AN IMMODEST PROPOSAL
by Dale Coberly
AN IMMODEST PROPOSAL
Bruce Webb offered a modest proposal in a recent post to “fix” the Social Security “problem” by (essentially) cutting the payroll tax a few tenths of a percent to reduce the surplus and thereby reduce the debt by that much money borrowed from and owed TO Social Security.
What is wrong with Bruce’s proposal is that it takes more intelligence to understand than most people can bring to bear on the question, and would require more honesty from Congress than they have shown in two hundred years.
So here is an alternate proposal more suited to the intelligence and honesty of the times:
RAISE the payroll tax one tenth of one percent this year, and again next year, and the year after. This would be, from some perspectives, slightly unfair to the workers who pay the tax… but not a huge amount of money… and it would increase the national debt. But it would give congress some extra money to play with to spend on submarines and other things we need to win the war on terror. And it would put Social Security into long term actuarial solvency beyond any question or doubt.
And that would make the extra cost worthwhile to the workers. They would have their Social Security guaranteed, and that guarantee is worth more than a few bucks a week.
What the Congress would do with the rising debt is anybody’s question. But it is not a question that ever troubled them in the past, when the enemies of Social Security weren’t using “the looming crisis in Social Security” as an argument for killing the workers ability to save for their own retirement.
Oh, the limit of the payroll tax increase proposed here would be a 2% increase for the worker and for his employer. Phased in over twenty years, it wouldn’t hurt. And it really would go to pay for the eventual retirement of the workers paying the tax. Congress would never have to pay back the money in the trust fund, so that shouldn’t worry them. Unless the sight of those phony iou’s climbing into the stratosphere made them nervous.
by Dale Coberly
Jonathan Swift is spinning at Mach speed in his grave at the hijacking of his satire in the cause of a meager increase in the stability of a social safety net by increasing taxes on workers who are suffering in a depression of epic proportions. Do you have any inkling what several dollars a week means to many working people ? Do you think they aren’t already paying more for health care yet again ? I have a modest proposal for you but it is immodest in its application of blunt force to your apparently unthinking cranium. Cheers.
I’m sure you are familiar with the concept of the arm following the hand that’s been bitten off by the mouth that it intended to feed. That is how I see your proposal. Are you really serious about raising FICA even that little percentage in order to avoid ever having to dip into the Trust Fund? Yes, in that manner you might be able to retire a debt that you fear will not be paid. However at the same time you encourage yet more fraudulent behavior on the part of those who have then benefited by writing off the Trust Fund debt.
“But it would give congress some extra money to play with to spend on submarines and other things we need to win the war on terror.”
And why the devil would any patriotic and sane person want to entertain such a crazed concept?
Mr. Barton–A continuing issue under discussion here for many months (years, in fact) is the supposed insolvency of the Social Security Trust Fund. To sum up these discussions. some who comment here think SS is a threat to the continued existence of the United States. Others think it is not insolvent, and needs little if any adjustment to continue indefinitely. I hope you will look at past posts and comments by Dale Coberly, Bruce Webb, and others who represent both sides of this issue. Mr. Coberly and Webb take the position that little if any change in the current payroll tax system is necessary and that any “crisis” is a fiction intended to kill Social Security, exactly as Mr. Bernanke recently suggested.
In any event, Dale Coberly is very well aware of the effect this increase or any other would have on working people now. His defense of the Trust Funds and his able explanations of SS’s essential contribution to our economy are well known here. As a consequence, his modest proposal is offered in exactly the same spirit that Swift proposed eating the infants of the Irish during one of its many troubles. FYI.
OK, here is a modest proposal:
Eliminate the payroll tax entirely. Phase in a guaranteed income for seniors (in real terms).
I used to think that SS and other obligatory retirement schemes were good because they assisted the average Joe to put away a retirement fund, which he would otherwise spend on milk, bread and diapers, or beer and pizza. This is partly true. It is certainly true of me, with a slippery grasp on my finances at the best of times.
But lets assume all the Average Joes and Joanna’s are not dullards, but are all real smart and perfectly capable of saving/investing a portion of their income for retirement. NOW what good is SS to them? Answer: an obligatory, defined-benefit plan serves them by protecting their savings and ensuring it will be there for them at retirement. We have seen what happens if Joe and Joanna put their money into stocks or 401-k’s. That growing store of money becomes a target, and is either skimmed or evaporated.
