French Socialist Government Underwhelms with Pension Reforms

The pension reforms announced by the French prime minister, Jean-Marc Ayrault, on Tuesday do little to improve the retirement system’s solvability in the long term.

While the pension age remains at 62 — despite President François Hollande’s campaign promise to bring it down to sixty — the number of years of work required to collect a pension is set to rise by one and half between 2020 and 2035.

Starting next year, companies and workers will also be required to pay more into the system, which faces a €14 billion shortfall this year.

The pension fund’s deficit is projected to increase by €6 billion by 2020.

Nobody’s happy

Although the higher payroll contributions should be offset by unspecified reductions in other taxes, business groups have been quick to criticize the absence of structural reform.

“In truth, it is a non-reform,” Pierre Gattaz, the new head of the country’s largest employers’ confederation, told the Financial Times.

Labor unions were dismayed by the requirement to work longer and announced a strike for next month.

Support for reforms

Although French pensions are lower on average than in the rest of Europe, they are paid almost entirely by the state.

Public spending on pensions accounts for 14.4 percent of annual French economic output. The EU average is 12.9 percent.

Surveys suggest a majority would support raising the retirement age and bringing public-sector pensions in line with those in the private sector.

Many civil servants, like bus and metro workers, are able to retire in their early fifties, a source of grievance in a country where one in five people are employed by the government.

Powerful unions

The trouble for Hollande is that he has little political leeway in this area. Members of his Socialist Party would likely block reforms, given their reliance on support from public-sector workers and trade unions.

When the European Commission urged France to raise the pension age, Hollande responded that the body could not “dictate” policy.

“It’s up to us and us alone to decide what path to take to obtain the objective,” he said at the time.

Time bomb

Demographics are not on his side, The Wall Street Journal reports.

France had five people of working age for every one retiree in 1950. Today it has 1.4 and the ratio is expected to fall to 1.2 by the middle of this century.

“France’s somewhat higher birth rate might spare it from the worst of the pension crisis that threatens Germany and other European countries a few decades hence,” according to the American newspaper. “But given France’s consistent lack of economic growth, relatively favorable demographics can postpone the pension bomb’s detonation. It won’t defuse the bomb.”

France’s Hollande Unlikely to Reform Pensions

French president François Hollande is unlikely to pull off a comprehensive overhaul of his nation’s pension system even as it faces a €14 billion shortfall this year.

Reuters reports that in spite of calls to reform from the European Commission and other European Union member states, Hollande’s own lawmakers “are determined to prevent any erosion in the old age provision enjoyed by the French.”

The European Commission in May urged France to initiate pension reforms by raising the retirement age. Hollande, who partially rolled back a retirement age increase enacted by his conservative predecessor, responded, saying the commission didn’t “dictate” policy. “It’s up to us and us alone to decide what path to take to obtain the objective,” he said. Read more “France’s Hollande Unlikely to Reform Pensions”

America’s Deficit Falls, Long-Term Fiscal Challenges Remain

Opposition Republicans in the United States have been notably silent of late about the imminent fiscal crisis they predicted. That isn’t surprising. The deficit is falling so the policies they recommended to shrink it faster, which weren’t always popular to begin with, seem less urgent.

Which isn’t to say that reforms aren’t still needed to prevent the national debt, which grew more than 50 percent through President Barack Obama’s years in office, from rising further.

After four years of running deficits that exceeded $1 trillion, the Congressional Budget Office predicts that the country will post a shortfall equivalent to 4 percent of economic output this fiscal year and 2.1 percent in 2015.

That is rather in spite than because of the president’s policies, however. The deficit is falling thanks to recovering economic growth, the expiration of his stimulus program and spending cuts initiated by Republicans, who are in the majority in the lower house of Congress, when members of Obama’s own party, who control the Senate, would have preferred to raise taxes more.

