First, Bloomberg deeply and sincerely believes that the well-being of the United States requires cuts to Social Security benefits.
Second, Bloomberg has no idea how Social Security works. Instead, his head is filled with a hodgepodge of right-wing talking points about the program.
On Sunday, Bloomberg’s presidential campaign released his official proposal for Social Security and retirement more generally. It’s written to give the impression that if elected, Bloomberg would not cut Social Security for anyone, and in fact, would expand benefits for everyone. However, the plan leaves the door open to benefit cuts for some beneficiaries — just as Bloomberg has advocated for years.
The former New York City mayor’s plan does include some ideas that, from the perspective of America’s middle and working class, are a big improvement. He calls for upping Social Security’s cost-of-living adjustments, because there appears to be a higher rate of inflation for the goods and services needed by the elderly than by the younger population. He also advocates an increase in benefits for the poorest beneficiaries.
Interestingly, Bloomberg also proposes that the U.S. create a new “public-option retirement savings plan, with automatic employer and employee contributions.” This would essentially be a government-run 401(k) plan for all workers who don’t have access to one through their jobs — including a matching government contribution akin to those provided by many employers.
While this may sound something like President George W. Bush’s 2005 proposal for privatizing Social Security, it’s significantly superior. Under Bloomberg’s plan, the accounts would be run by the government, allowing for super-low fees that would be collected by Washington. Bush wanted the accounts to be run by Wall Street, which would have generated a gusher of high fees flowing to downtown Manhattan. (At the time, a financial blogger wrote that a former co-worker at a huge investment bank told him, “I want that dumb public money coming across my desk.”)
But the rest of Bloomberg’s plan must be read skeptically. The campaigns of Sen. Bernie Sanders, I-Vt., Sen. Elizabeth Warren, D-Mass., and former South Bend Mayor Pete Buttigieg explicitly rule out any cuts to Social Security benefits.
By contrast, Bloomberg’s proposal does not. Bloomberg’s campaign did not respond when asked whether he is taking all benefit cuts off the table.
Instead, Bloomberg uses language similar to a 2010 proposal from Alan Simpson and Erskine Bowles, the chairs of a deficit reduction commission set up by President Barack Obama. Bloomberg vociferously supported the commission at the time.
According to Bloomberg’s proposal, “Mike will strengthen entitlement programs.” Simpson and Bowles said their mixture of minor benefit increases and significant cuts would “strengthen Social Security.” Today, Bloomberg wants to “put the system on sound financial footing.” In 2010, Simpson and Bowles proclaimed that their goal was to “ensure Social Security’s soundness.”
Like Bloomberg today, Simpson and Bowles proposed increasing Social Security benefits for the poorest beneficiaries. Unlike Bloomberg, they explicitly advocated cuts that would have reduced the benefits of those further up the income ladder. This would have reduced overall costs and made the program more like traditional welfare — an outcome that would have weakened political support for Social Security and made it vulnerable to further cuts in the future.
The lack of a straightforward disavowal of cuts from the Bloomberg campaign, combined with Bloomberg’s history, suggests that his plan shares significant genetics with Simpson-Bowles.
Social Security is one of the simplest and most efficient programs ever created by the U.S. government. Essentially, it deducts money from the paychecks of today’s workers and sends it to retirees (plus some widows, orphans, and people with disabilities), providing them with a modest but completely secure income. The current contribution rate is 12.4 percent of everyone’s salary up to $137,700.
After decades of propaganda by the corporate right, Americans have become convinced that Social Security faces a terrifying day of reckoning. It does not. It does need some minor adjustments, but that’s something that’s happened many times before and is unremarkable in the context of a program that is 85 years past its initial enactment.
The central issue is straightforward. The Social Security Administration projects that, mostly thanks to the retirement of the baby boomers, the cost of the program will increase from 4.9 percent of the U.S. gross domestic product in 2019 to about 5.9 percent by 2039. Then it will stay there indefinitely. In other words, if we can figure out some way to send one additional dollar out of every hundred in the American economy to retirees, there’s no need to cut benefits.
