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Christy McGill, Art Teacher - Divide Elementary School, Lookout, WV.

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Protecting and Improving the Solid Foundations of Social Security and Medicare for the Benefit of America's Working Families: A Message for the Deficit Commission

March 2, 2010

The most important issue facing working families today is a jobs crisis of historic proportions, which has resulted in weak consumer spending and inadequate demand.

This problem poses an enormous threat to our economic well-being. According to data from the Congressional Budget Office (CBO), most of the projected budget deficit over the next 10 years results from President Bush's tax cuts for the rich, the wars in Afghanistan and Iraq, spiraling health care costs and the continuing effects of the worst recession since the Great Depression. In short, much of our current deficit problem is largely a result of this historic jobs crisis.

Fixing the federal budget deficit requires an effective and large-scale jobs program, which will require large amounts of public investment in the short term, which can be fully paid for over time by taxing Wall Street.

Our economy also faces long-term structural challenges, which are reflected in long-term structural deficits. But in the short term we do not have an unmanageable deficit problem. We should avoid taking hasty and unwise actions now that will actually end up worsening our deficit problem in both the short and the long term.

Perennial proposals for entitlement commissions and deficit commissions are all too often premised on the assumption that short-term economic stimulus, entitlements or labor protections are the root causes of federal budget deficits. This is mistaken.

The AFL-CIO opposes and will work to defeat any effort to weaken prevailing wage requirements and other labor standards in government contracting.

The AFL-CIO opposes and will work to defeat any effort to reduce or diminish in any way the critically important and essential elements of our social safety net—Social Security, Medicare and Medicaid. Further, the AFL-CIO urges that members of Congress and federal candidates publicly oppose any cuts in these programs of vital importance to America's working families and that they act to improve the solid foundations of Social Security and Medicare.

Social Security is fundamentally sound. Social Security is generating surpluses currently, not contributing to the deficit. If Social Security were a private pension plan, it would be considered healthy. Social Security can be brought into long-term actuarial balance with relatively modest adjustments and without cutting benefits.

As we go forward, Social Security will likely mean more to American families than ever before. Today defined-benefit pension plans cover only 20 percent of workers, and that figure continues to fall. Workers' retirement savings in defined-contribution plans have been devastated by greatly diminished asset values—workers lost $2 trillion in 401(k) accounts and individual retirement accounts (IRAs) in just one year (October 2007 to October 2008)—and by the need of the unemployed to cash out their plans to weather the recession. The median household balance in retirement accounts is not enough to replace even 10 percent of pre-retirement income, and up to 25 percent of worker accounts can be eroded by fees and expenses.

The one source of retirement income that has remained financially stable over recent years has been Social Security, in large part because Social Security has been walled off from Wall Street. Social Security is backed by the full faith and credit of the U.S. government and provides a safeguard for people against outliving their savings. Social Security's administrative costs are low and its administrators are publicly accountable. It is the only retirement benefit that is 100 percent portable—following workers from job to job with no waiting for enrollment—and it features an immediate employer match.

Social Security does need to be strengthened for future generations. The United States has one of the lowest income replacement rates among OECD nations. With the decline of defined-benefit pensions, the sudden loss of retirement savings for millions and the dramatic increase in economic uncertainty, strengthening Social Security's core guarantee of retiring with dignity is now more important than ever. Improving benefit levels as part of strengthening Social Security would be an effective way of addressing America's retirement security crisis.

Medicare is another entitlement program of critical importance to retirement security. Millions of workers delay their retirement until age 65 so they can be sure to have health care coverage. Medicare has proven itself to be the single most efficient and least costly way of delivering quality, guaranteed health care to our nation's seniors and people with disabilities. It is no accident that our health care system suffers badly in comparison to other countries in various recognized indices until the age of 65, when individuals become eligible for Medicare.

Problems do exist with the financing of Medicare, but these are symptomatic of the larger problem of unsustainably high and rapidly rising health care costs. The solution to Medicare's financing problems is comprehensive health care reform, not benefit cuts. The AFL-CIO's 2009 Convention passed a resolution endorsing Medicare for all as one approach to health care reform. As many have noted in the health care debate, expanding Medicare to cover all Americans would be a very effective form of comprehensive reform. In that sense, an expanded and modernized Medicare program is part of the solution to the nation's long-term fiscal issues, not the problem.

In December, when the deficit commission completes its deliberations, Congress should not merely rubberstamp its recommendations. Legislation of the magnitude likely to be proposed should be considered under the regular congressional process. We are under no illusion that Congress always works perfectly, but lawmakers from both parties need to step up responsibly and make thoughtful and deliberate decisions on these issues.

Under no circumstances should deficit alarmists be allowed to circumvent the regular democratic process to advance their long-standing agenda of gutting Medicare and Social Security.

Commissions have been, and can be, serious and useful mechanisms to grapple with difficult problems. But the true test of this commission's success will be whether it helps fix our budget deficits by attacking the jobs deficit, or whether it makes our budget problems worse by sacrificing jobs and urgently needed long-term public investment.

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