Over The Cliff

     The House of Representatives is shutting down for the day without taking action on a fiscal cliff deal meaning we're going over the cliff at least for a day. There is no fiscal cliff deal at this point anyway. Will there be one before January 2? Stay tuned.

FICA Cut To End; No Sign Of Stimulus Funds

     Reportedly, the reduction in the F.I.C.A. will not be continued as a result of the fiscal cliff negotiations. Also, there is no sign that the agreement will include any stimulus funds although that could be in the details yet to be released. If there is any stimulus spending, Social Security could get some of it.

Cliffhanger

     The fiscal cliff negotiations drag on. At this point, preventing the sequester is on the table and the chained CPI change for Social Security's Cost Of Living Adjustment (COLA) is off the table. Republicans are even denying that they want chained CPI! 

     If this is not resolved, Social Security employees should soon expect to receive a furlough warning. As an example of what's coming, the Department of Defense is preparing to notify 800,000 civilian employees that they can expect several weeks of unpaid leave. However, the White House has not informed agencies of exactly how sequestration will be administered. According to the Wall Street Journal, the Office of Management and Budget (OMB) was not even returning phone calls on the subject last week!

No Chained CPI In Fiscal Cliff Deal But No Sequestration Fix Either

     In Social Security terms, the reports about the deal currently being worked out by Senate leaders to avoid the fiscal cliff are remarkable for what's not being discussed -- the chained CPI method of computing Social Security's cost of living adjustment (COLA) and any solution for the sequestration that will dramatically cut Social Security's operating budget on January. Also, the expected deal would do nothing about the debt ceiling problem.

There's Your Problem

     From Mark McKinnon writing for The Daily Beast:

Increasingly, it is becoming clear that the [Republican] party is against everything and for nothing.

Nothing on taxes. Nothing on gun control. Nothing on climate change. Nothing on gay marriage. Nothing on immigration reform (or an incremental, piece-by-piece approach, which will result in nothing). It’s a very odd situation when the losing party is the party refusing to negotiate. It may be how you disrupt, but it is not how you govern, or how you ever hope to regain a majority.

And so, we have a Republican Party today willing to eliminate any prospect for a decent future for anyone, including itself, if it cannot be a future that is 100 percent in accordance with its core beliefs and principles. That’s not governing. That’s just lobbing hand grenades. If you’re only standing on principle to appear taller, then you appear smaller. And the GOP is shrinking daily before our eyes.

What Follows Plan B?

     When House Speaker's Boehner decided to go ahead with his "Plan B", we started down a track that seems to lead directly over the "fiscal cliff." I'm not sure that the failure of "Plan B" in and of itself made the jump into the abyss more likely but the lack of progress over the past few days and the fact that the House of Representatives is adjourning until after Christmas makes that terrible outcome seem nearly inevitable.

     At this point, I think the "chained CPI", which would reduce the Social Security Cost of Living Adjustment (COLA), is less likely to come to pass than it was last week. It appears that nothing can be passed in the House of Representatives without Democratic votes and the price of those votes is the end of the chained CPI. The current 2% reduction in the F.I.C.A. tax is almost certain to end on December 31. That might be revived later but I wouldn't bet on it. Social Security and other agencies will almost certainly get hit by sequestration on January 1. Sequestration dramatically lowers the agency's budget and will eventually bring about employee furloughs. However, the Office of Management and Budget is telling agencies to send out messages to their employees that do not mention furloughs. I take that to mean that there is enough leeway for Social Security and other agencies to delay furloughs in the expectation that sequestration will not last long.

     Also, I hate to mention it, but we're approaching the statutory cap on the federal debt. Even with everything that happens with the fiscal cliff, we'll still get to that cap sometime in January or early February. The consequences of getting to that cap are almost incalculable. Even shutting down the federal government will probably be inadequate to prevent the country defaulting on its debts. It may take significant reductions in everything including Social Security payments, which, in its own way, would be a default on a federal debt.