This is where Bloomberg comes in. Like many at the top of the U.S. pyramid, Bloomberg is transfixed by the idea that the U.S. and its citizens are wildly profligate and that unless we sober up, the country will someday be punished for our wantonness.
But Bloomberg was still in office during Obama’s first term as the U.S. tried to recover from the near depression caused by the housing bubble. The deficit spending necessary to prevent complete economic collapse filled billionaires and CEOs with anxiety, and they became obsessed with shrinking it as soon as possible.
At the end of 2010, the Simpson-Bowles plan failed to secure enough votes from their own commission to fast-track it through Congress. By February 2011, Bloomberg was explaining to Time magazine that Social Security was essentially fraudulent. “Everybody just thought, Where did [Bernie] Madoff get the idea?” Bloomberg said. “A cynic would say Social Security, [though] I would never say that. But it’s exactly the same thing, isn’t it?”
This is an unsettling thing to hear from a billionaire would-be president. The idea that Social Security is a Ponzi scheme has obsessed the U.S. right since the program was founded in 1935. They believe that the fact that Social Security requires a continuing new supply of “investors” (i.e., workers) who just hand their money to previous investors (i.e., retirees) makes it inherently Ponzi-like.
If you want to stop working in 30 years but still continue eating food, you don’t buy $1,000 worth of dried figs and store them in a cave to await your hungry arrival in 2050.
But this is true of any kind of saving for retirement, Social Security or cash or shares in a mutual fund. If you want to stop working in 30 years but still continue eating food, you don’t buy $1,000 worth of dried figs and store them in a cave to await your hungry arrival in 2050. Instead, you hand your $1,000 over to someone today in order to establish a claim on food produced in 2050.
If there are no young workers available to make food for you in 2050, your whole “saving for retirement” scheme will indeed experience a Ponzi-like collapse. But that’s true whether it’s Social Security or anything else. The only difference between a Ponzi scheme and sober, rational retirement planning is the promised rate of return on your investment.
What rate of return is plausible depends on how many young workers there are to support you and how productive they are. Here again Bloomberg is flummoxed by the basic facts of Social Security.
In May 2011, he went on “Meet the Press.” “What the Democrats have to understand,” Bloomberg said, “is you’re never going to balance the budget unless you make meaningful changes in entitlements. We used to have 30-odd people supporting every retiree, today it’s three people or something like that supporting every retiree. … You have to have some combination of cuts in expenses and some revenue enhancements.”
This indeed sounds bad, until you think about it for one second. According to Social Security’s official numbers, there were 41.9 workers for every beneficiary in 1945. By 1950, there were 16.5, then 3.7 in 1970, and 2.9 when Bloomberg was speaking in 2011.
In other words, the number of workers per retiree had already declined by the time Bloomberg was fretting about it on TV. Yet Social Security checks were still going out like clockwork. The whole system kept working because workers in 2011 were much, much more productive than in 1945. Consider that 150 years ago, 50 percent of all Americans worked on farms. Today, only 2 percent do. Yet overall, the rest of America does not suffer from a lack of food.
Similarly, we’ve done fine going from the 1945 Social Security ratio to 2011’s to today’s, which is 2.7. It’s projected to decline further, to 2.1, by the end of the 21st century. But given our prior experience, there’s no reason to fear that 2095’s workers won’t be able to support 2095’s beneficiaries.
A Morass of Miscomprehension
Yet Bloomberg kept on pushing, and kept on misunderstanding how Social Security works. In November 2011, he delivered a major address at the liberal Center for American Progress in Washington, D.C. It included his previous shtick on Social Security with something new tacked on.
“I believe the time has come,” Bloomberg declared, “to embrace the spending cuts in Simpson-Bowles largely in their entirety, including their Social Security reforms.” Specifically, he said, the U.S. needed to make “modest adjustments to future benefits now, by slowly phasing in a higher retirement age over the next six decades” and reducing Social Security’s cost-of-living adjustments (i.e., the opposite of the increase in the cost-of-living adjustment that his campaign advocates today).
