March 2, 2010
When billionaires pledge a billion dollars to educate people to the evils of something, it is always good to peer closely at what they are up to. Hedge fund magnate Peter G. Peterson was formerly Chairman of the Council on Foreign Relations and head of the New York Federal Reserve. He is now senior chairman of Blackstone Group, which is in charge of dispersing government funds in the controversial AIG bailout, widely criticized as a government giveaway to banks. Peterson is also founder of the Peter Peterson Foundation, which has adopted the cause of imposing “fiscal responsibility” on Congress. He hired David M. Walker, former head of the Government Accounting Office, to spearhead a massive campaign to reduce the runaway federal debt, which the Peterson/Walker team blames on reckless government and consumer spending. The Foundation funded the movie “I.O.U.S.A.” to amass popular support for their cause, which largely revolves around dismantling Social Security and Medicare benefits as a way to cut costs and return to “fiscal responsibility.”
The Peterson-Pew Commission on Budget Reform has pushed heavily for action to stem the federal debt. Bills for a budget task force were sponsored in both houses of Congress. The Senate bill was narrowly defeated, and the House bill was tabled; but that was not the end of it.
In Obama’s State of the Union speech on January 27, he said he would be creating a presidential budget task force by executive order to address the federal government’s deficit and debt crisis, and that the task force would be modeled on the bills Congress had failed to pass. If Congress would not impose “fiscal responsibility” on the nation, the President would.
“It keeps me awake at night, looking at all that red ink,” he said. The Executive Order was signed on February 17.What the President seems to have missed is that all of our money except coins now comes into the world as “red ink,” or debt. It is all created on the books of private banks and lent into the economy. If there is no debt, there is no money; and private debt has collapsed.
This year to date, U.S. lending has been contracting at the fastest rate in recorded history. A credit freeze has struck globally; and when credit shrinks, the money supply shrinks with it. That means there is insufficient money to buy goods, so workers get laid off and factories get shut down, perpetuating a vicious spiral of economic collapse and depression. To reverse that cycle, credit needs to be restored; and when the banks can’t do it, the government needs to step in and start “monetizing” debt itself, or turning debt into dollars.
Although lending remains far below earlier levels, banks say they are making as many loans as they are allowed to make under existing banking rules. The real bottleneck is with the “shadow lenders” – those investors who, until late 2007, bought massive amounts of bank loans bundled up as “securities,” taking those loans off the banks’ books, making room for yet more loans to be originated out of the banks’ capital and deposit bases. Because of the surging defaults on subprime mortgages, investors have now shied away from buying the loans, forcing banks and Wall Street firms to hold them on their books and take the losses.
In the boom years, the shadow lending market was estimated at $10 trillion. That market has now collapsed, leaving a massive crater in the money supply. That hole needs to be filled, and only the government is in a position to do it. Paying down the federal debt when money is already scarce just makes matters worse. When the deficit has been reduced historically, the money supply has been reduced along with it, throwing the economy into recession.
Another Look at the Budget Reform Agenda
That raises the question, are the advocates of “fiscal responsibility” merely misguided? Or are they up to something more devious? The President’s Executive Order is vague about the sorts of budget decisions being entertained, but we can get a sense of what is on the table by looking at the earlier agenda of Peterson’s Commission on Budget Reform. The Peterson/Walker plan would have slashed social security entitlements at a time when Wall Street has destroyed the home equity and private retirement accounts of potential retirees. Worse, it would have increased the social security tax, disguised as a “mandatory savings tax.” This added tax would be automatically withdrawn from your paycheck and deposited to a “Guaranteed Retirement Account” managed by the Social Security Administration. Since the savings would be “mandatory,” you could not withdraw your money without stiff penalties; and rather than enjoying an earlier retirement paid out of your increased savings, a later retirement date was being called for. In the meantime, your “mandatory savings” would just be fattening the investment pool of the Wall Street bankers managing the funds.