Longer term, the fiscal outlook is less rosy. The federal debt is already at 73 percent of gross domestic product. Including the debts of local and state governments would cause the figure to rise to 103 percent. Read more “America’s Deficit Falls, Long-Term Fiscal Challenges Remain”

Democrats’ Resistance to Pension Reform Unfounded

Dick Durbin Harry Reid Nancy Pelosi Barack Obama
Democratic leaders Dick Durbin, Harry Reid and Nancy Pelosi meet with President Barack Obama in the Oval Office of the White House in Washington DC, July 11 (White House/Pete Souza)

Members of President Barack Obama’s party insist that America’s retirement program is not insolvent and should therefore not be part of deficit reduction negotiations with Republicans who control the lower chamber of Congress. In fact, it is.

The two parties must come up with a program for fiscal consolidation before the end of the year or a combination of spending cuts and tax increases automatically goes into effect — the so-called fiscal cliff.

Democrats with to exempt most entitlements, especially Social Security, from reform while Republicans are opposed to tax increases when most observers agree that a combination of both is needed to reduce the nearly $1 trillion deficit. Read more “Democrats’ Resistance to Pension Reform Unfounded”

Democrats Face Crucial Choice on Entitlement Reform

Even if Democrats hold on to the presidency and their Senate majority in November’s election, it is almost inevitable that they will have to do entitlement reform with Republicans in Congress. Time is running out to preserve the social safety net programs which, even more so in the last four years, tens of millions of American have come to depend on.

Forty-six million senior Americans are currently on Medicare. More than fifty million are on Medicaid, which finances health care for the poor. Fifty-two million receive Social Security benefits. Five million receive Supplemental Security Income. Seven million receive unemployment insurance. Nearly 47 million are on food stamps or benefit from other nutrition programs.

In 2010, these entitlements accounted for $2.1 trillion of federal spending or 66 percent of the budget. Spending on unemployment benefits and food stamps will likely come down as the economy recovers. For comparison, four years ago, before Barack Obama became president, 32 million were on food stamps. But the costs of the three largest entitlement programs are expected to continue to increase, largely as a result of changing demographics. Read more “Democrats Face Crucial Choice on Entitlement Reform”

Ryan’s Medicare Plan Would Lower Insurance Costs

Vice President Joe Biden on Thursday fiercely criticized his Republican opponent Paul Ryan’s Medicare reform plan. The Wisconsin congressman’s proposal to subsidize seniors’ private health insurance plans would “eliminate the guarantee of Medicare,” said Biden during a televised debate between the two candidates.

In fact, in the second iteration of his plan, Ryan, who chairs the House of Representatives’ budget committee, preserved Medicare as an entitlement. He eliminated it altogether for Americans under the age of 55 in his original, 2011 budget and replaced it with a voucher program but revised that approach earlier this year. Read more “Ryan’s Medicare Plan Would Lower Insurance Costs”

Obama Offers No Fresh Hope of Fiscal Consolidation

In his final State of the Union address before he runs for reelection in November, President Barack Obama on Thursday vowed to “fight obstruction with action” and move ahead with policy if Congress didn’t act.

To mend an enormous $1.1 trillion deficit, the president proposed to raise taxes on the wealthy. “The American people know what the right choice is,” he said. “If you make more than $1 million a year, you should not pay less than 30 percent in taxes.” He conditioned his support for entitlement reforms on changes in the tax code to ensure that everyone pays their “fair share.”

Americans who earn more than $1 million per year actually pay 35 percent of their income in federal taxes, on top of state income taxes, except if that income is derived from long-term investment when it’s taxed at 15 percent. Read more “Obama Offers No Fresh Hope of Fiscal Consolidation”

Top Democrat: We Could Have Deficit Deal

Members of the congressional “supercommittee” tasked with identifying more than a trillion dollars in deficit reduction took to the Sunday morning news shows to vent their differences as a deadline to reach compromise was periously close. According to Massachusetts senator John Kerry, the two sides could still reach a deal before Monday evening.