Progress On Fiscal Cliff Negotiations And Social Security May Be Greatly Affected

     There is progress in the fiscal cliff negotiations. If the reports are accurate, Social Security will be greatly affected. Ezra Klein (who is about as well plugged into the Obama Administration as it is possible for an outsider to be) reports that the deal would include:

• A shift to the chained CPI method of computing Social Security's Cost of Living Adjustment (COLA). The chained CPI method is a sneaky way of cutting Social Security benefits. Few people understand it but it reduces the COLA. Its effects on a Social Security recipient compound as the years pass. 
• An end for the sequester, which would dramatically cut operating budgets for Social Security and all other agencies on January 1 if it takes effect but there would be another sequester-like device to take effect at some later date.
• There might be "some amount of infrastructure spending" in the deal. Klein does not say how this spending might be directed. The Social Security Administration would be a great place for this spending. The money could be spent quickly and to great effect, both in terms of backlogs at Social Security and program integrity.
• The 2% reduction in the F.I.C.A. tax would end.

     A Washington Post article says that the infrastructure spending could be $50 billion! I would be extremely disappointed if Social Security were not included in infrastructure spending that high. 

     The article relates that"[S]enior Democratic aides said they could probably muster the votes for the [chained CPI] change if it was not applied to disability payments, known as SSI, and if very old seniors were protected through a bump-up in benefits at age 85." I hope this is just confused, that the chained CPI would not be applied to Title II Social Security disability benefits as well as SSI disability benefits. This would make sense because applying the chained CPI to someone who would draw disability benefits and then retirement benefits for 50 years or more would be devastating because of the compounding effect.

Sequestration Would Be A Disaster For Social Security

     While there are reports of some progress in the fiscal cliff negotiations, the parties remain far apart and agreement is uncertain. One of the consequences of failure to reach agreement and the one that is of the most importance for the Social Security Administration is sequestration, a sudden, dramatic cut in the agency's operating budget effective January 1. Sequestration would be far worse for Social Security than a government shutdown. In a government shutdown, most of Social Security continues to operate. A Senate Finance Subcommittee report gives some idea of what sequestration would mean for Social Security:

In fiscal year 2012 SSA’s [Social Security Administration unnecessarily stated in the possessive form] had an administrative budget of $11.45 billion. This represents less than 1.5% of the over $800 billion it will pay in benefits. The sequester would cut SSA’s administrative budget by $890 million in fiscal year 2013. As a result, in fiscal year 2013 SSA would lose 5,000 staff through attrition and the loss of temporary hires. In addition, SSA’s approximately 65,000 employees and 15,000 State Disability Determinations Services employees would face approximately 6 weeks of furloughs.

Degradation of Basic Services

... The processing time for the 3.2 million Americans who will file disability claims would increase from 111 days in fiscal year 2012 to an estimated 180 days in fiscal year 2013. The number of pending disability claims would increase from 861,000 in fiscal year 2012 to almost 1.5 million by the end of fiscal year 2013. As field offices and telephone-service centers close their doors for 30 days throughout the year, the waiting time for the 45 million field office visitors and 63 million 1-800 number callers would increase dramatically.

Combating Waste, Fraud, and Abuse
This year the SSA will conduct 435,000 continuing disability reviews, to ensure individuals receiving disability benefits are still disabled, and 2.4 million SSI redeterminations, to ensure individuals receiving SSI still meet income and resources limitations. Combined, these two program integrity activities are expected to save $5.9 billion over 10 years, approximately $8 for each $1 spent. Under the sequester, SSA would be able to conduct 35,000 fewer continuing disability reviews and 500,000 fewer SSI redeterminations. This would cost the Federal government $500 million over 10 years from otherwise preventable waste, fraud, and abuse.

AARP Opposes COLA Cut

     From the Huffington Post:

On Wednesday, AARP volunteers and staff will visit Capitol Hill to deliver a strong message to Congress on the fiscal cliff: leave Social Security and Medicare off the table. ...

"Americans have spoken and they don’t want Congress or the President to make changes to Social Security or Medicare in any last minute deficit deal,” AARP’s volunteer president Rob Romasco said in a statement....