And that may be what really underlies the big push to educate the public to the dangers of the federal debt. Political analyst Jim Capo discusses a slide show presentation given by David M. Walker after the “I.O.U.S.A.” premier, in which a mandatory savings plan was proposed that would be modeled on the Federal Thrift Savings Plan (FSP). Capo comments:
“The FSP, available for federal employees like congressional staff workers, has over $200 billion of assets (on paper anyway). About half these assets are in special non-negotiable US Treasury notes issued especially for the FSP scheme. The other half are invested in stocks, bonds and other securities. . . . The nearly $100 billion in [this] half of the plan is managed by Blackrock Financial. And, yes, shock, Blackrock Financial is a creation of Mr. Peterson's Blackstone Group. In fact, the FSP and Blackstone were birthed almost as a matched set. It's tough to fail when you form an investment management company at the same time you can gain the contract that directs a percentage of the Federal government payroll into your hands.”What “Fiscal Responsibility” Really Means
All of this puts “fiscal responsibility” in a different light. Rather than saving the future for our grandchildren, as the President himself seems to think it means, it appears to be a code word for delivering public monies into private hands and raising taxes on the already-squeezed middle class. In the parlance of the International Monetary Fund (IMF), these are called “austerity measures,” and they are the sorts of things that people are taking to the streets in Greece, Iceland and Latvia to protest. Americans are not taking to the streets only because nobody has told us that is what is being planned.
We have been deluded into thinking that “fiscal responsibility” (read “austerity”) is something for our benefit, something we actually need in order to save the country from bankruptcy. In the massive campaign to educate us to the perils of the federal debt, we have been repeatedly warned that the debt is disastrously large; that when foreign lenders decide to pull the plug on it, the U.S. will have to declare bankruptcy; and that all this is the fault of the citizenry for borrowing and spending too much. We are admonished to tighten our belts and save more; and since we can’t seem to impose that discipline on ourselves, the government will have to do it for us with a “mandatory savings” plan. The American people, who are already suffering massive unemployment and cutbacks in government services, will have to sacrifice more and pay the piper more, just as in those debt-strapped countries forced into austerity measures by the IMF.
Fortunately for us, however, there is a major difference between our debt and the debts of Greece, Latvia and Iceland. Our debt is owed in our own currency – U.S. dollars. Our government has the power to fix its solvency problems itself, by simply issuing the money it needs to pay off or refinance its debt. That time-tested solution goes back to the colonial scrip of the American colonists and the “Greenbacks” issued by Abraham Lincoln to avoid paying 24-36% interest rates.
What invariably kills any discussion of this sensible solution is another myth long perpetrated by the financial elite -- that allowing the government to increase the money supply would lead to hyperinflation. Rather than exercising its sovereign right to create the liquidity the nation needs, the government is told that it must borrow. Borrow from whom? From the bankers, of course. And where do bankers get the money they lend? They create it on their books, just as the government would have done. The difference is that when bankers create it, it comes with a hefty fee attached in the form of interest.
Meanwhile, the Federal Reserve has been trying to increase the money supply; and rather than producing hyperinflation, we continue to suffer from deflation. Frantically pushing money at the banks has not gotten money into the real economy. Rather than lending it to businesses and individuals, the larger banks have been speculating with it or buying up smaller banks, land, farms, and productive capacity, while the credit freeze continues on Main Street. Only the government can reverse this vicious syndrome, by spending money directly on projects that will create jobs, provide services, and stimulate productivity. Increasing the money supply is not inflationary if the money is used to increase goods and services. Inflation results when “demand” (money) exceeds “supply” (goods and services). When supply and demand increase together, prices remain stable.
The notion that the federal debt is too large to be repaid and that we are imposing that monster burden on our grandchildren is another red herring. The federal debt has not been paid off since the days of Andrew Jackson, and it does not need to be paid off. It is just rolled over from year to year, providing the “full faith and credit” that alone backs the money supply of the nation. The only real danger posed by a growing federal debt is an exponentially growing interest burden; but so far, that danger has not materialized either. Interest on the federal debt has actually gone down since 2006 -- from $406 billion to $383 billion -- because interest rates have been lowered by the Fed to very low levels.
They can’t be lowered much further, however, so the interest burden will increase if the federal debt continues to grow. But there is a solution to that too. The government can just mandate that the Federal Reserve buy the government’s debt, and that the Fed not sell the bonds to private lenders. The Federal Reserve states on its website that it rebates its profits to the government after deducting its costs, making the money nearly interest-free.
All the fear-mongering about the economy collapsing when the Chinese and other investors stop buying our debt is yet another red herring. The Fed can buy the debt itself – as it has been stealthily doing. That is actually a better alternative than selling the debt to foreigners, since it means we really will owe the debt only to ourselves, as Roosevelt was assured by his advisors when he agreed to the deficit approach in the 1930s; and this debt-turned-into-dollars will be nearly interest-free.