It is the surety of government-defended SS that justifies all those payments over all those working years — not the investment power.
very good article….
Coberly and Bruce do have the Trust Fund thing nailed. But they are missing the bigger picture – that is the Federal deficit and debt. Our debt is approaching $13T and the deficit is $1.6T. To give you some perspective on just the annual deficit – taxes would have to be raised 40-50% this year to eliminate it.
Run that through your Personal Financial Plan.
And that doesn’t even chip into the total debt. Now this might be theoretically separate from SS, but they have THE SAME OBLIGOR – the Federal Government.
This is what MG and others (Pete Peterson) are talking about. They don’t hate old people, or want to spit on FDR’s grave (Bruce’s theory), they know that deficits and debts matter, and that spending cuts are necessary (unless you want 40-50% tax increases).
Thank you. The children of Ireland are safe from me. My post is indeed satire, but perhaps on a deeper level than even you suspect.
are you indeed a JD?
it’s too bad you can’t do arithmetic and have no appreciation for the different sizes, and consequences, of the things you choose to have an opinion on. please try to understand that the scales of justice here are balanced between about 40 cents per week per year on the one hand, and losing Social Security entirely on the other.
that is indeed the question.
it’s too bad you didn’t understand what i wrote. or recognize who wrote it.
you are absolutely right. but that target of money appears to be working on the minds of the Petersons and the Congress. The wonderful thing about my proposal is that even my friends don’t understand it. The Congress would eat it up and end up hoist on its own petard. But I am spoiling the joke.
Bruce had another proposal which would also work… if we could figure out how to get it enacted:
shift the Trust Fund to private markets. It would then be possible to lose the money in those markets. IF that happened, the people would just have to eat their losses, adjust the payroll tax and keep on keeping on. This would be the same as having Congress steal the Trust Fund (another hazard of the marketplace) but without the threat of having Congress “fix” Social Security.
I am not missing the big picture.
What you can’t seem to understand is that the Trust Fund is money that the workers lent TO Congress. You are saying that Congress should just steal the money in order to avoid having to pay it back.
What I wrote here was a proposal for how Congress could do just that. Steal the money, but raise the payroll tax so that the benefit checks could keep going out on time. The poor would take a modest hit. But they would be far better off than letting Congress pretend to “fix” Social Security in a way that would cripple it so badly the poor would never be able to afford to retire. And remember, the poor are paying for their own retirement. It is not Congress that is paying. It is not “the government.” It is not you. It is not the rich. It is not Mr Peterson. The poor pay for their own retirement.
Unfortunately there are people who think they are liberal defenders of Social Security who don’t understand how important it is that the workers pay for their own Social Security. They will insist upon a “fix” that “the rich” pay for. The rich will “fix” Social Security so the poor can never afford to retire.
The cost of paying back the money Congress borrowed FROM Social Security would require a 3% tax on incomes over 100 thousand dollars per year. Not the “40-50%” you came up with.
The Problem with Social Security is that neither the left nor the right can do arithmetic. They can’t even vaguely understand that things have different sizes and different consequences. Nor are they honest. One side wants to steal from the rich. The other side wants to steal from the poor.
What the workers want, and need, and what Social Security was designed to give them, was the opportunity to save their own money, in safety, for their own retirement.
Just too damn simple an idea to be understood by the dishonest or those who live in fevered dreams where small things loom large and large things seem inconsequential.
Barton, Doctor of Jurisprudence
I should add that not only can’t you do arithmetic or understand that some things are bigger than others, but you can’t read. If you could read you would have noticed that “a meager increase in the stability of a social safety net” was not what was proposed here. I was proposing blowing up the Trust Fund by making it huge and letting Congress choke on it in their greed.
Whether or not there is a depression of epic proportions, I do understand what several dollars a week means to many working people. I can remember when it meant so much to me I was desperate. I can also remember being grateful many years later that my boss had put the raise he promised me into my pension plan.
“What you can’t seem to understand is that the Trust Fund is money that the workers lent TO Congress. You are saying that Congress should just steal the money in order to avoid having to pay it back.”
