Social Security Cuts:
An Attack against the Entire Working Class

Jul 29, 2013

For years, billionaires, corporate CEO’s, Washington think tanks and top Democratic and Republican officials have been calling for cuts to Social Security benefits. In April, President Obama took an important step to satisfy those demands by formally incorporating changes in the way inflation is measured that would reduce the measure of inflation. Since the annual cost of living adjustment for Social Security is tied to that measure, this would reduce benefits—most estimates predict by 0.3 per cent per year, however accurate those estimates may be.

Obama tried to downplay this reduction, calling it a “tweak” or “a small adjustment”—as if there were any justification for cutting one penny from Social Security benefits that are already outrageously small. But in reality Obama’s “tweak” is a major cut, which increases over a retiree’s lifetime. After 10 years of retirement, average beneficiaries will have lost over $4,650 in benefits. And if they are fortunate enough to live to 95, they will have lost more than $28,000 in benefits, leading to greater misery and impoverishment.

Robbing Workers of their Retirement

Obama is rushing to impose new benefit cuts even before the old cuts that were put in place in the 1980s have fully taken hold.

In 1983, major cuts in Social Security benefits had been ushered through Congress by Ronald Reagan, the Republican president, and “Tip” O’Neill, the Democratic Speaker of the House of Representatives. They imposed these cuts during a severe recession when very high unemployment temporarily depressed the revenues going into Social Security. They took advantage of this crisis by pretending that they had to cut benefits in order to supposedly “save” Social Security. It was a lie. They weren’t “saving” Social Security. They were slashing the benefits of all those who paid into Social Security for their entire work lives.

These attacks came in ways that Reagan and O’Neill tried to hide and disguise, and their full effects have not yet been fully felt. But they are enormous.

First of all, the 1983 law mandated that workers would have to work two more years before they qualified for full retirement benefits. Instead of retiring at 65, they would have to work until they were 67. Those taking early retirement at age 62 would have their monthly benefits cut by one-third. But Reagan and O’Neill dragged the cuts out as a way to blunt the reaction. The cuts were begun 20 years after the law was passed, that is, in 2003. And they will not be fully implemented until 2022, when those born in 1960 begin to retire.

The Reagan-O’Neill “reform” employed a lot of underhanded measures to squeeze as much as possible out of retirees. Beneficiaries now have to wait an extra month before they get their first check. They have to wait six extra months to get their annual cost-of-living adjustment (COLA). And they have to wait 15 extra days for their monthly benefit. On top of that, the government began rounding down their benefits to the dime or dollar, when it used to round them up.

In 1982, at the same time that these benefit cuts were still being considered by Congress, the Reagan administration and the Democrats in Congress also quietly agreed to reduce Social Security’s annual cost of living allowance by changing how the government calculates inflation. Certainly, the Consumer Price Index (CPI) has always underestimated the actual rise in the cost of living. But since 1982, the government has radically changed how it calculates the CPI in order to report much lower inflation. Economist John Williams, who tracks how the government calculates statistics on his web site, Shadow Government Statistics, has calculated that Social Security benefits would have been more than twice as high as what they are, if not for the changes in the inflation index that were made starting in the early 1980s.

The changes to the CPI now being proposed by the Obama administration would take the benefit cuts even further, and do it year after year.

Finally, Congress began to tax half of Social Security benefits. When they introduced the tax in 1983, Congressional leaders claimed that only the wealthiest 10% of recipients would have to pay it, that is, those whose total incomes including Social Security benefits were above the threshold of $25,000 for a single person and $34,000 for a couple. But Congress did not tie the income threshold to inflation, nor did they adjust it. So every year, more beneficiaries pay those taxes. Currently, about 35% of all those on Social Security owe taxes on a portion of their benefits.

As if that weren’t enough, the government also hiked the Social Security payroll tax.

Those payroll tax increases were originally imposed in 1977 under the Carter administration and the Democratic Congress, at another time of high unemployment and reduced Social Security income, which Carter took advantage of to proclaim that he was “saving” Social Security. Six years later, in 1983, the Reagan administration and Congress accelerated the Social Security tax hikes. Thus, between 1977 and 1990 the Social Security payroll tax rate was hiked nine times—an increase of 31%, an enormous tax increase.

This is the result of all those “reforms”: after a lifetime of work, after paying much higher Social Security taxes, people are condemned to retire on benefits that shrink year after year.

Social Security for the Benefit of the Bourgeoisie

Between the tax hikes and the benefit cuts, Social Security began to take in much more tax money than it paid out in benefits. This produced surpluses that grew larger every year. By the late 1980s, the annual Social Security surplus reached 50 billion dollars. A decade later, the annual surplus had doubled to 100 billion dollars. By 2007, it practically doubled again to 190 billion dollars. When the recession hit in 2007 and unemployment skyrocketed, the surpluses shrank. But even then there was no year in which Social Security’s annual balance fell into deficit. The surpluses continued uninterrupted.

These surpluses now total 2.7 trillion dollars. This is twice as much as the 1.4 trillion dollars in personal and corporate income taxes that the federal government collected last year.

