The Cram-Down Decade
You met your obligations; your employer didn't. Result: You're screwed.
Using money dedicated for retirement savings for other needs? What does the Boston archdiocese think it is, Congress?
Indeed, the mother of all cram downs is shaping up this decade in Washington. For the past four years, as Americans have gone to work, played by the rules, and paid their taxes, Republicans in the White House and Congress have engineered a fiscal disaster. Every year, they take money that was supposed to be used for planning for retirement and spend it on other things. That's one of the reasons we have a crisis in Social Security. But like some of the private-sector corporate pension crises, this crisis is entirely discretionary. It's not that Congress and President Bush can't adequately fund Social Security. It's that they just don't want to. Instead, they want to cram us down.
Because the national pension system—like many of its private-sector counterparts—is woefully underfunded, we are told, stakeholders must be willing to accept benefits that are lower than were promised and less than were anticipated. Robert Pozen's progressive-indexing plan, which President Bush endorsed at his press conference in late April, would cram down 70 percent of Social Security beneficiaries to different degrees. But that's just the first act. As economist Jason Furman notes, progressive cramming down—I mean, indexing—would close only about 70 percent of the projected shortfall in Social Security. The rest of the funds needed to restore Social Security to long-term solvency would have to come from benefit cuts or tax increases. Which solution do you think this crowd prefers?
Given the strength and importance of the housing market over the past several years, branding the '00s as the decade of the cram down might seem odd. And it may likewise seem dubious to define a decade with a phenomenon that has thus far touched only a small minority of Americans. But the housing bubble could be popping soon. And I'm confident that by Dec. 31, 2009, a large number of us will have been crammed down.
Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at email@example.com and follow him on Twitter. His latest book, Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, has just been published in paperback.
Illustration by Robert Neubecker.