That is the Coberly I know from his past postings and comments. When the issue is as important, and as persistently misrepresented, as is the topic of Social Security and its Trust Fund, I have trouble accepting satire as a good approach. You see how readily Sammy took and twisted your words. Also, the money wasn’t lent to the Congress. More accurately stated, the Congress over many congressional sessions has misappropriated worker’s contributions to a Fund. At first under the guise of allowing workers to set aside extra Funds for a current “rainy day” and for an expected future need. Those Funds were to be used by the Treasury for its current needs for the purpose of allowing those Funds to accrue interest earnings and thereby grow to a yet larger cushion. Now that the cushion, so to speak, has become a significant creditor to the Treasury those that have benefited most from the use of that convenient additional source of funds want to act as though the Fund is an entitlement rather than the debt that it is. The only justification to the use of the word entitlement in regards to Social Security benefits is that workers have been making their contributions, along with their employers, to a retirement and disbility program. Those contributions are not a revenue stream for the general budget beyond their being a source of easy borrowing.
I don’t agree with the sarcastic approach in the face of a deceitful effort to change the definition of what the Social Security program is and what the intent of the Trust Fund had originally been. FICA says it all, Federal Insurance Contributions Act. That deduction is a contribution to a program that our Congress had enacted to guaranty every worker’s financial security in retirement and earlier in the event of disability. Contribution, not tax. The word tax is used ubiquitously, but it is an erroneous representation of the source of, and intended use of, those funds.
the sad thing is that you and i are on the same side. but what you are calling “sarcastic” is more like what i would call jiu jitsu.
Jack really you need to do your homework. What Dale is describing is a variant on the Northwest Plan. If you took time to look at the numbers you would see that this plan of phased in tax increases does not eliminate transfers from the General Fund, instead it smooths them out in a way that leaves the Trust Fund with an ultimate TF ratio of around 130, just above the minimum needed (100) to pass the Trustees test for Long Term Actuarial Balance. Under the NW Plan all interest accrued on the TF is paid in full except for that small portion of it needed to keep the Trust Fund ratio in balance.
Under the Northwest Plan the Trust Fund which started at 354 at the end of 2008 peaks at 375 and then starts a long steady decline to 123 where it more or less stabilizes. Now the Trust Fund principal actually grows over this period in a reasonable relation to overall program growth but the result is a steady stream of what is best seen as debt service on the existing Trust Fund. Ideally this debt service will amount to about 5% of the needed revenue to pay benefits with the other 95% coming from payroll tax and tax on benefits, the system overall retains its insurance basis and never slides over to welfare, but in any event equity in both senses is preserved.
What Coberly’s variation actually does is to INCREASE long term demands on the General Fund which is the exact opposite effect of what your comment suggests.
Jack, Dale and I individually and together have been working this issue for a long time and I think have demonstrated we have the long term interests of its beneficiaries firmly in mind at all time. That you don’t immediately grasp the implications of these proposals doesn’t give you the right to challenge either our patriotism or our sanity. At least not BEFORE actually doing the arithmetic.
Here is an even more modest proposal. Eliminate all income support and feed everyone with blue cheese from the moon.
Min, speaking only for myself I would gladly return to pre-Reagan tax rates and use the proceeds to implement Swedish style Social Democracy, but in the world we live in actually achieving anything like that requires an adoption of magical thinking.
The best case scenario for getting this country back on its path of gradually increasing social and economic justice, a process that really started with the Progressive movement of the late nineteenth century that gave us more inclusive representative democracy which then allowed a series of measures to control capital (i.e. anti-trust and income taxes) which in turn set the table for the New Deal and ultimately the Great Society. Of all the components of a potential Social Democratic solution the one that we have the best handle on is retirement security. No Social Security is not perfect, but compared to things like universal medical coverage and truly funded public education it is fine for now.
A system of national pensions while perhaps a reasonable long term goal would suck all possible juice out of other movements towards economic justice and reinforce a pernicious message that old people are just out for themselves. Personally I don’t believe this to be true, I think grandparents spend a lot of time worrying about the needs of their grandchildren and if pressed would approve efforts to say extend SCHIPS in all children prior to screwing around with the structure of Social Security.
