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Wednesday, April 10, 2013

How High Does Senior Poverty Have to Go?

It's official: President Obama has proposed cutting Social Security by replacing the program's current inflation adjustment with the stingier "chained" Consumer Price Index. As I've discussed before, this risks undoing all the progress made against senior poverty since the passage of Medicare and Medicaid in 1965. 25% of seniors were poor according to official poverty line in 1968, compared to just 9.4% in 2006. Note, however, that the Supplemental Poverty Measure, which includes things like out of pocket health care expenses which hit seniors disproportionately, already shows a 16.1% rate by 2009. And our senior poverty rate, measured by the international standard of 50% of median income, is already 25%, much higher than most developed countries, more than three times Sweden's rate and over four times as high as Canada.

Why is Obama doing this? We just rejected the candidate who wanted to cut Social Security and Medicare. Perhaps, as Krugman (link above) suggests, he chasing the fantasy of "being the adult in the room," but this is a losing proposition. As Brian Beutler points out:
Just like that, Chained CPI morphs from a thing President Obama is willing to offer Republicans into a thing Republicans dismiss as a “shocking attack on seniors.”
We've seen this game before. The Heritage Foundation's health care plan became "death panels" when President Obama endorsed it.  And, as Beutler's title makes clear, we have plenty of examples of the President negotiating with himself to bad effect, most notably in the 2011 debt ceiling battle.

If this cut really happens, Social Security benefits will steadily fall in true inflation-adjusted terms due to the magic of compounding. Moreover, with 49% of the workforce having no retirement plan at work and another 31% with only a grossly inadequate 401(k), the cuts will worsen the coming retirement crisis. The only question will then be: how high will senior poverty have to go before we do something about it?

Cross-posted at Angry Bear.


  1. This is concerning to say the least! Generations x, y and z are really going to have a hard time. Decreasing wages, student loan debt, no pensions and a minimal social safety net is going do drive those generations into poverty not seen since the Great Depression. Once the majority of Baby Boomers retire, I assume we are going to see a sharp decline in demand and a downward economic spiral. We are seeing the effects of a lack of demand now. What is going to happen when we have to rely on underpaid workers drowning in debt to prop up a consumer based economy? Crisis of over accumulation? My prediction is that although the EU is seeing hard times now, they will be in a much better situation than the US, especially if they change their current austerity programs.

    1. Yes, there are way too many distressing trends going on right now -- and we've got to fight all of them.

  2. And we are cutting SS benefits for what? Social Security has no impact on either the debt or deficit.

  3. I hear a lot of knashing of teeth but not a lot of numbers. What is the dollars and cents per month difference over the course of, say 10 years, if they use this CPI rather than the other CPI?

    Joe Rousmaniere

  4. Replies
    1. Exactly what I was looking for. The uproar from the Democratic side to a well thought out proposal from President Obama is both rushed and unseemly. Leave Pavlovian behavior to the Republicans.

    2. Jerry, thanks for the numbers and link to a very interesting blog.

  5. I came across this study today; it touches on what I mentioned in my original comment.