?) the result might have been a small increase rather than zero.

  11. John–
    You are right that if a person takes SS early, has a job and earns more than the threshold, the penalty is adjusted when he reaches full retirement age, softening the effect of taking SS early.
    On inflation and the dollars being more valuable todaoy than they will be in the future: In recent years inflation has been so low (for most goods and services) that this isn’t as important as it once was.
    And inflation is likely to remain low for the foreseeable future.
    I like the idea of averaging the COLA adjustement over a period of years . . .