Every year, the Social Security surplus was used to cover the growing federal deficit created by big tax cuts to the wealthiest parts of the population. Starting in the mid-1980s, the Social Security surplus—that is, the beneficiaries’ money—helped cover the deficit created by the Reagan tax cuts for the wealthy, which had been supported by enough Democrats to make sure it passed. While Reagan increased the Social Security payroll tax, he reduced the income tax rate for those at the top and the capital gains tax on their profits from investments. As the Social Security surpluses swelled in the following years, these surpluses, all of which the government immediately “borrowed,” matched practically dollar for dollar the income tax cuts for the bourgeoisie. The surpluses even grew large enough to cover the gargantuan Bush tax cuts that were passed in 2001 and 2003, and that were extended for two years under Obama.

To put it bluntly, trillions in Social Security benefits were taken from active and retired workers and handed over to the capitalist class.

Of course, we are told that the government is only supposed to be “borrowing” the annual surplus from Social Security, and that it will pay it back.

Oh yeah?

The fact that Obama proposes more cuts to Social Security benefits shows that the politicians of both parties do not want to pay it back but, instead, intend to hand still more Social Security money over to the capitalist class. Obviously, that class has no intention of allowing the government to increase the capitalists’ taxes, nor to reduce their government subsidies. They do not intend to replace the trillions of dollars that the government already had taken from Social Security.

Retirement Is Not a Gift

This really vast attack on both active and retired workers is usually justified by the growing number of retirees, who are supposed to be living longer and therefore drawing benefits for a longer time. Compared to the number of retirees, the number of active workers paying into Social Security is shrinking. In 1960, there were five active workers paying into Social Security for every person drawing Social Security benefits. Now there are only three active workers for every Social Security recipient. And in two decades, they say there will only be two active workers for every retired person. This, supposedly, puts Social Security at risk, even though there is a huge and growing surplus.

There are fewer people working, and more people retiring. That’s supposed to be the problem. But the same learned experts who cite these numbers are very careful not to acknowledge the fact that each worker produces much more wealth than they did in 1960. There has been a huge increase in worker productivity over the last half century. Increased productivity means that fewer workers produce more goods and services. The United States, for example, had 10.5 farm workers for every hundred people in 1929; it has one farm worker for every hundred people today. This big reduction did not mean that there was less food. On the contrary, a much smaller workforce produced not only all the food needed by a much larger population, but increased exports as well.

The same is true in other sectors of the economy. The productivity of workers in the durable goods industries has almost tripled in less than three decades, according to the Bureau of Labor Statistics. Fewer manufacturing workers are turning out more goods. And fewer workers are also turning out more services, from transportation and shipping, to retail and clerical.

These productivity increases more than make up for the drop in active workers so often cited as the reason to cut Social Security benefits.

The leaps in productivity prove that the work of one person could support many more people, while reducing the amount of time devoted to work also. These leaps prove that workers could retire earlier, with no loss in income.

And, in a society that would put to work the millions who today are unemployed, there would be a huge increase in wealth that could benefit everyone.

The wealth produced by the increase in productivity has been monopolized in this society by a tiny minority. And the capitalists are not satisfied with what they have already taken. They want to extort more from the working class and push a growing part of the population into destitution, including those in retirement.

Retirement in America

Currently, after a lifetime of work, the typical retiree gets Social Security benefits that amount to less than the minimum wage for a full-time worker. And a big proportion of retirees get less. Millions of older workers who lost their jobs and ran through all their unemployment benefits take Social Security benefits at the earliest possible time. But what they get in benefits has been so reduced, it isn’t enough to live on. Women typically get $4,000 per year less than men in Social Security benefits. That’s not only because they get lower pay. Social Security does not credit women for taking time out of the paid workforce, while caring for young children, aging parents or other relatives, as though their labor is not socially valuable. So more women are condemned to live their last years in poverty.

Social Security benefits are about all that most retired workers can count on. Corporations and government entities have been wiping out pensions for private and public sector employees. According to the boss, workers have to save on their own ... as the boss cuts workers’ pay. And what little savings retirees might have had is also practically gone because of the economic crisis. To compensate for these losses, retirees are taking on more debt. More retirees are going back to work, often competing with teenagers for minimum wage jobs.

Because of the benefit cuts passed decades ago, Social Security benefits replace a little over one-third of the wages that workers earned when they were active, and those benefits are already programmed to drop much further.

Social Security has accumulated a surplus of 2.7 trillion dollars that could be used immediately to lift the benefits of all retirees. Yet, Obama dares to say that Social Security should be cut still more. And he cynically admits that he wants to follow Reagan and O’Neill’s lead from 30 years ago in imposing these cuts!“The way to do it is similar to the way Ronald Reagan and Tip O’Neill fixed Social Security back in 1983. They said, ‘Okay, we’ll make some modest adjustments that are phased in over a very long period of time. Most folks don’t notice them,’” said Obama in 2011.

No, President Obama. Most folks do notice those “modest adjustments,” those severe cuts. Because they live with the results.

And he wants to cut more???

There is only one answer to that: No Way!