EconoBytes - Tuesday, September 4, 2012

This special edition of EconoBytes offers some questions that Democrats interviewed at their convention should answer. Last week, EconoBytes offered some questions for Republicans at their convention.

Social Security

1) No changes to Social Security?

·       As widely reported, on August 14, 2012, VP Joe Biden guaranteed that a second Obama administration would allow no changes to Social Security: "Number one, I guarantee you, flat guarantee you, there will be no changes in Social Security," Biden said, per a pool report. "I flat guarantee you." Do you support this position?

2) Raising the retirement age?

·       Some Democrats have indicated a willingness to consider raising the retirement age, which is now increasing from 65 to 67 (and is currently 66). This is equivalent to a 13% benefit cut for someone retiring at 65. Do you think the retirement age should be increased again, as recommended by Erskine Bowles, Alan Simpson and others? Do you think it is realistic to expect most Americans to work beyond 67?

·       The average SS retiree receives a monthly benefit of $1,234, which puts those who rely on it exclusively just slightly above the federal poverty line.  A new MIT study finds that “45% of senior citizens in the United States have less than $10,000 in financial assets when they die. Most of these people rely almost totally on Social Security payments as their only formal means of support.”

3) Cost of living increases?

·       Some Democrats, notably Erskine Bowles, have proposed reducing the annual cost of living adjustment (COLA) of Social Security by approximately 0.3 percentage points per year as a way of reducing the Social Security shortfall. After 10 years this means benefits would be 3 percent lower, after 20 years 6 percent lower, and after 30 years 9 percent lower. If we assume that the average beneficiary lives 20 years after he or she starts collecting benefits, this means that the switch would cost on average 3 percent of their scheduled benefits. Do you favor this approach?

·       Other Democratic proponents of changing the COLA say they are just interested in accuracy, not reducing benefits. However the Bureau of Labor Statistics (BLS) compiles an experimental index for the elderly that indicates their cost of living rises by roughly 0.3 percent more than the current CPI. This suggests that the COLA should be higher, not lower. Would you support having the BLS construct a full price index for the elderly that would allow Social Security to make a cost of living adjustment that reflects the rate of inflation experienced beneficiaries?

4) How to eliminate the shortfall?

·       Polls consistently show that the middle class is strongly opposed to cuts in Social Security benefits. They find overwhelming support for raising the cap on taxable wages as a solution to address Social Security’s projected shortfall. They find that most people would even prefer paying a high payroll tax rate than see a cut in benefits. Is there some reason that Congress is willing to consider a cut in benefits, against the wishes of the bulk of the public, but shows little interest in raising the cap on taxable wages and none at all in raising the tax rate?

Medicare

1) Trimming Medicare?

·       In an interview with George Stephanopoulos on ABC TV, a leading Democratic Mayor, Antonio Villaraigosa of Los Angeles, said, “We’ve got to trim Medicare and the like, entitlements, but do it in a way that's responsible.” If you agree, how would you do this with Medicare? What other programs would you cut, if any?

Long-term investments in our decaying infrastructure, research and development, and education and tax

1) Budget cuts or raising taxes on the richest?

·       Erskine Bowles, a Democrat who co-chaired the presidential commission on deficits, proposedbudget cuts large enough to block the nation’s ability to make major investments in education, repairing our fraying infrastructure, as well as research and development, all of which are essential to economic growth, the creation of good-paying jobs, and the overall well-being of future generations. Do you support this approach or would you prefer to raise taxes on the wealthiest Americans?

Spending cuts and deficits (“Austerity”)

1) Austerity?

·       In the face of Republican attacks on the Obama Administration’s spending, deficits and the size of the federal debt, some Democrats have called for budget-balancing action that falls under the heading of “austerity.” The U.K. has pursued a policy of aggressive spending cuts coupled with tax cuts to high end earners. It has thrown its economy back into recession with no forecasts for a turnaround any time soon. Why would you think these policies would be more successful here?

2) Household budgets/federal budget?

·       Some months ago, President Obama appeared to embrace the Republican analogy on how to handle deficits and debt, agreeing that the solution in both cases was belt-tightening. Do you think the approach to reducing household debt is the appropriate one for dealing with the current economic situation of high unemployment and large budget deficits?

Jobs and the Strong Dollar

1)  “Strong” dollar?

·       While there has been constant focus on the size of the federal budget deficit, which grows automatically in a recession and limits job loss, there has been very little mention of the trade deficit that unlike the budget shortfall has a very serious negative effect on employment. The immediate cause of this huge deficit is the high or “strong” dollar, which makes imports cheaper and our exports more expensive. It has devastated American manufacturing and caused the loss of millions of decent-paying jobs.Powerful proponents of a “strong” dollar, such as Wall Street and major importers like Wal-Mart, benefit from it at the expense of the jobless middle class. What will you do to reverse this situation?

For questions or interviews, please contact Ira Arlook (202.258.5437) or Sharon Rose Goldtzvik (202.789.7753).

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