Better yet would be to either nationalize or abolish the Fed and fund the government directly with Greenbacks as President Lincoln did. What the Fed does the Treasury Department can do, for the cost of administration. There would be no shareholders or bondholders to siphon earnings, which could be recycled into public accounts to fund national, state and local budgets at zero or near-zero interest rates. Eliminating debt service payments would allow state and federal income taxes to be slashed; and the public managers of this money, rather than hiding behind a veil of secrecy, would be opening their books for all to see.
A final red herring is the threatened bankruptcy of Social Security. Social Security cannot actually go bankrupt, because it is a pay-as-you-go system. Today’s social security taxes pay today’s recipients; and if necessary, the tax can be raised. As Washington economist Dean Baker wrote when President Bush unleashed the campaign to privatize Social Security in 2005:
“The most recent projections show that the program, with no changes whatsoever, can pay all benefits through the year 2042. Even after 2042, Social Security would always be able to pay a higher benefit (adjusted for inflation) than what current retirees receive, although the payment would only be about 73 percent of scheduled benefits.”Today incomes over $97,000 escape the tax, disproportionately imposing it on lower income brackets. Projections over the next 75 years show that just removing that cap could eliminate the forecasted deficit. When the Democratic presidential candidates were debating in the fall of 2007, Barack Obama and Joe Biden were the only candidates willing to seriously consider this reasonable alternative. President Obama just needs to follow through with the solutions he espoused when campaigning.
The Mass Education Campaign We Really Need
What is really going on behind the scenes may have been revealed by Prof. Carroll Quigley, Bill Clinton’s mentor at Georgetown University. An insider groomed by the international bankers, Dr. Quigley wrote in Tragedy and Hope in 1966:
“[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences.”If that is indeed the plan, it is virtually complete. Unless we wake up to what is going on and take action, the “powers of financial capitalism” will have their way. Rather than taking to the streets, we need to take to the courts, bring voter initiatives, and wake up our legislators to the urgent need to take the power to create money back from the private banking elite that has hijacked it from the American people. And that includes waking up the President, who has been losing sleep over the wrong threat.
Ellen Brown is the author of Web of Debt: the Shocking Truth About Our Money System and How We Can Break Free. She can be reached through her website.
June 15, 2010
Five years ago, at the height of the housing bubble, President Bush spoke at Greece Athena Middle and High School in Greece, New York, about the political resistance in Washington to Medicare and Social Security cuts. The attendees were sympathetic to the President's remarks, and even applauded his blunt admission that the nature of his job requires endlessly repeating a few talking points.
The President said:
"As I mentioned to you earlier, we're going to redesign the current system. If you've retired, you don't have anything to worry about -- third time I've said that. (Laughter.) I'll probably say it three more times. See, in my line of work you got to keep repeating things over and over and over again for the truth to sink in, to kind of catapult the propaganda (Applause)."Reading it now, what's most revealing about the comment is not that Bush confirmed people's worst impressions of him in a moment of honesty, but that he is capable of speaking the truth far more than the current President is. In my book, that means Bush is a better man than Obama.
The other revelation from the quote is not as big because the practice of propaganda by modern political leaders is common knowledge in 2010. Without repetition, one of the main techniques by elites used to persuade the masses, unpopular policy proposals like dismantling Social Security would never be accepted by the broad public. But not all repetition is bad. Hell, without repetition, learning wouldn't be possible. The real issue is what is being repeated, and why is it being repeated.
In the Army the main point that is repeated is, "kill," and it is repeated to turn boys into killing machines. If it weren't for the Army drill instructor, who also repeats racial slurs about foreigners to new recruits, and constantly tells them how moral and good they are, professional armies wouldn't exist. The spirit, and service of the warrior has been corrupted in the modern era because of propaganda boot camps, which mechanically produce unfeeling and unthinking maniacs to fight wars for private profit, and corporate conquest.
When the survival and way of life of a community was threatened by an outside force in the past men didn't require loud-mouth authoritarians to help them shift into the warrior mode. They were too proud. They defended the community out of their own fruition because they instinctively felt it was the right thing to do. And they didn't need to be told who to kill because the villains were the ones who were burning his village and raping the women.
