How to Change Social Security to Reduce Future Public Debt
by Bruce Webb
A quick hit for Super Bowl Sunday.
Certain opponents of Social Security claim their goal is ‘sustainable solvency’ which is in practice defined as reducing the flow of funds from the General Fund to Social Security over the long term. In a previous post I pointed out that straight benefit cuts do not have this effect, and rather paradoxically actually serve to increase such obligations over the long term. Which suggests that if we want to do more than shift Public Debt obligations around in time but actually seek to reduce them there is only one short term solution.
Cut FICA taxes. Give workers and their employers a mild tax break.
For example lets say we cut the current FICA tax by 0.2% of payroll and diverted 0.3% of what remained to the Disability Insurance component. The end result would be a 0.5% of payroll cut to OASI and a 0.3% boost to DI. The latter would immediately put DI very, very close to long term actuarial balance while the former would mean slowing the rate of growth of the OAS Trust Fund (which opponents believe is just a unfunded debt obligation and no asset at all). This in turn would reduce the ultimate peak point of Trust Fund balances by limiting total interest that would have accrued to the TF.
Over the short run this increases the needed draw on the General Fund in just the same way that pre-paying your mortgage does. But over the long run it saves the General Fund plenty. And the extra flow could be easily financed by a small wealth tax, or simply by tapping a little of the revenue gained from the expiring tax cuts.
If the Peter G Peterson’s of this world are REALLY believers in intergenerational equity and keeping debt on our children and grandchildren to a minimum they can do so by cutting taxes paid by workers now and doing an early repayment of the money they have been borrowing. Time for the billionaires to show whether they are seriously concerned about ‘fiscal responsibility’ or simple welshers on their debt obligations, time for them to put up or shut up. Show that they are willing to actual share in the shared sacrifice they insist that workers should take.
Cut FICA and give workers a break for once.
___________________________________
This is more polemic than serious policy proposal, but it works. It fixes DI and simply brings forward the trigger for the mild increases in OAS that will still be needed a decade plus out. But the overall economic and political strain created by a bigger than necessary Trust Fund would be reduced and workers would get a small but real tax cut in the interim, so really it is kind of a win/win. For everyone but the billionaires. Which is why I don’t expect it to come to pass.
But Bruce, how does your new suggestion help to preserve the tax advantages now enjoyed by the very wealthy individual? If you’re going to offer a plan that you expect guys like Peterson to find acceptable you’re going to have to include some mechanism whereby those special Treasury notes need not be regarded as real debt. Or, better yet, maybe FICA rates can be increased to a point whereby the Trust Fund can then be legislated to a fund which might be used to settle off budget expenses of the military budget. You see there are varied ways by which we can effectively kill social security and, at the same time, supplement the general budget so as to help reduce the strain of additional taxation felt by those who already have more than enough, but would like to contribute less.
Much easier to just cut benefits in half. I mean nobody important in the USA would much care, would they? They don’t need SS.
Greg I don’t expect Peterson to accept this. It is instead an attempt to expose the hypocrisy of the ‘intergenerational equity’ bullshitters.
Alice I personally have no beef with you, but if you are the same Alice that has been posting here recently you have some issues with the other Bears. Try e-mailing me or commenting on my blog instead.
Hmmm… no unpopular viewpoints allowed? I didn’t know the blog was run as a popularity contest. Now I do. Thanks.
Alice
i don’t know who you are or whether other bears have objections to your post. In principle I have no objections to anyone except a certain four year old who needs to be spanked and sent to bed so he won’t keep trying to be the center of attention at the grownups party.
if your viewpoint is just unpopular, bring it on. if it has spots, i’ll let you know.
btw
there were three articles in my local paper today all claiming that social security needs to be fixed to save the country.
it will take up sixty percent of the federal budget, they say. this is not true, but they believe it anyway.
the same paper also had an editorial saying that Oregon PERS needed to be fixed because the stock market was not returning enough money to support the pensions promised to state workers.
it is useless to try to explain to them that the stock market was the states idea because it let them pay the workers less, and rely on the stock market to pay their pensions. of course back in the late nineties when the stock market was doing well, that same paper was calling for reducitions in pensions because the retired workers were living too well.
my point here is that the enemies of Social Security are the enemies of all retirement security for workers. they are the enemies of workers. part of it is that they understand that ALL the money is THEIRS and any way they can cut wages or pensions or taxes means MORE for them… of course that’s not true in the long run, but these people can’t think in the long run. they can’t think at all. and they hate you.
