Social Security: Deficit, Debt and how CBO Scoring Screws the Catfood Comm
by Bruce Webb
In response to my Pelosi Rule post of yesterday commenter Darms plays Devil’s Advocate in asking the following shrewd question.
Bruce, Since the commision may be looking for a mechanism to delay redemption of those SS trust fund bonds and I’ve read that some of these bonds are routinely redeemed & renewed each year, would that not provide those on the commission with an excuse to cut SS funding now even though the actual problem is not until 2030 or beyond? In contrast to your thesis above? Possible quote come December – “Yes, we know the problem w/SS funding won’t be upon us for decades but we have to defund SS now as paying off this year’s (& next thru 2015’s) maturing SS trust fund bonds is pushing this deficit to unmanageable levels!!! You lame ducks have to support this NNOOOWWWWW!!!!! Thanx Nancy!”
Well the answer is that “They will try, unfortunately budget scoring rules totally undercut their argument”.
To see why this should be we need to revisit the concepts of ‘debt’ and ‘deficit’ as they relate to Social Security reporting and CBO deficit scoring, the numbers just don’t move in the way you think they would. Discussion under the fold.
We start with the Social Security Trust Funds (there are two, more on that later). Currently the combined OASDI Trust Fund holds $2.5 trillion in Special Treasuries. These make up the majority of the $4.5 trillion in ‘Intragovernmental Holdings’ which in turn are scored as a portion of total ‘Public Debt’. The latter needs to be distinguished from ‘Debt Held by the Public’ which is all Treasury debt held by entities other than the Treasury itself. The balances of Debt Held by the Public, Intragovernmental Holdings, and total Public Debt can be checked at the Treasury’s handy Debt to the Penny web application: http://www.treasurydirect.gov/NP/BPDLogin?application=np . As of close of business Thurs these were $8.6 tn, $4.5 tn for a total of $13.1 tn. So for this purpose the Trust Fund Balances for Treasury score as part of Public Debt.
But seen from the perspective of CBO and OMB those balances are simply the sum of a set of SURPLUSES since 1983, in each of those years the increase in Trust Fund assets, scoring as a debt to Treasury, scores for budget purposes as a REDUCTION to the deficit.
Back to the Trust Funds. Contrary to the belief of some the Special Treasuries in the Trust Funds have specific rates and maturities, if the funds they represent are not needed to meet cost they are rolled over. Since neither the maturing bond nor its replacement actually has to be financed out of the public market, principal redemption results in no change to either debt or deficit. Interest is a little different. Interest accruing to the current TF balances that is not needed to meet current cost is credited to the TF in the form of new Special Treasuries. These add to Intragovernmental Holdings and so are scored as in increase in Public Debt to Treasury.
But the Treasury Secretary is also ex officio the Managing Trustee of Social Security, and while he is wearing that hat that same increase in debt scores as an increase in assets to Social Security, and in an odd twist score the same way at CBO, interest on the TF is added to any cash surpluses from taxation to make up total Social Security ‘surplus’ which is then deducted from any General Fund deficits to generate the top level number we generally recognize as ‘the deficit’ (as in Obama is on track for a $1.5 tn deficit in 2010).
Lets pause for a second, because this is totally counter-intuitive. How can interest transformed into Special Treasuries but not actually financed from public markets ever be considered an offset from real world cash deficits? What happens if Social Security goes cash flow negative as revenue from taxes dips below total costs and a portion of interest has to be paid from the General Fund in cash? Are you telling me that the remaining interest STILL counts as surplus for the top line deficit number!??
Yep. And we won’t even get into how it is treated by OMB for Budget purposes.
Which gets us most of the way towards answering Darms Devil’s Advocacy. First if Social Security is in overall surplus, meaning all income INCLUDING interest is in excess of costs, there is no effect on either debt or deficit to roll over TF principal, that is a wash. In this scenario any excess interest scores as new debt to the Bureau of Public Debt but as a surplus to both Social Security AND CBO, it serves to reduce deficits and not increase them.