Specifically, AARP opposes changes to Social Security's cost of living adjustments, or COLAs. The fiscal deal proposal offered by Republicans on Monday suggests changing the way inflation is calculated, which would reduce COLAs by over $100 billion over the next decade according to the Congressional Budget Office.

"Reducing Social Security benefits by moving to a chained consumer price index (CCPI) –- estimated to take $112 billion dollars out of the pockets of current and future Social Security beneficiaries in the next 10 years alone – is inappropriate and unwarranted," AARP CEO A. Barry Rand wrote in a letter to lawmakers earlier this month.

Picketing At Social Security Office Scheduled For December 5

     From Federal Daily News:

A coalition of labor groups and public interest organizations plans to conduct informational pickets this week outside Social Security Administration offices in 22 states.

According to media alert from the American Federation of Government Employees, the effort will involve “thousands of Social Security employees at more than 100 Social Security offices across the country and representatives from a 200-plus member organization coalition…”

The event, labeled “an effort to save Social Security and Medicare from extinction,” is slated to occur Dec. 5 from 12 p.m. to 2 p.m. ...

“Cutting Social Security’s budget or making modifications to Medicare and Medicaid should not be part of a grand bargain to reduce the deficit,” Witold Skwierczynski, president of AFGE’s National Council of Social Security Field Operations Locals (NCSSFOL), said in a statement.

AGFE said that an NCSSFOL study determined that sequestration, if implemented, would require SSA to reduce its budget by 5.5 percent, leading to a hiring freeze across most of the agency, and the loss of more than 3,500 SSA and Disability Determination Service state employees. ...

Members of the coalition include the Alliance for Retired Americans, Social Security Works, MoveOn.org, Common Cause, Gray Panthers, American Federation of Teachers, National Council of Negro Women, NAACP, National Committee to Preserve Social Security and Medicare and other unions and groups. 

According to AFGE, the picketing will take place at SSA offices in Alaska, Alabama, California, Florida, Iowa, Indiana, Illinois, Maryland, Massachusetts, Minnesota, Missouri, North Carolina, Nebraska, New Mexico, Ohio, Oregon, Pennsylvania, South Carolina, Texas, Virginia, Washington and Wisconsin.

A Good Summary Of The Fiscal Cliff Situation

     From Daniel Gross writing in The Daily Beast:

The reality should be seeping in to viewers of the Sunday shows that the Republicans don’t have a game plan. They don’t have a single, specific proposal to avoid the fiscal cliff. And even if they had one, they don’t have a roadmap to get there. They keep expecting Obama to come back with something more to their liking, which they’d also reject. Many Republicans literally don’t understand what is happening. Sen. Charles Grassley tweeted over the weekend that he was frustrated that President Obama hadn’t embraced the recommendation of the Bowles-Simpson Commission. Apparently, he is one of the many people in Washington who doesn’t understand that Bowles-Simpson recommended letting the Bush tax rates on the wealthy expire, while also proposing to cap or eliminate deductions primarily enjoyed by the wealthy.

Above all, the Republicans have yet to grasp that the field is tilted against them. Republicans have every reason to expect, based on their scouting of past Obama performances, that he will start moving toward them and then, essentially, bargain with himself. But now he doesn’t have to. Right now, the policy choice isn’t between an Obama proposal the Republicans abhor and a preferred Republican proposal. No, the choice is between an Obama proposal the Republicans abhor and the fiscal cliff, which Republicans would like even less and the Democrats could live with for a while.

The Republicans are losing, and time is running out. But instead of putting the quarterback on the field and rolling out an aggressive two-minute drill, they seem to be preparing to punt.

     Update: House Speaker Boehner has come up with a "proposal." It would take the sequestration that would cut funding so much that it would render the federal government, including the Social Security Administration, inoperable and increase it by 30%! To quote John McEnroe, "You cannot be serious!"

A Counter-Offer -- Reduce The COLA

     From the Los Angeles Times:

Sen. Mitch McConnell of Kentucky, the minority leader, provided the first GOP counter-offer to President Obama’s push for higher taxes on the wealthy. McConnell said his party would like to increase the Medicare eligibility age and ask wealthier Americans to pay higher Medicare premiums. He also suggested paring back the cost-of-living increases given to Social Security beneficiaries ...