In any event we need to at least consider the art of the possible here, the path to economic justice does not run down a road of wishful thinking.
I don’t see that kind of difference as a sad thing. We can differ in our opinions as to how to best approach the debate so long as we agree on the fundamentals.
There are two aspects of the debate that I consider to be sad to the point of depressing.
First, the persistent feigning of a lack of understanding by some discussants. They offer their misrepresenations as facts and continuously and assiduously refuse any and all demonstration of their error. My second and more serious concern is the absence of any significant discussion in the national media. What is discussed is only an acceptance of the myths propagated by the Peterson types and what differences there may be in regards to the severity of the social security “crisis.” Worse yet our elected representatives don’t seem to be cognizant of the concepts so well described here by both you and Bruce. No, I don’t mean that they should be reading AB, but they should have equally good information sources.
Sammy cutting Social Security benefits INCREASES total Pubic Debt. Subject of a previous post.
What Peterson is proposing is to postpone current debt service on one component of the Public Debt while allowing total long term debt service to INCREASE. His version of ‘intergenerational equity’ shifts the ultimate tax burden FORWARD, and ONTO his grandchildren.
Casting Social Security reform in particular as being driven by a concern about total Public Debt is simple arithmetic nonsense, the numbers don’t actually work that way and I suspect that multi-billionaires with stables of PhD minions know that full well. Social Security ‘reform’ is simply tax-avoidance, something that is clear if you start doing some close examination of the numbers and the plans out there.
My previous post was somewhat tongue in cheek in the same way Dale’s is, Congress is not going to simply turn off the revenue stream that comes so painlessly to them via the payroll tax, but that needs to be seen for what it is, a perfect willingness to have labor continue to subsidize capital.
Here is how we can really tell this is satire:
“…it would put Social Security into long term actuarial solvency beyond any question or doubt.”
We all understand, do we not, that the only thing that will put Social Security’s solvency beyond question for ghouls and privatizers is its utter demise?
Sorry Jack you are still wrong, you like many on the Left have simply subsumed a Right wing talking point into your own thought.
Congress didn’t misappropriate anything in relation to Social Security. Every penny ever sent to Social Security went exactly where it was supposed to, their has been no theft, no raid, no diversion, not by LBJ, not by Reagan and not even ultimately by Bush II. This is a point seemingly impossible for people to grasp, while attempts have been made to attack Social Security directly, they have all ultimately failed. On the other hand thirty years of systematically undermining belief in Social Security has succeeded quite well, just about everyone Left and Right assumes that somehow, somewhere, sometime that dirty deeds were done dirt cheap. Well they weren’t and unless future beneficiaries lose their nerve they won’t be.
There has not been any change in the definition of what the Social Security program is, not when it comes down to actual practice as opposed to the rhetoric. For a variety of political reasons the Trust Fund was allowed to rapidly grow starting in the late 1990s and this process left unchecked had the effect of backfilling what was largely a paper problem while not doing much to achieve an optimal solution. In retrospect the right thing to do in 2000 would have been a cut in FICA or better perhaps a diversion of a portion of it into either providing broad based social services or productivity improvements or simply to invest that surplus in other asset classes. Something I suggested more than three years ago on my blog: http://bruceweb.blogspot.com/2006/01/invest-or-divert.html and concluding “lets do both”.
But that horse is pretty much outside the barn leaving us in a sub-optimal situation. Both Coberly’s and my proposals serious or not are in reality solid plans to get us back to an optimal state. They are just counterintuitive.
I have argued here and elsewhere that intentional prefunding of Boomer retirement is a myth. The principal actors just didn’t see it in that light. Unfortunately the most detailed account of the Greenspan Commission is in the form of a very long chapter in the late Bob Ball’s unpublished autobiography. I have a copy because I am a friend of the friend of the editor, and while I have urged the friend and the author to make this available on-line that hasn’t come to be, so you have to trust me on this.