Kerry, a top Democrat, told NBC’s Meet the Press that Republicans had made “the calculation politically” to block a comprehensive deficit reduction effort “to wait until next year and just write their own deal.” Read more “Top Democrat: We Could Have Deficit Deal”

Social Security Comments Won’t Disqualify Perry

Political commentators who are writing off Texas governor Rick Perry as unelectable because of the controversial comments he made about Social Security are making a serious mistake. Perry’s frankness, in fact, could help him garner support among moderate Republican voters who otherwise regard his populist style warily.

Perry, the frontrunner among Republican presidential hopefuls, suggested in a book he authored last year that Social Security, America’s public pension system, was unconstitutional because it infringed on the powers traditionally reserved to the states.

During last week’s debate of Republican presidential candidates, Perry stood by that opinion and added that it was “a monstrous lie” for defenders of the program to pretend that it may be available to future generations in its present form. “Young people who are paying into that expect that program to be sound and for them to receive benefits when they reach retirement age — that is just a lie,” he said.

Former Massachusetts governor Mitt Romney, Perry’s foremost contender, criticized that statement. “Our nominee has to be someone who isn’t committed to abolishing Social Security but is committed to saving Social Security,” he said. His campaign is chastising Perry for comparing Social Security to a “Ponzi scheme” but hasn’t quite explained yet how Romney would avert the imminent insolvency of the program.

The Social Security trust fund is projected by its trustees to last until 2036. According to estimates by the Congressional Budget Office, it won’t be exhausted before 2040 but once the fund is depleted, the annual payroll taxes that pay for the program will only be sufficient to cover 75 percent of the retirement benefits that it is required to pay seniors.

In 2010, Social Security spent $49 billion more in benefits that it took in from its payroll tax. This year, the program will likely spend $733 billion or one-fifth of the federal budget with a $46 billion deficit. Between today and 2085, the pension program’s trustees estimate a total shortfall of $9.1 trillion.

Some 56 million Americans receive Social Security benefits this year. When the program was created in 1935, the earliest retirement age was 65 — one year above the average life expectancy. Although Americans grow much older on average now, beneficiaries can begin collecting at 62 and might well live in retirement for up to two decades.

Meanwhile, the base of support from workers paying into the system has shrunk dramatically. In 1950, there were sixteen active workers paying for every retiree. Today, the ratio is three to one and there will be even fewer workers compared to seniors in years to come.

Little wonder that six out of ten American workers last year said not to expect Social Security to be able to pay them benefits when they retire. Among working Americans under the age of 35, the number was even higher. 76 percent of them do not expect to draw a Social Security check when they stop working.

Meanwhile, this year, two out of three Americans recognize that entitlement programs like Social Security are bankrupting the nation. Just 7 percent of people questioned in a USA Today/Gallup poll in April believe that social welfare programs will not create a crisis for America in the foreseeable future.

Democrats, so far, have resisted entitlement reform. After Republicans in April voted to privatize Medicare, which finances health care for seniors, and replace it with a subsidy, Democrats pledged to defend the “bedrock promises” of social insurance.

After the chairmen of a fiscal commission created by the president by study long-term solutions to the nation’s debt crisis proposed to raise the retirement age by one month every two years once it has reached 67 under current law to achieve up to $4 trillion in savings, Senate Majority Leader Harry Reid told NBC News that Social Security was “not in crisis. This is something that’s perpetuated by people who don’t like government,” he added. “Social Security is fine.”

Maryland congressman Chris Van Hollen, the number three Democrat in the House of Representatives, agreed. “We’re not going to balance the budget on the backs of Social Security beneficiaries,” he told CBS News in February. President Barack Obama has even vowed to preserve Social Security “forever.” He denounced privatization as “an ill conceived idea that would add trillions of dollars to our budget deficit while tying [people’s] benefits to the whims of Wall Street traders and the ups and downs of the stock market.”

Mitt Romney’s views aren’t radically different from those of many Democrats. Although he supported a Bush Administration effort to privatize Social Security for the wealthy in 2007, he promised to “keep it working for millions of Americans” on Wednesday night.

Opinion polls taken over the weekend suggest that Governor Perry’s popularity among Republican primary voters hasn’t suffered as a consequence of his debate performance.