     And McConnelll is up for re-election in two years but he's more worried about re-nomination at the moment.

The State Of The Fiscal Cliff Negotiations -- Social Security Benefits May Escape Cuts. Republicans Want To Escape Blame

     From Politico:

There is only one way to make the medicine of tax hikes go down easier for Republicans: specific cuts to entitlement spending. ...

A top Democratic official said talks have stalled on this question ...  Rob Nabors [the White House negotiator], has been saying: ‘This is what we want on revenues on the down payment. What’s you guys’ ask on the entitlement side?’ And they keep looking back at us and saying: ‘We want you to come up with that and pitch us.’ That’s not going to happen.” ...

It is possible Social Security gets tossed into the mix, but Senate Majority Leader Harry Reid (D-Nev.) plans to fight that, if he has to yield on other spending fronts. ...
 
[T]hat will most likely be the deal Republicans will be staring at: tax hikes now in exchange for Medicare changes way later.

     Note that Republicans are trying hard to avoid responsibility for Social Security or Medicare cuts. They want the President and Democrats to "own" those cuts even though it is the Republicans who are demanding them. Republicans want to continue to call, in the abstract, for cuts in "entitlements" while demanding that Democrats propose the actual cuts to Social Security and Medicare. The public doesn't oppose cuts to "entitlements" since the public has little idea what that term means. If anything, most of the public seems to think that "entitlements" are some form of "welfare" that doesn't go to people like them. The public does strongly oppose cuts in Social Security and Medicare, however, since the public, in general, is either receiving Social Security and Medicare or expects to.

I Hate To Be Gloomy, But ...

     A Republican sweep of the White House, House of Representatives and Senate might have had devastating effects on Social Security but the result we got -- basically the status quo -- leaves Social Security at great risk. Yes, the new Commissioner will be an Obama appointee. Yes, Democrats will have a somewhat increased majority in the Senate. However, the following problems remain:

• I have noted over the decades of following Social Security that the House Social Security Subcommittee seems to have more influence over the Social Security Administration than the White House and Senate combined. Republicans will continue to control the House Social Security Subcommittee. They are not big fans of the concept of social insurance.
• Republicans in the House of Representatives will continue to have a choke hold on Social Security's administrative budget. They have been extraordinarily irresponsible yet they too won re-election. Their irresponsibility is unlikely to change.
• The entire federal establishment, including Social Security, is facing even more dramatic appropriations cuts as a result of sequestration, scheduled to begin on January 1, 2013. That word, "sequestration," may seem foreign to you but you're going to hear it more and more over the next two months or so. Sequestration would cut Social Security's operating budget much further, to the point that furloughs would be inevitable. The only question is how the furloughs would be implemented. While no one expects sequestration to continue though the rest of the fiscal year, it is entirely possible, if not probable, that we will see sequestration for at least part of January and possibly for quite a bit longer.
• The Disability Trust Fund will temporarily run out of money in 2016. This is related to the baby boom population reaching its most disability-prone years. The inevitable solution is to allow borrowing from the Retirement and Survivors Trust Fund. This has been done before.  However, we have all seen Republican hostage-taking over the last two years. Will House Republicans try to take Disability Insurance Benefits hostage? I have seen no sign of a Republican agenda for the Social Security disability programs but they may be working on one. It would be great if inter-fund borrowing was included in the resolution of the "fiscal cliff" negotiations but are Democrats focused on this problem which will not come to a head for another three or four years? One frustrating thing for Republicans has to be the fact that there is report after report showing that large amounts of money are being wasted in the Social Security disability programs but almost all of this waste can be attributed to Republicans starving the agency's administrative budget! At the least, the Disability Trust Fund situation serves as a check on the new Commissioner. He or she will find it difficult to do anything that can be seen as benefiting the disabled since he or she will constantly be reminded that the Disability Trust Fund is going bankrupt.