Bruce,
I don’t think the politicians are looking at the intricacies of how the trust funds work. They are looking at the 16% tax rate and the 20% of federal spending that SS represents in light of budget pressures.
Sammy
but social security is not federal spending. i don’t mind so much that you don’t understand this, but there are people who ought to understand it who don’t.
look, suppose what you call federal spending is 1 Trillion dollars, and Social Security is 200 Billion… for your 20% (for the 60% that people like David Broder claim it will take in 2085 or whenever, just change the numbers to fit. this is an example, not the real numbers).
But here is the catch.. 800 billion comes in in regular taxes and goes to pay for things like submarines and soldiers and other government, and government debt.
the 200 billion comes in in payroll taxes that people pay in order to save for their retirement. then it goes out to pay for their retirement. calling this government spending is missing the point entirely: If I give someone I trust very much, call him Dave, a hundred dollars to hold for me until Friday, and then I come back on Friday and he gives me my money…. is that “Dave’s spending”?
and one more time..
it’s not a 16% “tax rate.” it’s the amount of your money that you need to set aside so you will have money when you get too old to work.
it would be different if there was any other way to be sure that you’d have enough money for at least a minimally decent retirement. but there isn’t.
there are ways you can possibly have more, even a lot more, but they are not ways you can be SURE, and they are ways that don’t work so good for the poorest half of the population.
but it’s not “government spending” and it isn’t “the rich paying for the poor”
it is you setting aside enough of your own money in a well insured savings account so that you can get it back when you will need it a lot more than you do now.
You go to war with the blog you have, not the blog you want.
A certain commenter has been complaining that Angry Bear is not the blog he/she wants it to be and has been demanding changes. Most of the Bears don’t want to take it that direction and rather resent outside demands tontjat effect.
Me I am cool with that more political stuff and tossers of Molotov Cocktails are welcome at my place but I strive to be a good house guest at the party. Insisting “this music sucks” being a good enough reason to be kicked out of the party.
So you see how incredibly sad this entire argument has become. Coberly has yet again to explain something that has been explained ad nauseum because Sammy makes the same sad claim over and over again. And if not Sammy then it will be yet some other short sighted or ill intended person who makes that same claim. Of course our so-called liberal President having presented his budget in the same misleading manner that has been popular since the late 1960s, the so-called Unified Budget, only gives support to those who would have everyone believe that social security spending comes out of public funds, i.e. the general budget. In fact the general budget is being deceptively supplemented by Social Security funds through the issuance of so-called Special Treasury Notes in lieu of Trust Fund assets. How many times does the same picture have to be painted? It is as though there were some wide spread conspiratorial agreement amongst the MSM, our so-called peoples’ representatives and the financial industry to simply repeat the same deceptive and inaccurate story until it is accepted as fact. The entire situation is very disheartening. Something like spitting into the wind. Wake up and smell the coffee.
To Movie Guy: SSI is Supplemental Security Income (i.e. “Disability). Though it’s administered by the social security administration, it’s not funded by social security taxes. It comes out of income tax revenue. Anyone is eligible for SSI; they need never have paid a dime of fica.
Social Security Disability (SSD) is funded from social security taxes. Only those who’ve paid into social security are eligible.
You don’t even have the basics right.
Jack,
Sammy is correct. The SSA trust funds are dedicated, but they’re not particularly different from other trust funds operated by the U.S. Government. The highway trust fund, as an example, receives dedicated revenues but funding provided for highway construction, maintenance, and studies is authorized in fiscal year legislation. The only notable difference is that SSA programs, including the seldom mentioned SSI program, are outlined in legislation that insures given levels of fiscal year funding for beneficiaries each year. Hence, mandatory funding vs discretionary funding for the vast majority of SSA funding. It would be a different matter if the SSA wasn’t part of the Federal Government and if the U.S. Treasury wasn’t making the payments to beneficiaries of the programs, but that’s not the real world.
There are many, many references to the Social Security programs in the FY2011 budget including identification of projected obligations. So, yes, it is part of the budget process operated by the Federal Government.
Coberly is the one that pretending that “social security is not federal spending”. That is nuts. Pure and simple.
You’re an idiot. I didn’t identify the source of funding for SSI. And, no, all individuals are not eligible for SSI.
