Letter from the US: Obama proposes to slash social security

The continued rightward shift of capitalist politics in the United States was underscored with the official release of President Barack Obama’s proposed budget.

In it, Obama proposes to cut the already inadequate pension program for the elderly known as Social Security and the medical insurance program for the elderly, Medicare.

These and other programs for the elderly and poorer sections of the working class are under attack. Both major parties claim that spending on social welfare must be cut in the current economic depression.

The difference between the Democrats and the Republicans is not over whether such cuts will be enacted, but by how much and which programs.

What the difference between the two parties reflects is how best to sell the cuts to the workers. The game involves the Republicans proposing more drastic cuts, the Democrats countering with less drastic ones, and then the two sides trying to compromise in “the middle”.

This plays out even within the two parties. On the Republican side, the more mad-dog Tea Party raises extreme demands, and the “moderate” Republicans compromise with them by moving further to the right.

On the Democratic side, the mainstream represented by Obama tells the “progressive” Democrats that the president must compromise with the Republicans to “get things done”, and the progressives have no choice but to agree or else the worse proposals of the Republicans will win out.

So in Republicans, the far right pulls the whole party further to the right. But in the Democrats, the “left” doesn’t pull the party to the left, it gets pulled to the right.

The context in which this is occurring is the “sequester”, the cuts both parties agreed to across the board that are already beginning to hit aspects of the social wage such as education. Exempted from the “sequester” are the “entitlement” programs, including Social Security and Medicare.

So Obama’s venturing out to cut Social Security is the opening assault on the “entitlements”.

A word should be said about language. The ruling class parties and media deliberately use obscure words like “sequester” to hide what they are really doing. They also twist words like “entitlements” to mean their opposite.

“Entitlement” on the face of it means something to which one is entitled to, like Social Security, won during the great labor upsurge of the 1930s and which people have come to understand as their right.

But by subtle innuendo, first begun by the far right, the word has now entered mainstream discourse as something pejorative, something to which one is not in fact entitled.

Thus “entitlements” can be slashed.

Obama plans to begin this with Social Security by using a new version of the Consumer Price Index. The CPI is used to calculate how much Social Security payments should be raised each year to keep up with inflation.

The new version is called “chained CPI”, another obscure phrase designed to cover up its true meaning.

It should be noted that unions have long objected to how the CPI itself is calculated because it does not reflect the actual price increases of goods workers typically buy to live. It understates the real inflation of those goods.

Workers, especially the elderly, typically spend more on food and less on yachts than the rich do, for example. But price increases on food are most often in excess of inflation of luxury goods.

Obama’s proposal is to make the situation worse by “chaining” the CPI. Because the term is so obscure, I will take some time to explain what is actually being proposed.

When the price of goods goes up, and wages do not keep pace, workers are forced to lower their standard of living by ceasing to buy better and more expensive goods. They substitute them with less desirable goods that are cheaper.

So, the argument for “chaining” the CPI goes, since workers have made that adjustment, they have already compensated for inflation by buying inferior goods. The CPI should not be based on the rise of the prices of goods the workers formerly bought, but should be less because the workers have already lowered their standard of living in the face of inflation by “substituting” inferior goods.

An example might help to clarify. Suppose a worker normally bought fresh strawberries. But because her wages have not kept up with inflation in the price of fresh strawberries, she needs to economise, so she begins to buy marked-down strawberries that are starting to turn bad.

The “chained” CPI would not be based on the rise in price of fresh strawberries, but would deduct the difference in price of fresh strawberries and the marked down ones.

Bureaucrats in the capitalist government would make surveys of workers to find out how much they have substituted inferior goods for better ones, and scale back the CPI accordingly.

The proposal for the “chained” CPI thus would result in less of an rise in Social Security payments than the old CPI would.

Once this is put into place, it compounds the gap between the new Social Security payments and what they would have been under the old CPI, year after year.

Let’s look at a hypothetical example. Assume someone is receiving US$10,000 in Social Security this year (many receive less). Assume an inflation rate of 5% a year over the next 10 years. Inflation right now is lower, but it could rise dramatically, as it has in the past.

Assume that the “chained” CPI is only a half a percentage point less, at 4.5%.

Next year, using a CPI of 5%, the payment would be $10,500. Using the chained CPI, it would be $10,450. The following year, at the 5% rate, it would be $11,025. The chained CPI rate would be applied to the lower $10,450 figure at the lower 4.5% rate, and would result in $10,920.

Each year, there would be a lower base rate to which the lower chained CPI would be applied. So the gap accelerates yearly. In 10 years, the payment would have been $16,290 at the 5% rate, and $15,530 at the chained rate of 4.5%.

That’s a difference of $760 a year, not a small amount for someone living at the already poverty level of Social Security. Because of the compounding of the lower base and lower rate each year, in 20 years the gap will have accelerated much higher.

Of course, the actual numbers will be different. They could be lower or much higher, depending on the real average rate of inflation and workers’ wages.

If, as is likely, unemployment remains high, wages will grow much less than inflation. Workers will make more “substitutions” in what they buy, and the chained CPI will be that much less.

The cuts in Obama’s proposal seem small the first year. But since they would apply into the future, they would become quite significant, and sharply lower the standard of living for the elderly.

Left Democratic Party groups, such as MoveOn, have raised the alarm. MoveOn has collected about 2 million signatures against the cut to social security. The AFL-CIO has also issued a sharp statement.

But these and other forces, including the progressive wing of the Democratic politicians, so far are looking to make challenges in the Democratic Party primaries next year as their only response.

But as long as they remain tied to the Democrats, their protests will be impotent.

Finally, we must keep in mind that Obama’s proposed budget is just his initial bargaining position. Having already given away his promise not to touch Social Security, things can only get worse as he compromises with the Republicans.

[Barry Sheppard was a long-time leader of the US Socialist Workers Party and the Fourth International. He recounts his experience in the SWP in a two-volume book, The Party — the Socialist Workers Party 1960-1988, available from Resistance Books. Read more of Sheppard's articles.]