Although combined Social Security projects to be in a state of ‘surplus/primary deficit’ in 2010 and 2011 with receipts from taxation failing to meet cost and a portion of TF interest having to be paid in cash, it will still be showing up in CBO scoring as a surplus on the top line number. And it is actually projected to return to ‘surplus/primary surplus’ from 2012 to 2017. Meaning that in 2015 Social Security will neither in accounting terms or in actual cash flow be contributing to the deficit at all, in fact it will still be offsetting it.
Now in theory the Commission could act to increase this offset by slashing current benefits between now and 2015, that would serve to boost TF balances and yearly surpluses, that is increasing debt while cutting deficits, but there are no proposals on the table to actually do so, even Alan Simpson, currently taking the hardest public line would exempt workers 60 and older from any near term benefit cuts, meaning no savings until at least 2017, and most other proposals out there would not effect at least initial benefits for workers 55 and older (viz Ryan Roadmap) meaning no top line savings until 2022.
The Commission can enact changes to Social Security benefit ratios that limit its share of GDP and also the dollar amount of its so-called ‘unfunded liability’ over the 75 year window. What they can’t do is make changes that will help them achieve their mandate of reducing the deficit to 3% of GDP by 2015, at least under CBO scoring rules.
“Since neither the maturing bond nor its replacement actually has to be financed out of the public market, principal redemption results in no change to either debt or deficit”
This is only true as long as the overall system is in surplus and principal is just rolled over. Under current projections principal in the combined TF will need to be tapped to pay benefits, that is some Special Treasuries will be redeemed for cash. And since this cash in all likelihood will be raised via borrowing in the public markets there will be some macroeconomic effect. But since retired Special Treasuries score as a reduction in Intragovernmental Holdings and so total Public Debt, any resulting increase in Debt Held by the Public should be a wash.
I am not sure how Trust Fund redemption between projected 2023 and TF Depletion in 2037 or 2039 actually would score for deficit scoring purposes. Conceivably not at all anymore than overall increases or decreases in total Public Debt do currently. (Both the General Fund and Social Security were in surplus in 2000, yet Public Debt actually increased).
Thank you for the explanation. As my forte is engineering not “eek! A gnomix!” my eyes kind of glazed over as I read & reread your article but overall I guess I get it – instead of someting straight forward & comprehensible by mortals, the SS funding mechanism after the Greenspan ‘reforms’ of 1983 was designed to be as obtuse & incomprehensible as they could get away with. Now my question is was that done specifically to justify massive deficts & tax cuts for the 0.1% on the top of the financial heap? And as for Speaker Pelosi’s machinations, unlike others in the blogosphere (who I read regularly) I will withold any judgements until I actually see what comes of it. You’ve convinced me that giving this the ‘benefit of the doubt’ seems to be the correct thing to do, at least for now.
Sorry for the multiple dost again, dunno what I’m doing wrong, I hit post once & the PC hangs (latest FireFox). Please delete all the multiples –
i think its hard to tell exactly what they had in mind. certainly Bruce’s post proves that making it incomprehensible may have had somethint to do with it. lI think I can tell the story in a more straightforward way… background in problem solving that begins by making the actual problem clear to all customers. but the actors in Social Security don’t seem to want it to be clear. neither the Petersons with their “deficit that is going to eat your children,” nor most of the liberal “supporters of Social Security” who seem to want to tax the rich to pay for Social Security.
The simple fact is that the Trust Fund doesn’t matter. It’s a bridge fund. It will run out of money like it is supposed to sooner or later. Sooner or later makes no real difference to anybody. Except perhaps the Congress who borrowed the money and doesnt’ really want to have to pay it back.