The numbers made this clear, he explained. “In 1950, there were 16 workers for every one retiree, which kept taxes reasonably low for each worker. … Fifteen years from now, that number is expected to be only two workers per retiree. … Americans will be spending more and more of each day working to support other people’s retirement, instead of supporting their own families if you do the math — 50-50, 50 percent for other families, 50 percent for their own.”
This was wildly off-base. The next year, Bloomberg would become co-chair of Fix the Debt, a project of the Committee for a Responsible Federal Budget. CRFB has an online calculator that allows anyone to fiddle around with different ways of making Social Security solvent. Again, today’s payroll tax rate is 12.4 percent. As the calculator shows, raising it to 15 or 16 percent — that is, nowhere near 50 percent — would cover all promised benefits until the dawn of the 22nd century. The official 2019 Social Security report projects that an increase of 2.78 percent is all that is needed.
Meanwhile, thanks to productivity increases, workers paying a higher Social Security tax rate in the future would still be taking home after-tax wages much higher than workers today — just as workers now have a higher after-tax income than workers in 1960, even though the Social Security tax then was half what it is today.
Throughout 2012, Bloomberg continued to play the same dirge. On March 28, he wrote an op-ed in the Wall Street Journal that emphasized the importance of “slowing the growth of entitlement costs including Social Security.” The next day, he appeared on CBS to make the case that America needed to “decrease the benefits or raise the eligibility age for Medicare and for Social Security.”
Later that year, he contributed a piece to the Washington Post. He was encouraged, he said, that the Obama administration and Congress were talking about tax increases and cuts to Social Security and Medicare — even if “the tax revenue and entitlement cuts being discussed are both less than what I and many others believe are necessary.”
In early 2013 Bloomberg went on the “Charlie Rose” show with Bill Gates, one of the handful of people on Earth richer than him. Bloomberg again said it was necessary to “raise the age where these programs [Social Security and Medicare] kick in” and nattered on about the worker-to-retiree ratio.
Then he added one last burst of confusion: “But when they say the Social Security trust fund, there is no Social Security trust fund. The government takes this money and just throws it into the pile with everything else and they spend it on their favorite programs. … [Benefits] will have to come out of current revenue because we haven’t remotely put aside enough money to fund it.”
The Social Security trust fund is a strange, perplexing concept, and there are two legitimate ways of looking at it. What you shouldn’t do is talk about it in both ways simultaneously, which is what Bloomberg did.
The first, simplest way is to consider the federal government as one unified entity. The last time Social Security was overhauled was in the 1980s. Payroll taxes were raised to a level greater than needed to pay benefits at the time. The extra money was used to buy government bonds, which now belonged to the Social Security trust funds, currently with reserves of $2.8 trillion.
But if the federal government is one entity, these bonds were not real assets, in the same way that you haven’t increased your wealth if one of your pockets borrows $5 from another. In that sense, as Bloomberg said, “There is no Social Security trust fund.”
From this first perspective, however, there’s no way for any part of the government to “save” for the future in the way individuals can, or go broke. It therefore made no sense for Bloomberg to get angry that benefits would “have to come out of current revenue because we haven’t remotely put aside enough money to fund it.” Here he switched to the second perspective on the Social Security trust fund, that it is separate from the rest of the government and can save for the future and “put aside money.” If so, there are Social Security trust funds. The whole thing is a morass of miscomprehension on Bloomberg’s part.
In any case, by the middle of Obama’s second term, the momentum for cutting entitlements was waning. The 2016 Democratic Party platform affirmatively called for expansion of Social Security and no cuts.
Bloomberg’s billions make him essentially his own party, however. And despite his glaring lack of understanding of how Social Security works, his desire to reduce benefits appears quite genuine. His plan seems carefully designed to give him wiggle room to do so. So voters may be wise not to take his current effusiveness for the program at face value.