The major goal of the Commission was to restore Social Security to Short Term Actuarial Balance and get it though an immediate financing crisis. In Bob Ball’s telling they just want to get it done for the late 1980s. Because it was clear that Republicans on the Commission and in the White House would only give so much ground, the work of the Commission actually went to the brink of total public breakdown with disaster averted by a last minute deal. Now while the focus was on Short Term Actuarial Balance there was a nod to Long Term (75 year) Balance as well, but only on average, the Commissioners did not seek to examine the sub-periods. So while I am sure that some of the Commissioners were at least aware of the medium term challenge that the 25 year period from 2025-2050 would present (peak years of Boomer retirement), that was not the actual specific problem they were charged to address.
Now in some sense pre-funding happened, on paper Treasury will be able to pay out all benefits until the late 2030s and a reasonably good percentage in real terms even after that, the facts on the ground are what they are, but this does not translate to intentionality.
One key is to understand that a large Trust Fund is not good in and of itself, back in the 1999-2005 period it seemed to me that if anything the Trust Fund was growing too fast and soon […]
Scuze me, I thought that a guaranteed income (via a negative income tax) was one of Milton Friedman’s ideas. No Socialist he!
Scuze me! 😉
I thought that a guaranteed income (via a negative income tax) was one of Milton Friedman’s favorite ideas. No socialist he!
And I am not proposing it in general, just for seniors. 🙂
I am old enough to remember when Ronald Reagan made a lot of noise about how Social Security was going broke. Guess what, it didn’t. Seniors vote, and they will continue to do so. Neither Social Security nor Medicare is going to go away, although they may change form. Hoopla about the solvency of the Social Security Trust Fund is political ping pong. When Social Security started, everybody paid for it, and things will continue to be that way, one way or the other. Scaring young people into thinking that their social security is in jeopardy is just a tactic to undermine confidence in government and social programs in general.
“Congress didn’t misappropriate anything in relation to Social Security. Every penny ever sent to Social Security went exactly where it was supposed to, their has been no theft, no raid, no diversion, not by LBJ, not by Reagan and not even ultimately by Bush II.”
I suppose one could say that I was speaking in a strenuously euphemistic manner. No we can’t label it as an out right theft. I will note that when one reads the SS Act, Sect. 201,FEDERAL OLD-AGE AND SURVIVORS INSURANCE TRUST FUND AND FEDERAL DISABILITY INSURANCE TRUST FUND, one gets a very detailed description of how the assets are to be used to fund the several aspects of the Social Security programs. One also gets a detailed account of how the money is to be raised through various forms of taxation related to the SS programs. One gets a description of has the Treasury is to transfer funds to and from the general fund and the Trust Funds. One even gets a general description of the form in which the assets of the Trust Funds are to be kept. That’s paragraph d. Note that paragraph d does not descfribe what is to be done with the money represented by the notes and other financial instruments held by the Trusts. It simply iterates that the issuers of those notes and instruments are borrowers from the Trusts. The money is owed to the Trusts. The debt is required to be backed by the “full fauith and credit” etc. Any wholesale effort to distort that debt arrangement is tantamount to a theft.
Paragraph d): What can be described as the make-up of the Trust Funds as required by the legislation:
“(d) It shall be the duty of the Managing Trustee to invest such portion of the Trust Funds as is not, in his judgment, required to meet current withdrawals. Such investments may be made only in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States. For such purpose such obligations may be acquired (1) on original issue at the issue price, or (2) by purchase of outstanding obligations at the market price. The purposes for which obligations of the United States may be issued under chapter 31 of title 31, United States Code, are hereby extended to authorize the issuance at par of public-debt obligations for purchase by the Trust Funds. Such obligations issued for purchase by the Trust Funds shall have maturities fixed with due regard for the needs of the Trust Funds and shall bear interest at a rate equal to the average market yield (computed by the Managing Trustee on the basis of market quotations as of the end of the calendar month next preceding the date of such issue) on all marketable interest-bearing obligations of the United States then forming a part of the public debt which are not due or callable until after the expiration of four years from the end of such calendar month; except that where such average market yield is not a multiple of one-eighth of 1 per centum, the rate of interest of such obligations shall be the multiple of one-eighth of 1 per centum nearest such market yield. Each obligation issued for purchase by the Trust Funds under this subsection shall be evidenced by a paper instrument in the form of a bond, note, or certificate of indebtedness issued by the Secretary of the Treasury setting forth the principal amount, date of maturity, and interest rate of the obligation, and stating on its face that the obligation shall be incontestable in the hands of the Trust Fund to which it is issued, that the obligation is supported by the full faith and credit of the United States, and that the United States is pledged to the payment of the obligation with […]
in fairness to Jack I am actually proposing robbing the poor here. The robbery is limited and that makes it a better deal for them than the unlimited robbery and murder contemplated by the Congress.