I think the most charitable view of the “unified budget” and the “scoring” that comes out of that is that the Social Security “surplus” represents money that Congress can use for programs that it doesn’t have to get by taxing or borrowing from “the public.” Well and good. But it’s still a debt that it owes to “The Social Security Trust Fund,” a legally separate entity. Just the way, in America at least, the government can’t just take your money by saying “you are part of America so it’s really our money… it’s all the same pocket.” No, in America at least there are legal entities that have to be treated as “independent” for purposes of taxing, borrowing, or lending.
It has been especially the business of the Petersons to confuse this. And they have succeeded to the extent that even the Presidents advisors talk about Social Security as though it was “government spending.” It’s not. Was created deliberately not to be. never to be. Though there is a court ruling to the effect that the Congress can indeed change the payout rate and the income rate without having to answer to the individual, or even collective, taxpayers. Though theoretically they would have to answer for what they do at the next election.
Now I am beginning to get confusing. Try this: Social Security… separate legal entity… collects a tax from the people from which it pays retirement benefits. money collected in excess of what it needs to pay benefits (and a tiny overhead) is placed in a “Trust Fund,” which is used to store presently unneeded money to draw upon during times of temporary shortage of income relative to outgo. This can vary from month to month random swings in collections; to years long imbalances due to recessions; to the decades long expected passage of the Baby Boom bulge. All perfectly norman and expected sound business practice.
the Trust Fund does not sit idle as cash in a drawer. It, like all saved money, is lent at interest. It is not invested in the markets, because of the risks, and because of some political considerations. But it is invested in Treasuries, which are just like ordinary savings bonds, except they can’t be bought or sold on the open market… meaning their value does not go up or down as a result of market forces. But in each case, a bond issued to Social Security carries an interest rate that is the same as the prevailing market rate at the time the bond is issued. Just like all accounting, the bond is an asset to Social Securiyt, it is a debt to the government. Except that for some accounting purposes, it is a debt to the government that is counted as an “asset” because it offsets other borrowing or taxing that would have to take place. There is no reason this should be excessively confusing, except that, as said, the Petersons want you to be confused, and there is no […]
I have consistently argued that the Greenspan reforms of 1983 were just that, they were not part of some Faustian bargain or raid to cover up the costs of tax cuts.
The argument has two thrusts. One the dollars involved were just not big enough to have the shielding effect on defense spending or tax cuts postulated. Instead the new tax rates and tax on benefits were phased in in such a way that over ten years the Trust Fund would be right back at its statutory mandated level, which is to say with one year of reserves in the Trust Fund. Reserves are measured by Trust Fund Ratio where 100 = 1 year. That is if you examine the annual results either in dollar terms or in TF ratio you see a simple build-up that was not complete until 1993, precisely 10 years after the reform.
From 1983 to the end of 1988 the TF balance increased by $85 billion, almost half of that in the last year (and so reported under Bush I), with some $16.5 billion the result of taxation on benefits that overwhelmingly was drawn from the same people who benefited from the cuts in income tax rates. Plus there was some $30 bn in interest that was not available to be spent. In any event Reagan didn’t pay for either the Cold War or his tax cuts out of this dollar amount.
Second the vast improvement in outlook for Social Security from 1996 and subsequent massive increases in interim solvency were not and in fact could not have been anticipated by Greenspan or anyone else. Accounts from principals on the Greenspan Commission show that their primary goal was to fix the ten year problem, which they did and remarkably precisely, and then to fix the seventy-five year gap on average. In talking to some folk who were staff to the Commission and in re-reading Bob Ball’s account, there was some belief that TF exhaustion had been pushed back to a point where it could be fairly said that Boomer Retirement had been ‘prefunded’, but the fact is that they didn’t have a crystal ball.
I am not a Reagan fan, quite the reverse, and he did make a run at killing Social Security in 1981 (and like Bush II failed), but ultimately Social Security fared pretty well under his term and that of is successor, they handed Clinton a Trust Fund which by Inauguration Day was as close to a perfect TF ratio of 100 as anyone could reasonably expect. The ‘Great Reagan Raid’ is just a myth.
