Social Security could be a strong campaign issue for Democrats

With the prospect of the Republicans gaining control of the Senate and increasing their majority in the House of Representatives, retired folks on Social Security and Medicare or those on Medicaid have every right to be scared. Once Republicans are in control of both houses of Congress, it will only be a matter of time before they send legislation to the president’s desk to cut benefits. Given the president’s history, it is almost certain he will be forced to or willingly sacrifice these financial safety nets. But there is time to prevent that from happening.

Remember chained CPI? That was the proposed cost-of-living measure that President Obama suggested could be substituted for the current use of the Consumer Price Index (CPI). The idea is that the Social Security Administration would use an alternate measure, the chained CPI, to its current use of the CPI for calculating annual cost-of-living adjustments. This measure assumes that old folks, when faced with rising prices, buy lesser grades of food and clothing, private-labeled products or inferior products as substitutes for their normal purchases. Because of this, their cost of living rises slower than the normal purchases included in the items covered by the CPI. Logically and in practice it means that the chained CPI will lag behind the CPI currently in use for making annual cost-of-living adjustments so that benefits will shrink over time.

{mosads}If the concept of accepting lesser-grade goods and services isn’t enough to offend you, it was just announced two weeks ago that Social Security recipients would get a 1.7 percent increase in benefits next year. Last year ,the increase was 1.5 percent and the year before, 1.7 percent. These increases have been more than offset by rising local taxes ranging from 2.5 to 20 percent, increases in supplemental or direct health care costs of 5 to 20 percent and rising prices of better grades of things like meat and fish. In so many words, you will not find a single retiree who believes that the cost of living adjustments have kept up with the increased costs of living that affect his or her life. So linking increases to a diminished cost-of-living adjustment simply adds insult to injury.

Republicans will no doubt tie the cuts to increasing the debt ceiling and thereby make the president choose between a government shutdown and a cut he can believe in. Why? Because conservative lawmakers believe that the current cost-of-living adjustment “is outdated, inaccurate, and overstates the rise in the cost of living” (the Heritage Foundation). They may not even have to twist the president’s arm, since he promoted the idea in 2013 and only stopped pushing it when his fellow Democrats called him out for betraying his constituents.

It is a little less clear just how much exposure there are to cuts in Medicare in a Republican Congress, since most of the focus has been on dismantling “ObamaCare.” In fact, Republicans are almost defensively circling Medicare as they gear up to shut down insurance exchanges, cut Medicaid and remove mandates from those not willingly in the market for coverage. Given their disposition, however, you can be sure there will be efforts to pare back when the opportunity arises.

But retirees are a potent force, especially in a midterm election. Assuming someone from the Democratic persuasion thinks to make it a campaign issue, it might well be enough to preserve the current majority in the Senate, thus thwarting Republican efforts.

Here are a few numbers to put the issue into perspective. There are currently 240 million Americans of voting age (eligible voters) and over 170 million registered to vote. Midterm elections for the past five midterm elections have attracted an average of 37 percent of eligible voters, or almost 90 million people. So, it would be safe to say that 45 million or more people will decide the outcome in this election.

At present, there are 59 million Americans receiving Social Security benefits; of those, 38 million are retirees and the rest are dependents, the disabled or survivors. The benefits total almost $863 billion (or 5 percent of gross domestic product [GDP]) and for more than 50 percent of the recipients, Social Security benefits represent over half their income.

There are 49 million Americans on Medicare. Forty million of them are age 65 or older. Medicare recipients represent 47.2 percent of total inpatient hospital visits amounting to $183 billion (add a percent to GDP and make this subsidy account for 20 percent of the household income for half those dependent on Social Security).

Midterm elections are all about turnout and the press and the Democrats have been publicly lamenting the lack of enthusiasm among their base, focusing primarily focusing on the justifiable lack of support from young voters for a feckless president. But older folks vote and their political and economic interests will be challenged and compromised should the Democrats lose control of the Senate. Much has been made of the “ground game” for turning out the vote. It is certainly hoped that the focus has not been lost on the interests of this bloc of voters. There is not much in the campaign ads that highlights the political and economic risk facing older voters. If it is ignored right up until the election, it will be a very important error in cobbling together a strategy for survival.

Russell is managing director of Cove Hill Advisory Services.