and what is being proposed here is to let them do it. as long as the books are kept and the current system remains intact. in a few years Socail Security would be “solvent forever” because the tax rate would be high enough to pay as you go forever. Meanwhile, of course, the money owed TO Social Security would have grown, and the interest on it would grow forever as there was no need or opportunity to pay it down.
As long as the payroll tax was set at “pay as you go” from there forward, the Trust Fund could grow to stratosphereic proportions, but it would, after the first Trillion in “borrowing” from Social Security be a completely meaningless exercise in bookkeeping.
Social Security (workers) would have lost a bunch of money to the welchers, but working people are used to that. What they would have gained is their own ability to pay for their own retirement without Congress having any excuse to cut the program. Priceless.
I agree with you entirely. But I am not so sanguine about “differ in opinions.” If this was only a matter of “opinions” I could enjoy yours as much as mine. But if we don’t actually find a way to DO something, the pain is going to be real. To the bone.
i am replying here to a different comment from Jack than Bruce is replying to below. Haloscan can make following an argument pretty confusing.
unfortunately you are right.
thanks for the reference. I think Bruce’s point is that there has been no theft “yet.” Certainly the talk by the Congress and the President amounts to proposed theft. But so far the money is still in the “Trust Fund” prepared to be used to fund the baby boomer retirement… whatever the 1983 Commission “really” intended.
Well Uncle Miltie was crafty. He like the idea of workers being totally subservient to capital and the ability to drive income as close to subsistance as possible.
The negative income tax when coupled with the simultaneous drive to eliminate all forms of tax on capital is certainly not socialistic. People who propose to replace minimum wage increases with EITC and the like are just arguing that the burden for worker and retiree subsistence should simply be borne by the taxpayers left over once their entire tax proposal system is phased in. If you combine the ideas of Forbes and Friedman you just end up with a complex scheme of tax avoidance by capital.
Examine the proposed Ryan Roadmap. He wants to cut corporate, estate, dividend, and capital gains taxes leaving larger capitalists not paying anything at all. So why not impose a guaranteed income via a tax you would no longer be paying?
Social Security at its low points in 1983 was on a combined basis weeks from insolvency, the OAS Trust Fund actually went to zero and was kept afloat for the time being by a loan from the DI Trust Fund and before they were through the HI (Medicare Trust Fund) was involved as well. It took several years after the 1983 SS Compromise to unwind that system of loans back and forth.
Social Security certainly would have been broke by the end of 1983 and certain conservatives were actively rooting for that outcome. In the end the three Greenspan Commissioners most opposed to Social Security to start with voted no and gaining the ultimate support of the three Republican representatives from the business committee took some one on one arm-twisting from Reagan who in turn required some arm-twisting by Darman, Baker and Dole.
Ultimately the Republicans looked at the upcoming 1984 elections and blinked. But it was a very close thing according to Bob Ball’s upcoming auto-biography.
A good deal of the power behind the attack on Social Security is the claim “even the Trustees say” while pointing to some Infinite Future Horizon trillions number in Table IV.B6.
The Social Security Reports are reasonably honest productions. They just come wrapped in some misleading language. The problem is not the numbers per se, it is the adjectives.
Coberly’s proposal would eliminate the $5.3 trillion unfunded liability through 2083 and a very large chunk of the $15.1 trillion through the Infinite Future. “Long term actuarial balance” is a term of art with a specific definition, there is no question or doubt that that figure would go from -$5.3 trillion to zero. This would not necessarily deter opponents from attacking Social Security, but it would eliminate what is currently their scariest weapons which is conflating the concept of “unfunded liability” and “public debt”.
I can explain why those concepts are not only different but in practice opposed to each other, eliminating unfunded liability in most cases simply adding to public debt, but the overal argument would be simplified if I could just point to a zero figure to start with.