Turning men into killing machines is one example of how dangerous the tool of repetition can be, but it is not the deadliest. The most deadliest application of repetition is telling a people of a nation how moral and superior they are compared to other people. Almost all nations do this, but sometimes a fanatical leader of a nationalist movement comes around and takes it to the next level.
Hitler's Germany is the most famous example in history of just how much a nation can be lied to through simple repetition. In our day, the governments of the United States and Israel cannot stop telling their people how moral and superior they are, and why they deserve to be the ones on top, doing the most killing.
The President's role in national life is similar to the drill instructor's role in the personal lives of army recruits. The President's top advisers, who believe his reelection is priority number one, constantly advise him to, "Drill, Mr. President, Drill." If the President sticks to the talking points about a new initiative, policy proposal or law that are laid out for him by his advisers, he will most likely be successful in selling them to the dumbfounded people, no matter how diabolical they are.
The Propagandist-in-Chief George W. Bush unknowingly, or perhaps, subconsciously, rehashed this basic principle of propaganda that was used extremely well by Hitler in his ascent to power. The struggling madman famously said:
"But the most brilliant propagandist technique will yield no success unless one fundamental principle is borne in mind constantly and with unflagging attention. It must confine itself to a few points and repeat them over and over."Joseph Goebbels stated the same dictum,
"If you tell a lie big enough and keep repeating it, people will eventually come to believe it."Other political leaders of regimes that were heavily based on propaganda for its existence also thought along these lines:
"If you're going to lie, lie hard." Lenin said: "A lie told often enough becomes the truth."But the proponents of propaganda in Nazi Germany, and Soviet Russia are amateurs compared with the modern-day practitioners of it, which includes transnational corporations, news agencies, and popular politicians. Propaganda is big business, and big power. PR firms that help corporations and governments craft their message for the public have a tremendous influence on how a story is told, and how it is perceived.
In regards to cutting Social Security and Medicare, the propaganda campaign against the American people that began during the Bush Administration has entered a new phase under Obama's reign. The National Commission on Fiscal Responsibility and Reform was set up by the President on April 27, 2010. A report by the Commission is due in December. (It should be remembered that the Federal Reserve Act was also passed in December.) Its eighteen members include Senator Judd Gregg, who serves on the Senate Budget Committee, and Congressman Paul Ryan, the ranking Republican on the House's Budget Committee.
Gregg and Ryan were also participants in a conference on April 28 that was sponsored by the Peter G. Peterson Foundation called "2010 Fiscal Summit: America's Crisis and A Way Forward."
The aim of the conference was "to launch a national bipartisan dialogue on America's fiscal challenges. The Fiscal Summit will bring together hundreds of stakeholders from across the political spectrum with diverse ideas on how to address critical fiscal issues while continuing to meet the priorities of the American people."Peter Peterson, "the Wall Street billionaire who wants to loot Social Security," as William Greider describes him, has used his private funds to indoctrinate the American people that social programs for seniors are unsustainable. Peterson's previous propaganda efforts have benefited him, and the rest of America's plundering class, very well in the past. In October, 2007, economist Dean Baker wrote a critical article about Peterson called "Big Lies and Social Security: Peter Peterson's Retirement is Secure":
According to The Washington Post, Mr. Peterson was actively lobbying Congress to ensure he and his ilk are not taxed like ordinary workers. The Post reported that Mr. Peterson's efforts apparently paid off: He and his fellow fund managers will continue to enjoy special tax breaks.No doubt, the U.S. federal debt is a major issue that requires radical solutions, but Peterson is not a disinterested decision maker. Last month, Jane Hamsher wrote that Peterson's machinations represents class warfare:
Peterson plays a huge role in the world that shapes the thinking that drives the commission. Bill Clinton simply gushed about him at Peterson’s own recent fiscal summit. As long as Peterson is allowed to hide in the shadows and pull the strings, the choices that the Commission makes will come from a very small menu. Defense cuts will not be a factor. They won’t be talking about the trillion dollars they could save over the next decade simply by expanding Medicare to cover businesses. They’re only going to ask the questions that drive them to the same answer: cut Social Security.Joe Firestone has illustrated how to counter the financial elite's propaganda about Social Security, Medicare, and the larger issues of government spending and debt. In his article called "The Right Message," Firestone writes,
It’s going to be important to tell the tale of Peterson’s inexorable march and diffuse the notion that the Commission is simply responding to temporal economic factors. This is class war, pure and simple.