Nationally, a majority of voters would rather keep Social Security as it is even if they recognize that that’s impossible. Among conservatives, however, support for a federally funded and federally regulated welfare program has always been lukewarm at best. Even if Republicans like to receive Social Security benefits in their old age, they are ideologically opposed to the program’s very existence.

Centrist Republicans may not necessarily agree with Perry’s opposition to Social Security — although he’s indicted that he won’t abolish it altogether — but they do appreciate his fortitude and candor especially contrasted against Romney’s apparent willingness to take whatever opinion is popular. His many “flip flops” are infamous whereas Perry is standing by his earlier comments. Conservatives like that. The country, though, may not.

Social Security Has to Be Changed

Whether a bipartisan congressional committee designed to find up to $1.5 trillion in deficit reduction over the next decade manages to compromise on entitlement reform or not, Social Security has to change. The retirement program is running out of money.

As part of last week’s agreement to raise the nation’s legal debt ceiling, Democrats and Republicans in Congress will form a special committee tasked with identifying more than a trillion dollars in “cuts” to both discretionary and mandatory federal spending. The former includes all spending that is supposed to be appropriated by Congress every fiscal year, including defense, education, housing and infrastructure. Mandatory spending refers to entitlement programs like Medicaid, Medicare and Social Security which are basically on autopilot. Unless they are significantly reformed, analysts predict that these programs could go bankrupt within a matter of decades.

After the Congressional Budget Office warned earlier this year that public health support and pension programs were likely to grow at an unsustainable pace in years to come, the trustees of these decade-old safety nets delivered a series of dire warnings in May which made the case for reform all the more pressing.

The Social Security trust fund is projected by its trustees to last until 2036. According to CBO estimates, it won’t be exhausted before 2040 but once the fund is depleted, the annual payroll taxes that pay for the program will only be sufficient to cover 75 percent of the retirement benefits that it is required to pay seniors.

In 2010, Social Security spent $49 billion more in benefits that it took in from its payroll tax. This year, the pension program will likely spend $733 billion or one-fifth of the federal budget with a $46 billion deficit. Between today and 2085, the pension program’s trustees estimate a total shortfall of $9.1 trillion.

Some 56 million Americans receive Social Security benefits this year. When the program was created in 1935, the earliest retirement age was 65 — one year above the average life expectancy. Although Americans grow much older on average now, beneficiaries can begin collecting at 62 and might well live in retirement for up to two decades!

Meanwhile, the base of support from workers paying into the system has shrunk dramatically. In 1950, there were sixteen active workers paying for every retiree. Today, the ratio is three to one and there will be even fewer workers compared to seniors in years to come. Obviously, doing nothing is not an option.

The chairmen of the president’s fiscal commission proposed relatively modest changes to the pension system last year that would make it solvent for the next half century. Former Republican senator Alan Simpson and Democrat Erskine Bowles, a former White House chief of staff, suggested to raise the retirement age by one month every two years after it reaches 67 under current law to achieve up to $4 trillion in savings. The retirement age would reach 68 around 2050 and 69 by 2075.

They also wanted to allow retirees the choice of collecting half of their benefits early and the rest at a later age to support phased retirement options.

Dozens of Democratic lawmakers immediately urged the president to protect Social Security after Simpson and Bowles released their findings. “If any of the commission’s recommendations cut or diminish Social Security in any way, we will stand firmly against them,” they pledged. Then House speaker Nancy Pelosi said that any deficit reduction plan “must do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare.”

The Democratic leader in the Senate, Harry Reid, told NBC in January of this year that Social Security is “not in crisis. This is something that’s perpetuated by people who don’t like government,” he added. “Social Security is fine.”

Maryland Congressman Chris Van Hollen agreed. “We’re not going to balance the budget on the backs of Social Security beneficiaries,” he told CBS News in February. The president has even vowed to preserve Social Security “forever.” He denounced privatization as “an ill conceived idea that would add trillions of dollars to our budget deficit while tying [people’s] benefits to the whims of Wall Street traders and the ups and downs of the stock market.”