What Obama and Nixon have in common by Tory Newmyer @FortuneMagazine July 13, 2011, 3:46 PM EST E-mail Tweet Facebook Google Plus Linkedin Share icons Liberals on and off Capitol Hill have been howling since last Thursday, when word first leaked that the White House was open to Social Security cuts in a deficit reduction package. Their objection to trimming benefits for seniors comes wrapped in a process argument: the deficit talks, and the broader debate over the debt limit, are no place to consider changes to the federal retirement program. Liberals say if the White House wants to consider slowing the growth of the program by tweaking its cost-of-living formula, it needs to happen in a separate conversation. But the protests miss a key piece of Social Security’s history: the cost-of-living formula that enshrined automatic benefit hikes pegged to inflation is a relatively recent addition to the program. It was signed into law by Richard Nixon in 1972, having caught a ride to his desk in a bill that — wait for it — raised the debt limit. In the program’s first four decades, there was no prescribed schedule for benefit bumps. Congress simply goosed the payments every couple of years to catch up with inflation — usually in election years. From the start of his term, Nixon leaned on Congress to put those increases on autopilot, believing the change would slow the expansion of benefits. What impact a switch would have wasn’t clear, though Nixon was probably right. From 1940 to 1974, Congress increased Social Security benefits 391% while inflation was 252%, according to a recent study by Larry DeWitt, the Social Security Administration’s historian. Democrats who controlled both chambers of Congress at the time were wary enough of surrendering their prerogative that they resisted Nixon’s proposal. Their attitudes evolved as liberal economists made the case that the unpredictable increases imposed an undue burden on beneficiaries with fixed incomes. By the summer of 1972, Democrats were ready to come around, with the added sweetener of one last Congressionally-tailored 20% boost in benefits. To ensure the increase made it into law, Democrats attached the program reforms to a must-pass measure lifting the debt ceiling. That’s an obscure bit of legislative history, lost today even to some of the entitlement program’s most veteran defenders. (It was originally flagged for us by Paul Volcker, who at the time was serving as under-Secretary of the Treasury for international monetary affairs.) The point is that in terms of the power dynamics at work, not much has changed. Then, as now, and at times in between, a Congress controlled by one party forced a President of the other to swallow some of their ideological medicine as the price to pay for a debt limit hike. These days, of course, it’s the Congressional Republicans driving the hard bargain. The GOP is demanding deep cuts in federal spending before they’ll sign on to extend the federal government’s borrowing authority. As an August 2 default on our debt obligations looms, the administration is facing mounting pressure to strike a breakthrough deficit deal. The urgency has multiplied since the weekend, when House Speaker John Boehner (R-Ohio) walked away from talks toward a grand bargain to cut deficits by $4 trillion over a decade. And the outlook is grim. With big business stepping up pressure on the GOP — 470 executives signed a letter to Congress on Tuesday urging action — Senate Minority Leader Mitch McConnell (R-Ky.) proposed a legislative escape-hatch that would enable President Obama to raise the limit without spending offsets. Throughout, Republicans have categorically refused to consider new tax revenue in the mix, sending the White House scrambling for ways to trim at least $2.4 trillion strictly through reduced spending. That’s how the Obama administration arrived at mulling a change in the cost-of-living formula Nixon signed into law. By switching to a different method for measuring inflation — the so-called chained Consumer Price Index — Social Security would pay out $112 billion less over the next decade, according to federal estimates. It works by assuming that as prices go up, consumers adjust their behavior by seeking lower-cost alternatives to mitigate against inflation. Liberal groups say if anything, seniors need their Social Security benefits increased. Eric Kingson, co-director of Social Security Works, points to another inflation measure, the Experimental Consumer Price Index, that he says more accurately reflects cost-of-living pressures on seniors in part by giving greater weight to health care costs. He says using that index would grow benefits by roughly as much as the chained CPI would cut them. But even as House Republican leaders acknowledge they are going to need Democratic votes to pass a debt limit hike in their chamber, there is no question who is in the driver’s seat in these negotiations. And as Kingson notes, “It’s not like the old days, where you had folks who were fundamentally supportive of the [Social Security] system across the parties.” For empowered Republicans, cutting is the new end, and the debt ceiling debate is a trusty old means.