"Many of the deficit hawks may understand very well that there is no solvency risk for the Governments sovereign in their own currency, but they may prefer to maintain the illusion that there is, because they think that then they can profit more from international markets, and prevent the people of various nations from realizing that interest rates on Government debt instruments can be entirely controlled by the Governments themselves, and imposed on the international markets."On June 9, 2010, Federal Reserve Chairman Ben Bernanke appeared before the House Budget Committee, where he repeated claims made by Peterson and others that government spending must be drastically cut if economic health is to be restored in the nation. He said:
“The entitlement programs are not self-funded,” Bernanke said, “they are unfunded liabilities. They are the single biggest component of spending going forward.”Such rhetoric means that the rise in homelessness, unemployment, and other manifestations of mass suffering are not far behind. But will people take these dire pronouncements by the so-called experts seriously? As Dean Baker reminds us:
"These same experts then told us that if the taxpayers didn't hand the banks trillions in bailout dollars the world would end. Thanks to taxpayer generosity the banks are now back on their feet and the bonuses are higher than ever."Conferences like the The Fiscal Sustainability Teach-In Counter-Conference, which took place on April 28th in Washington D.C., and can be listened to here, represent the real interests of American citizens. The global financial oligarchy's propaganda can only be countered by citizens engaging in public dialogue across the political spectrum and across national boundaries. Selise of Selise's blog says:
"We have a massive need for a counter-narrative to their lies: that Federal deficit spending is bad, that it is a burden to the next generation, that deficit spending risks insolvency."There is no time to stall anymore and pretend a global plundering class doesn't exist. They do exist. And restraint is not in their vocabulary, as the philosopher Martin Buber disclosed in the middle of the last century. Peterson's influence in the discourse about social spending, and government deficits is exemplary of the global elite's larger influence in every issue of public importance in the West. As The Guardian's Charlie Skelton writes in his latest report on Bilderberg 2010,
"There's an awful lot of unelected 'advising' in the world."Much of the "unelected advising" comes from institutions like the International Monetary Fund, who are the global insiders of mass fraud. The IMF's austerity measures, which the Greek people sternly rejected, has compounded Greece's suffering, originally caused at the hands of the international pariahs in Goldman Sachs. But the Greeks are fighting back. And so are the Spaniards. Soon, however, Americans will have to take to the streets and join the mass global demonstrations against the IMF and the global financial oligarchy, because the crisis that Greece and other European nations are engulfed in is the same crisis that will bring America down if Americans are not prepared to fight for their life and liberty.
Faith Bautista, and Preeti Vissa raise concerns about Goldman Sachs's influence in California's economy in their article, "Could Goldman Sachs do to California what it did to Greece?"
They ask, "Just how much exposure does the state have to Goldman? Has the firm been transparent about any counsel it has provided to the state regarding finances?"In "Austerity Fascism Is Coming And It Will Be Brutal," Paul Joseph Watson describes what austerity measures do to a nation. Near the end of the article, Watson writes:
The global financial oligarchy are most concerned about America entering a state of rebellion against their power because of the country's legacy of taking intelligent revolutionary action against financial tyranny. America was founded by a group of men who were well aware of mankind's greatest enemy, disloyal international banksters. The early Republic prized self-reliance and economic independence even above political participation because enlightened citizens knew how important it is for families and communities to remain self-sufficient, and debt-free. That wisdom was lost, but it is being regained. And this time, the lessons are being learned across the world, from Greece to New York; from Latin America to India.
"Austerity fascism is the realization of the global elite’s agenda for a “post-industrial revolution,” after which living standards in the west will be dramatically lowered, economic growth will be stagnant, and people will be more concerned about how they are going to feed their families rather than standing up to the very financial terrorists who engineered the economic collapse in the first place.
However, a hungry mob is an angry mob. If the situation is allowed to spiral out of control and the “post-industrial revolution” unfolds quicker and more unwieldy than anticipated, the global elite may find themselves with an entirely different kind of revolution on their hands – one led by the people against the corrupt plutocrats intent on exploiting the suffering they masterminded in the move towards an authoritarian one world government."