The eligibility requirements are outlined here:
http://www.socialsecurity.gov/ssi/text-eligibility-ussi.htm
hb, aren’t you the bright one. Try getting your know-it-all facts straight.
I didn’t identify the sources of revenue for SSI nor did I stipulate the eligibility requirements. You screwed up on both of your statements.
SSI is funded from general funds of the U.S. Treasury–personal income taxes, corporate and other taxes.
Eligibility for SSI is specifically outlined at the SSA. All persons are not eligible.
If this was a serious proposal, the projected SSA combined trust funds cash flow shortfall for FY2010-2020 would jump up to around $405 billion. It would represent an additional cash flow shortfall of roughly $175 billion above and beyond the $230 billion shortfall projected by CBO in January.
This approach would increase the requirement for additional public debt financing via marketable securities sold in the marketplace. As a result, the interest costs of such financing would crowd out some discretionary spending resulting from funding shortfalls or would serve to further increase the projected fiscal year deficits.
There is no likelihood that Members of Congress would support an initiaitve that would (1) increase general fund deficits, and (2) shorten the timeline for exhausting the SSA combined trust funds revenue streams. While such an effort would shrink the available combined trust funds revenues, the 2% reduction wouldn’t help establish stability for the programs. Shortening the available funding timeline doesn’t make sense.
Wait until we observe the projected cash flow shortfalls for the SSA trust funds and other government programs after FY2020. Congress will likely come unglued if the problems haven’t been addressed prior to that time.
MG,
No matter how you gtwist the facts of the matter SS benefits and revenue sourcde is a legislated structure that is seperate and apart from the general budget. The only aspect of the SS funding mechanism that over laps the general budget is the debt service generated by the special T-Bills and owed to the Trust Fund. That over lap is entry to the obfuscation of the issue. Social Security benefits have an independent source of revenue from that of the general budget, and the Trust Fund has been generatd by that same FICA source and further supplemented by the interest paid from general budget sources for debt service from those special T-Bills.
If you’re not happy about the increasing debt generated by the general budget spending and the service paid to the Trust Fund then tell your elected representative that it is time to raise general budget funds from classical sources. Yes, that’s right, raise general taxes in oreder to pay for the general budget items. Only by stating the budget as a Unified one does the military aspect not stand out like a sore thumb. That’s one budget item that is long over due for a crew cut. That may not be popular with the corporations that supply the useless goods provided to the military. Those who suffer from a serious case of jingovitis may also be disturbed by spending a bit less on useless adventure campaigns in the name of Empire. But that’s where the waste is. If the people who benefit from big military spending want it to continue then maybe they should pony up to the patriot’s corral and open their own pocket books to fund the cost.
Bruce
OH, THAT Alice.
well, she didn’t say anything like that in her current comment so I thought we’d just let bygones by bygone as long as they stayed bygone.
Movie Guy
“pure and simple” is generally the description of an idiot. Social Security is “off budget” pay for by the workers themselves “so no damn politician can take it away from them”. to pretend otherwise is dishonest and stupid.
“projected obligations” can be paid for by the workers themselves with a tiny increase in the payroll tax… not a part of the budget.
the difference between Social Security is that with SS you get your money back. you may or may not get your money back with highway funds.
SSI is not Social Security.
Movie Guy
you are playing games again. not very smart ones.
movie guy
all you have said here is that if Congress cannot keep stealing money from Social Security they will find a way to kill Social Security.
Well JS-Kit is acting up and ate my comment.
MG assuming you numbers are right that $175 billion additional dollars is exactly off-set by an equal $175 billion tax cut to wage workers on earnings under $106,800. You are probably right that Congress would hesitate to tax billionaires to pay for a tax cut for the proles while having no problem calling for tax cuts on corporate profits on some vague assertions that they would assist reinvestment with magical tide rising all boats effects. But it is not clear why a democratic majority shouldn’t ask for a reduction in debt service costs by giving themselves a tax cut.
That you find the idea of asking billionaires to pay more money over the short term to save the entire country money over the medium to long term maybe is to admit more than you would like.
MG–The SS TF pays for the administrative expenses for all SS programs (Retirement, Survivors, and Disability benefits.) SSI is paid for by general revenue. Medicare is paid for by a combination of payroll taxes, premiums, and general revenues, depending on what part you’re talking about. All of the administrative expense appropriations for all these TF funded programs are passed in something called an LAE (limitation on administrative expenses.) It is shown on the unified budget but doesn’t count as general revenue spending.