Coberly’s tax increases would serve to eliminate unfunded liability. My tax cuts would serve to limit future Public Debt while temporarily increasing unfunded liability. Trust Fund accounting is funny that way, it leads you into all kinds of cases of apparent addition by subtraction due to category confusions between the concepts of ‘debt’, ‘deficit’ and ‘liability’ things which just don’t coordinate in the ways intuition would tell you.
Coberly rather cynically suggests increasing debt simply to clarify the overall debate by taking the misleading term ‘liability’ off the table. Which is where the satire comes in. He agrees that my proposal would in the larger picture be better for Social Security while his proposal makes it more likely that Social Security will survive in the interim. Which is why I signed on to the Northwest Plan to start with, it offers huge tactical advantages over the short term.
Jack. First the requirement that excess funds be invested “only in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States” in practice means Treasury bills and notes. When anyone buys such a note the dollars are credited to the General Fund from which they are appropriated and spent. That is pretty much what buying a bond is, you give them money, they give you a promise and a piece of paper, the spend the money. In the case of Social Security and the Treasury those dollars theoretically are offset by reduced borrowing (I had an extended argument with Henry Aaron of Brookings on this, he insisted the effect was real and not just theoretical, whatever that is the standard theory).
So from that perspective the simple act of purchasing a bond is offset by reducing other potential public debt, the co-mingling is to that degree inherent in that act.
Now accounting for this is different. Social Security was brought into the Unified Budget in the late 1960s and is still for reporting purposes counted as such, for example when the press reports Obama’s ‘deficit’. It however is considered ‘off-budget’ by both OMB and CBO. So no there is nothing in the 1935 Act that covers that specialized form of offset. To the degree that the Unified Budget surplus/deficit has been used in a way to facilitate tax cuts by minimizing the effects of those cuts on the total deficit then some political mischief has occurred. Bur this does not mean there has been some economic misfeasance along side that. The Social Security Act calls for Trust Fund assets to “only in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States.” and they are”
Only if you unconsciously accept some version of “Phony IOU” can there be seen to be a problem, and that means falling into a trap set by Social Security’s enemies. The Trust Fund is real, the Special Treasuries in it are real, the Interest it accrues is real, the only real-world question is what is the best way to manage it long-term so that Social Security meets its full legal current obligations in any future year. The Special Treasuries that make up the overwhelming bulk of the various Trust Funds pass every one of the tests from the Act. That the accounting around the TF is at times a little bizzare and has been used in ways that further other agendas does not mean that the Trustees have somehow failed their fiduciary duty. You want to see a list of those assets complete with maturities and yields? Here they are. First OAS then DI
The DI fund is particularly instructive. By the end of 2008 a good number of bills with maturities in 2009 had already been redeemed. In the process Trust Fund balance in DI is actively shrinking as principal is systematically redeemed. Which simply mirrored the process we saw from 1971 to 1983, the Trustees and the Treasury honored every debt obligation right to the bottom of the supply, Full Faith and Credit was exercised just as it is right now in respect to DI. These assets are just as good as stacks of Benjamins would be, in fact better because they draw interest in the process.
I certainly see the mechanism. But I see some political pitfalls here and not just for the thieves.
The opposition argument rests crucially on the idea that the Trust Fund, however big is dwarfed by the size of the unfunded liability. If you owe $15.1 trillion what matter is you have $2.5 trillion in the bank, particularly if that $15.1 trillion is as here net of the $2.5 trillion (they are at that level honest).
Take that $15 trillion number off the table and suddenly that $2.5 trillion is revealed in a standalone fashion. Now the bad guys might be able to get away with stalling on the payback, but I don’t think they can get away with proposing big benefit cuts. That is once you knock the intergenerational equity argument out from under them and negate ‘shared sacrifice’ then benefit cuts are revealed as simple theft of current services. Agreeing to a benefit cut so your grandchildren are not burdened with debt is one thing. Agreeing to a huge benefit cut To your grandchildren so that billionaires don’t have to pay their bills being a different rhetorical kettle of fish.
Ultimately I am more concerned with benefit levels (even as I accept that they may not come in at the full schedule) than I am extracting every dime back from the Trust Fund surpluses. I want the takeaway to be that every generation of retirees can expect to share in overall societal growth, or share the hit if we hit a rough patch. The essence of the New Deal and the Great Society both is “We are all in this together” and not “every man for himself” which is the kernel of libertarianism.