BNET - My colleague (and stalwart editor) Cait Murphy says the U.S. urgently needs to reduce the federal deficit, and she argues in favor of a value-added tax as a good way to rein in spending. Exhibit A in that argument is that the national debt is spiraling out of control; Exhibit B is that rich people and corporations can’t afford to share more of the economic burden. She writes:
The U.S. already has one of the world’s highest corporate tax rates, so there is not much wiggle room there. And for all the fun associated with class warfare, the fact is, the rich and near-rich already pay the vast majority of income taxes.
Here’s why I disagree.
- First, as the N.Y. Times David Leonhardt has noted, the nation’s total nonfinancial debt isn’t growing especially fast by historical standards. And that’s counting the recent growth in federal expenditures. Not that rising budget deficits aren’t a concern — they are. Just not immediately.
Besides, during the recession U.S. households and businesses have slashed spending. If Keynes is right (and recent history emphatically suggests he is), then the only way to fill in the resulting hole in the economy is for government to boost outlays in order to stimulate growth. Of course, there’s precedent for doing the opposite — it’s called the Great Depression.
- Second, for all the fun associated with “class warfare,” seizing on the fact that rich people pay the the lion’s share of taxes sounds suspiciously like class warfare, in this case against anyone who’s not “rich or near-rich.” Because that’s exactly how a progressive system is designed to work — people higher up the income ladder pay more taxes. One can dispute the merits of that approach (and flat-taxers, in particular, do). But suggesting that this distribution is inherently unfair is itself a political stance. Not that there’s anything wrong with that.
The top households saw their effective tax rate decline almost 10 percentage points, from 26.4% in 1992 to 16.6% in 2007. By comparison, the average household saw effective tax rates decline less than one percentage point, from 9.9% in 1992 to 9.1% in 2006, also the last year for which data are available. The change in tax rates over time shows that while the United States still has a progressive tax system in which those with higher incomes pay higher tax rates, it is a lot less progressive than it used to be.
The dwindling tax load on the super-rich also must be understood in context of their rising share of national income. Since 1980, nearly 35 percent of all income growth has gone to the top one-tenth of 1 percent of all earners in this country, according to EPI. The bottom 90 percent of people have drawn less than 16 percent of income growth during this period.
Indeed, wages for the vast majority of Americans have stagnated over the last 30 years, even as U.S. productivity has continued to climb at normal rates. Meanwhile, although non-richies pay less in income tax, they contribute proportionately more in sales, payroll, and state and local taxes, which are significantly more regressive than the income tax.
Cait’s right in saying that the U.S. has the world’s highest tax rate for corporations. But that doesn’t exactly mean that most American companies, well, pay any taxes at all. Between 1998 and 2005, nearly two-thirds of U.S. companies paid no federal income tax, according to the GAO. Not one cent. One doesn’t have to be a wild-eyed radical to question if there might be a bit more “wiggle room” on corporate taxes than she suggests.
In some ways, of course, such discussions are academic. Unemployment is likely to remain high at least for the next year, or even longer, judging from the length of previous recessions. Foreclosures are soaring. Small business are hurting. The feds have no choice but to spend — not on principle, but because economic necessity demands it.
August 20, 2010
A White House-created commission is considering proposals to raise the retirement age and take other steps to shore up the finances of Social Security, prompting key players to prepare for a major battle over the program's future.
The panel is looking for a mix of ideas that could win support from both parties, including concessions from liberals who traditionally oppose benefit cuts and from Republicans who generally oppose higher taxes, according to one member of the commission and several people familiar with its deliberations.
In addition to raising the retirement age, which is now set to reach age 67 in 2027, specific cuts under consideration include lowering benefits for wealthier retires and trimming annual cost-of-living increases, perhaps only for wealthier retirees, people familiar with the talks said.
Ideas for shoring up Social Security:
Raise the retirement age.
Reduce the rate at which benefits grow each year.
Reduce benefits for wealthier retirees.
Subject a greater portion of income to Social Security tax.
Raise the Social Security payroll tax, now 6.2% for employer and employee.
On the tax side, the leading idea is to increase the share of earned income that is subject to Social Security taxes, officials said. Under current law, income beyond $106,000 is exempt. Another idea is to increase the tax rate itself, said a Democrat on the commission.
Even before the commission settles on a plan, many liberals are vowing to block any cut in retirement benefits. But the White House and the powerful senior group AARP appear open to a deal.