Bruce and Coberly have explained the details of how the nitty gritty transfers between the TF, Treasury special issues, and general revenues work. True, it is SS’s misfortune to be run by the federal government. Too bad. Are you suggesting that someone or something else operate the SS system? Who puts the checks out doesn’t matter. SS benes ain’t general revenues.
MG–True, the eligibility requirements for SSI are contained in Title XVIII of the Social Security Act, as amended. Those eligibility requirements are both for medical and non-medical factors of eligibility. You don’t have to work to be eligible for SSI. But, if you’re under 65, you have to meet the disability requirements of Title II of the Act. The Social Security Act thus contains the basic provisions for a number of programs, some funded by dedicated taxes and some by a combination of premiums and general revenues.
All your arguments, writ large and small, boil down to one thing: you don’t want to pay for Social Security or any other public pension or assistance program. Period. The distinctions you draw between the TF and general revenues and details of program eligibility requirements are there for something to talk about except the bottom line of your argument. You don’t want it. I suggest you just say so. That would cut out a lot of unnecessary arguing back and forth and free up space on this excellent blog for more productive discussions.
coberly,
You are misrepresenting the SSA programs and SSA trust funds. Perhaps you simply don’t know the facts.
For starters, implying or saying that SSI is not one of the three primary programs of the SSA is nonsense. The SSA does not make your phony claim. Instead, the SSA identified the SSI program as one of its three primary programs in its budget submission to the Obama Administration. Two of the programs are categorized as trust fund programs and one as a general fund program.
http://www.ssa.gov/budget/Budget%20Overview%20Final.pdf
and
http://www.ssa.gov/budget/FY11%20Key%20Tables.pdf
Your repeated characterization of the SSA trust funds is similarly misleading. The standard stuff you post implies that the SSA trust funds are owned by the beneficiaries. That is not the case. The U.S. Government has spelled out the differences between private and government trust funds, including commentary in the latest federal budget submission:
“The Federal Government uses the term “trust fund” very differently than does the private sector. The beneficiary of a private trust owns the trust’s income and may own the trust’s assets. A custodian or trustee manages the assets on behalf of the beneficiary according to the stipulations of the trust, which is set up by a trustor and which neither the trustee nor the beneficiary can change; only the trustor can change the terms of the trust agreement.”
“In contrast, the Federal Government owns and manages the assets and the earnings of most Federal trust funds, and can unilaterally raise or lower future trust fund collections
and payments or change the purpose for which the collections are used by changing existing law.”
“Only a few small Federal trust funds are managed pursuant to a trust agreement whereby the Government acts as the trustee, and even then the Government generally owns the funds and has some ability to alter the amount deposited into or paid out of the funds. By contrast, deposit funds, which are funds held by the Government as a custodian on behalf of individuals or a non-Federal entity, are similar to private-sector trust funds. The Government makes no decisions about the amount of money placed in deposit funds or about how the proceeds are spent. For this reason, these funds are not classified as Federal trust funds, but are instead considered to be non-budgetary and excluded from the Federal budget.”
27. TRUST FUNDS AND FEDERAL FUNDS
http://www.whitehouse.gov/omb/budget/fy2011/assets/technical_analyses.pdf
Pages 417-421
Nancy Ortiz,
The manner in which budgeting and funding for the SSA works is spelled out in the SSA’s budget submission.
Justification of Estimates for Appropriations Committees
http://www.ssa.gov/budget/
Nancy Ortiz – “All your arguments, writ large and small, boil down to one thing: you don’t want to pay for Social Security or any other public pension or assistance program. Period. The distinctions you draw between the TF and general revenues and details of program eligibility requirements are there for something to talk about except the bottom line of your argument. You don’t want it. I suggest you just say so. That would cut out a lot of unnecessary arguing back and forth and free up space on this excellent blog for more productive discussions.”
You’re making phony claims. Try to back them up.
I have never been opposed to any of the programs administered by the U.S. Government’s Social Security Administration. I have never recommended reducing benefits, increasing the eligibility age, or changing any of the eligibility criteria. Similarly, I have never recommended eliminating or reducing benefits in any other Federal social support or assistance program. I may change my views on such matters later on, but I haven’t voiced making such changes thus far.
My broader focus has always been on how does the U.S. Government deal with its growing deficits and the anticipated growth in interest payment obligations which will further crowd out discretionary funding for other existing government programs. I have shared this position many times since the blog was created. I never voiced support for any your wild eyed, phony claims.