Apparently Simpson is featured in today’s Parade magazine saying that workers 58 and older would be held initially harmless. Which pushes any possible savings out to 2019 and so almost out of CBO’s 10 year window.
The Great Reagan raid may be a myth, but Trust Fund has stilll “saved” congress 2 and a half trillion dollars, which , at the risk of being confusing, they have to pay back.
what does confuse the issue a bit is that the Congress can moot the payback by cutting benefits so the Congress never has to come up with the cash.
this would cause the Trust Fund to continue to grow exponentially, as debt, due to compound interest. But no one in Congress thinks that far ahead.
note that Simpson is featured in Parade.
not Bruce Webb nor Coberly.
the people will not understand what he says, and even if some of them get mad about it, there isn’t a damn thing they can do about it. or as long as they believe that “everyone” else is going along with the cuts, they won’t do anything about it. and it doesn’t have to make any sense.
my guess is that they will look at the growing debt… the Trust Fund… and call it an asset. “We are Funding Social Security to the Infinite Horizon!” And no one will notice that it is a debt, because of course it will never have to be paid. And by the time anyone does notice, Social Security, as a practical means for the workers to save for their own retirement, will be a distant memory… a poorly understood question on some history of public financing examination you don’t actually have to get right to get your PhD and become a expert.
Darms–Bruce and Coberly have pretty much told you the entire history of the SS program since 1983 and explained the Trust Fund accurately and concisely. It’s pretty simple, especially if seen from an engineer’s perspective. There’s quite a bit of multiple ledger accounting going on in federal public finance generally. And, these accounting rules matter because they are required by law. Once you understand that you just have to find the right table, the right column on it, and track down to the numbers you need to do the math.
However, the legal meaning of phrases such as the “combined” and “unified” budgets are the province of the wonks in OMB and are certainly not well understood outside the government. This makes it possible for politicians and others to invent and perpetuate all kinds of myths about the budget generally, the SS Trust Fund specifically, and practically any other aspect of government as the need arises. Just define these terms of art in “common sense English” and you’re off to the races.
Economists are not much help in demystifying all this stuff. Consider the Chicago school of economics and its deification of the Free Market. Or, take the general concept of globalization which leads people who know better to say US labor unions stifle industry by insisting on excessively high wages for unionized workers. The definition of excessive when you work in a steel mill on the line rolling steel is quite different from the one you use when you work for Goldman Sachs.
Bruce and Coberly represent slightly different perspectives on the form Social Insurance should take in the US. I tend to go with the classical working man’s view of SS. We worked for it, we paid for it, and it’s ours. There are more sophisticated versions of this concept but they all depend on the basic tendency in our national character to use work as the basis for all measures of social worth. Thomas Jefferson’s idea of a country in which yeoman farmers together with trades and craftsmen support commerce fits nicely with the “we worked for it–it’s ours” notion. That’s where I come down. But, I hope you will keep on visiting this site. I have learned a lot about SS by simply following the conversation here. And, I worked at SS for 32 years! Tells you what the value of Bruce and Coberly’s contribution, I think, and it’s considerable. Nancy Ortiz
probably one thing i did not make clear
is that the trust fund is debt owed to a set of actual people who are not, in general, the same people who owe the debt.
social security premiums are collected from workers out of pay less than about 100 thousand dollars per year. the money is lent to “the government’ which is supported by taxes (income tax) mostly paid by people who make more than a 100 thousand a year.
there is some overlap, and of course Congress could slap a tax on low earners to pay the money it owes to… the low earners. or… and i think this is generally true… congress could borrow the money from high earners in order not to raise the taxes on … high earners. in the latter case it seems to me there might be some justification for the oft heard… but misleading… story about “owing the debt to ourselves.”