That’s a lot of words to simply expresas that we are very much in agreement. I didn’t mean to imply several points which you seem to think needed correction or explanation. Nor was I suggesting that the Trustees were doing anything particularly dishonest. That’s more likely to occur in the Congress either through guile or stupidity depenmding on the individual member.
“Now accounting for this is different. Social Security was brought into the Unified Budget in the late 1960s and is still for reporting purposes counted as such, for example when the press reports Obama’s ‘deficit’.” And I would add that this combining of the two budgets is the source of the problem. Not due to anything that Trustees may do. It is clear from reading the Act that the Trustees can only make recommendations to the Congress and, I suppose, to the President. It causes the intramural debt to seem to be a function of the Social Security program rather than a combination of profligate spending and income tax avoidance, both Congressionally devised and not.
I’m not inclined to call a spade a shovel. That leads to an opportunity tio confuse aspects of a complex issue and fewer words are usually better.
e pluribus unum.
Yes, let’s buy a few more $2B a copy nuclear subs to deliver seal teams with their $25M mini sub it can carry 15 seals around the Persian Gulf!!
The problem with US government spending the past 20 odd years since the Soviet Union collapsed is the US is attempting to die under the weight of faulty militarist “investments”. Just like the reds.
There is no increase to the US productive base from building, if that is what you do to make a submarine. It is borrowed money that only profits militarism.
Then consider, as Seymour Melman pointed out, the effect of pork barrel, unproductive design efforts on the price and demand for technical skills, and related resources.
Can GM compete with Lockheed Martin for mechanicalengineers?
The Lockheed engineers cannot make an F-35 with huge delays, defects andcost growth. Sort of like an Edsel. Someof oldsters remember them.
So, what militarist spending does is it corrodes the tech base.
That is why the US debt is nearing 100% of GDP. The US government has grown a militarist corporate welfare state at the expense of the general economy.
Thus it goes the way of the Soviets.
Gutting SS and spreading poverty to the US’ senior citizens is merely postponing the collapse at even more human cost.
So, kids don’t complain about the seniors stealing from you, look at the militarists and corporate welfare plundering you as they have the seniors.
Only the seniors were done longer.
We are never obligated to raise taxes to pay the national debt because its not a debt its an asset from our perspective. All the bonds are are a savings account rather than a checking account with the fed/treasury. We never have to look at what interest payments on those bonds are and adjust our taxes accordingly. Its never happened before and there is no reason it has to happen in the future. Did you ever once hear W talking about raising taxes to pay the increasing national debt?? How about Reagan? How about Bush the elder, or Clinton? Its never been mentioned because its never been necessary.
The proof of the idiocy of this statement is in the proposed “solutions” put forth. Cutting government spending and lowering taxes will do nothing to decrease the debt already taken on but it will lower the amount of new debt taken on. But the interest on the already issued debt will be exactly the same and that will be “serviced” out of LOWER revenues. Yeah, theres a solution make the interest payments a LARGER percentage of tax revenues, that’ll solve the scary tax/debt ratio we keep being frightened with.
Oh, I understand the mechanism behind the argument. I just don’t think there is any state of projected actuarial balance that would lead the ghouls to stop the attack on Social Security. The issue for them has two central features. One is that money lent from the Trust to the Treasury represents a reduction in the non-FICA tax burden in one period, which they do not wish to have paid back in a future period. One influential faction wants in particular to make sure that it is not paid back by the people who benefited most from the initial Trust-to-Treasury lending – high-end beneficiaries of Reagan and Shrub tax cuts.
The other feature is that Social Security represents a government program with near-universally participation and with real virtues – its insurance and retirement portfolios stabilization features. Since the only good public program is a dead good public program, Social Security must die.
The argument that cutting FICA would reduce the Treasury deficit is cute, but it is one of those elasticity things. We need to know the change in on-budget spending and taxation that results from a change in of Trust Fund lending to Treasury. There is a one-for-one trade-off between borrowing from the Trust and Treasury debt issuance if there is no spending or tax response to a drop in the FICA tax.