Jack – “No matter how you gtwist the facts of the matter SS benefits and revenue sourcde is a legislated structure that is seperate and apart from the general budget.”
Cite the facts that I twisted.
Jack – “If you’re not happy about the increasing debt generated by the general budget spending and the service paid to the Trust Fund then tell your elected representative that it is time to raise general budget funds from classical sources. Yes, that’s right, raise general taxes in oreder to pay for the general budget items.”
Solving the projected deficit problems of the Federal budget general fund may involve more than increasing revenue streams. It is unlikely that sufficient revenue increases by type will occur in order to rein in the deficit spending. Instead, it is likely that we will observe a crowding out problem whereby some discretionary spending will be eliminated primarily due to Federal debt interest payment obligations and collective trust funds’ demands on general fund revenue support.
The operation of the various government trust funds is explained in this manner:
“From the perspective of the trust fund, these balances are available for future benefit payments and other fund expenditures. From the perspective of the Government, the trust fund balances do not represent net resources. The trust fund balances are assets of the trust fund program agencies and liabilities of the Treasury, netting to zero for the Government as a whole.”
“From a cash perspective, when trust fund holdings are redeemed to authorize the payment of benefits, the Department of the Treasury finances the expenditure in the same way as any other Federal expenditure — by using current receipts if the unified budget is in surplus or by borrowing from the public if it is in deficit. The existence of large trust fund balances, therefore, does not, by itself, increase the Government’s ability to pay benefits. From an economic standpoint, the Government is able to pre-fund benefits only by increasing saving and investment in the economy as a whole. This can be fully accomplished only by simultaneously running trust fund surpluses equal to the actuarial present value of the accumulating benefits while maintaining an unchanged Federal fund surplus or deficit, so that the trust fund surplus reduces the unified budget deficit or increases the unified budget surplus. This would reduce Federal borrowing from the public by the amount of the trust funds surplus and increase the amount of national saving available to finance investment. As long as the increase in Government saving is not offset by a reduction in private saving, greater investment would increase future
national income, which would yield greater tax revenue to support the benefits.”
27. TRUST FUNDS AND FEDERAL FUNDS
http://www.whitehouse.gov/omb/budget/fy2011/assets/technical_analyses.pdf
Page 421
http://www.whitehouse.gov/omb/budget/fy2011/assets/technical_analyses.pdf
coberly – “all you have said here is that if Congress cannot keep stealing money from Social Security they will find a way to kill Social Security.”
I made no such claim. What I stated was this:
“If this was a serious proposal, the projected SSA combined trust funds cash flow shortfall for FY2010-2020 would jump up to around $405 billion. It would represent an additional cash flow shortfall of roughly $175 billion above and beyond the $230 billion shortfall projected by CBO in January.”
“This approach would increase the requirement for additional public debt financing via marketable securities sold in the marketplace. As a result, the interest costs of such financing would crowd out some discretionary spending resulting from funding shortfalls or would serve to further increase the projected fiscal year deficits.”
I did not address the issue of tax increases to offset the SSA funding reductions. I didn’t see any point as reduced revenues for the SSA combined trust funds would shorten the timeline for exhaustion of the funds. That just makes no sense.
Bruce,
I outlined the approximate cost increases to the general fund. I didn’t make the assumption that “the extra flow could be easily financed by a small wealth tax, or simply by tapping a little of the revenue gained from the expiring tax cuts.” I wouldn’t know whether Congress would cover additional related costs to the general fund by any tax increases when, in fact, the sustainability of the SSA combined trust funds would not be improved by shortening the timeline when the funds become exhausted. That approach makes no sense.
Your supposed proposal fails to address the shortened timeline for the SSA combined trust funds’ positive balance. You have failed to address that point in response to my comment post. Rather conveniently…
MG,
You have quoted long passages from a SSA source with links to those sources. What you haven’t done is to find such references in the actual SS Act which is equally accessable, but from which your quotations cannot be supported. The following link is to the primary paragraphs of the Social Security Act having to do with the Trust Funds. Other sections of the Act are readily accessable from that linked page. Maybe you can enlighten us all by quoting the law rather than the current Administration’s interpretation of that legislation. That’s our primary problem. They’re all experts at what they would like the law to say. It is so much easier to confuse the publilc in that manner.
http://www.socialsecurity.gov/OP_Home/ssact/title02/0201.htm