President Obama's efforts to appease Washington's Serious People ran into serious obstacles last week. Responding to the cries of the Washington deficit hawks, President Obama proposed cutting Social Security by adopting a different measure of the rate of inflation for the annual cost of living adjustment.
This measure would gradually reduce the value of benefits through time. By age 75 retirees would see a benefit that is roughly 3 percent less than under current law. This is a much bigger hit to the income of the typical retiree than the tax increases at the end of last year were to the income of most of the wealthy people.
While cutting Social Security got the predictable applause from the Washington Post and other Washington establishment types, it prompted far more outrage among the president's base than he had anticipated. As a result, Obama's people were busy rewriting the plan at the time the budget was released, trying to ameliorate some of its worst effects.
However, the basic objection remains. Why is a Democratic president trying to cut Social Security in response to a crisis created by a combination of Wall Street greed and Washington corruption and incompetence?
If we compare the most recent GDP projections from the Congressional Budget Office with the pre-crisis projections from 2007, the crisis will cost the country more than $17 trillion in lost output. This is more than $50,000 per person. And, rather than making the people responsible pay the cost, President Obama is now looking to cut the $1,250 monthly Social Security cheque that provides more than half of the income for the typical retiree.
The poster child for this brazen class war on the American people is Morgan Stanley director Erskine Bowles. Bowles profited big time in the bubble days, pocketed hundreds of thousands of dollars a year for his "work" as a director of Morgan Stanley. The bank played a huge role in inflating the bubble and then would have flamed into bankruptcy without a massive government bailout. The whole time the cheques never stopped for Bowles.
Erskine Bowles also was pocketing hundreds of thousands of dollars from his "work" as a director of General Motors. His position there did come to an end when the company went into bankruptcy.
According to the New York Times, Bowles is now giving talks at $40,000 a piece (at three people's annual Social Security benefits) on the need to cut Social Security and Medicare. Of course, this is in addition to the hundreds of thousands of dollars that he still rakes in each year from sitting on the board of Morgan Stanley and other major corporations. You can't make this stuff up.
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The stench from President Obama's attack on Social Security has led to a bipartisan revulsion with the ways of Washington. This is a great time to seize on the momentum.
As actually serious people have been pointing out, we should be looking to increase, not decrease Social Security. The other pillars of our retirement income system, pensions and individual savings, have collapsed. As a result, those approaching retirement are likely to be even more dependent on Social Security than current retirees. If we want to ensure that people who have spent life working can enjoy something resembling a decent retirement, we will need to be expanding, not cutting benefits.
This does cost money, but we actually can afford it, in spite of the damage done by the Serious People to the economy. For a start we can raise the cap on wages subject to the Social Security tax, so that people earning over $113,000 pay the same tax rate as the rest of us.
If we can stop the upward redistribution of income, it would be reasonable to raise the payroll tax rate at some point in the future. The Social Security trustees project that average hourly compensation will grow by close to 50 percent over the next three decades. It hardly seems outrageous to take back one or two percentage points of this increase in higher taxes to support Social Security. The key issue will be ensuring that workers get their share of these gains rather than letting them all go to the Erskine Bowles of the world.
Toward this end we can impose a Wall Street speculation tax that will crack down the rapid flipping of stocks and other financial instruments. The Joint Tax Committee of Congress estimated that a tax of just 0.03 percent, as proposed by Senator Tom Harkin and Representative Peter DeFazio, could raise close to $400bn over the course of a decade. This is more than three times as much as President Obama hoped to save by cutting Social Security.
Given where the country is today, proposals like the Harkin-DeFazio bill should be occupying centre stage. We should be debating how to keep the Wall Street parasites from being a continuing drain on the country's productive economy. And we should be struggling to find ways to fill get the economy up to its potential and putting 9 million people back to work.
Those trying to derail this essential effort and to take away people's Social Security deserve exactly the sort of derision they have been receiving. These Serious People should never again be taken seriously.
Dean Baker is a US macroeconomist and co-founder of the Centre for Economic and Policy Research.
Follow him on Twitter: @DeanBaker13
The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.