Republicans on the commission have mostly held their fire. One of them, Rep. Jeb Hensarling (R., Texas) said Thursday he opposes tax increases but wouldn't rule anything out at this stage in the discussions. Otherwise, he said, "the thing blows up before it has a chance to work."
The commission's Social Security proposals would face an uncertain reception in Congress, which would have to approve changes to the program. But some commissioners were optimistic.
"Are Republicans willing to sign onto a tax increase, and are Democrats ready to sign onto a benefit cut? I think the answer is probably yes in both cases if the other is willing to do it," said Alice Rivlin, a Democrat and former White House budget director.Some have suggested raising the retirement age to as high as 70, but Ms. Rivlin said she doubts there is support on the commission to go that high.
Some in the White House view a deal on Social Security as a confidence-building measure that could prepare the political system to tackle even tougher fiscal questions, such as the federal government's budget deficit. Asked about Social Security on Wednesday, President Barack Obama hinted of coming changes, saying:
"We're going to have to make some modest adjustments in order to strengthen it."The 18-member National Commission on Fiscal Responsibility and Reform is charged with generating solutions to address medium- and long-term fiscal problems. To be endorsed by the panel, an idea must garner 14 votes.
The commission includes 12 members of Congress, six Democrats and six Republicans appointed by congressional leaders, plus four non-lawmakers chosen by the White House. The White House also appointed the co-chairmen, Democrat Erskine Bowles, a former White House chief of staff, and Alan Simpson, a retired GOP senator. The group is to issue its report by Dec. 1.
The Congressional Budget Office underscored the challenge Thursday, forecasting that the federal government's budget deficit for this fiscal year would total $1.34 trillion. That is slightly less than previous projections as a result of lower-than-expected spending on the Troubled Asset Relief Program financial rescue. The deficit will fall to just over $1 trillion in 2011, due to lower stimulus spending, the office said. But the deficit would grow if Congress extended the Bush tax cuts.
Social Security officials project that beginning in 2014, the program will routinely pay out more in benefits than it collects in taxes, requiring it to draw on reserves that have been funding the rest of the government. By 2037, the reserves would be depleted and the program would only be able to pay about 75% of promised benefits.
The U.S. is facing the same demographic trends that are at play in most other parts of the world: life expectancies have lengthened while fertility rates have fallen, leaving countries with a shrinking proportion of young workers to help support elderly residents.
The problem is particularly acute in Europe. Germany raised its retirement age by two years, to age 67. In France, President Nicolas Sarkozy has proposed raising the retirement age to 62, up two years. According to the World Bank, Hungary has raised its retirement age, while Poland has moved to reduce incentives for early retirement, and other nations have changed the way benefits are calculated.
In the U.S., this election year's political debate on Social Security has been dominated by Democratic attacks on Republicans who support individual private accounts that could be invested in stocks, an idea that President George W. Bush pushed unsuccessfully in 2005. But many predict any 2011 debate on Social Security will focus on the issue of benefit cuts and tax increases.
Liberal Democrats are already organizing to head off any proposal that cuts Social Security benefits, including any plan to raise the retirement age. They argue the program's finances can be fixed with tax increases alone and that benefit cuts would harm low-income seniors who have little savings.
"People would rather pay more or have revenue raised than cut the benefits," said Rep. Jan Schakowsky (D., Ill.), a commission member.She said she was fairly confident a proposal that included benefit cuts would not garner the needed 14 votes.
Many liberals are particularly opposed to any plan that would link cuts in Social Security to deficit reduction. They say that because the retirement program has long run a surplus, it is not to blame for the budget deficit. The commission's mandate is to examine ways to balance the budget and to address the growth of entitlement programs.
Outside the commission, Moveon.org, the Campaign for America's Future and other liberal groups are pressuring candidates for Congress to promise not to support benefit cuts, posting name-by-name results on a website. A coalition of 125 groups, called Strengthen Social Security, calls for closing the shortfall with tax increases alone. But others are open to the conversation, including the powerful senior group AARP.
"We're prepared to be quite supportive of a real engagement on the issue," said John Rother, director of public policy for AARP. Acting sooner allows for changes to be made gradually, he said, and will reassure younger workers that the program will be there for them. He dismisses those who said they can never support benefit cuts. "I know all these people personally and they'll say we have to be hard line now to influence the debate...I kind of take it with a grain of salt, these emphatic statements."