bottom line is watching the pea under the shell is not a winning strategy. the thing to focus on is do you need retirement insurance (you do). is the cost of Social Security reasonable (lt is). is Social Security “going broke” (not by any stretch of a sane imagination.) does the trust fund matter (not really).
is it a debt or an asset (is it a breath mint or a candy mint).
if you want a one word “explanation” so you don’t have to know about all the moving parts… i can’t give you one.
if you want me to tell you “the Trust Fund is just like…” something else you think you understand. it isn’t.
but i am not saying don’t worry your pretty little head about it. on the contrary, read the Trustees Report and anything else with as much skeptism as you are capable of. with a pencil. and ask questions. and recognize when you don’t understand. and recognize when they are playing you for a sucker.
it won’t take long. i can tell you that i don’t know everything and can always be surprised, but after about ten years of paying pretty close attention to this stuff, i think i have a pretty good feel for what the facts are, what is hooey, and what doesn’t matter very much.
don’t trust anyone who says “i am an expert.”
Legally no one is owed social security benefits the congress has made clear that you can not sue to get them, if it wants to cancel the system it can. So in reality what they did in 1983 was to raise taxes on workers and keep them the same for high earners, but do it in a stealth way. (except for the 85% inclusion of SS benefits for higher income retirees in the income tax) Actually it would be interesting to see what the effect of 4 years of no increases in apparent cost of living would be on the system,(Along with no increase in wages). That would over time save a good bit of money.
you need to tell us about multiple ledger accounting.
no doubt. but you are missing the point.
legally the congress can do just about any damn thing it pleases not prohibited by the constitutioin. and a lot that is.
politically it ought to be impossible for them to cut social security. but they have found out how easy it is to lie to the people.
“in reality” what 1983 did was raise the payroll tax to reflect the costs of retirement. this meant the boomers would pay a higher tax than they would have had to pay under “pay as you go” which would have been a windfall to them, and a small injustice to the following generation.
if the succeed in stealing the Trust Fund, then your characterization will be effectively true. but we are not there yet. and saying that we are there just makes it easier for them to steal it. after all why lock the barn door after the horse is gone?
increases in the cost of living have essentially no effect on social security. benefits are paid out of wages… inflated wages, deflated wages, higher real wages or lower real wages. it does not matter. the standard of living of the retiree rises and falls with the standard of living of their times.
after you have retired your benefit IS indexed to inflation and this has some effect. fairly small for you, and invisble for the taxpayer, but pretty big for those who add up the costs to a hundred million taxpayers and think of it as “the government’s money.” then try to scare you with the number.
you need to ask just who the hell you are trying to save that good bit of money for.
and there is this
you need to talk to us about multiple ledger accounting.
i suspect that’s what i am trying to explain, and i don’t know much about it. it seems they switch books. in this book it’s an asset. in that book it’s a debt. and they keep moving the books around on the table faster than the eye can follow.
they like this game. “SS can be fixed with a 33% tax hike or a 25% benefit cut.” No brainer, right. But they don’t tell you it’s 33% of a 6% tax, or 2% of what you make. While its 25 % of every dime you were going to get in retirement, and your weren’t going to get even half as many dimes to live on then as you make today.
so, lets see, a 2% tax, or cat food?
they don’t tell you that a dollar saved in taxes today is going to cost you six dollars in benefits when you really really need them. how six dollars, well, the average person works three times as many years as he will live in retirement, so every dollar per year you save in taxes, takes off 3 dollars per year in benefits, but if you are a worker.. the class of people SS is supposed to protect, your boss pays half of your tax, so that dollar a year you don’t pay a tax plus the dollar the boss does not pay, so that’s two dollars a year for forty years. which equals six dollars a year for 12 years.
the exact number of dollars will change over time, but the priniciple won’t.
i tell them this and tell them this, and they want to know whether the trust fund is an asset or a deficit. because that’s what the Petersons have taught them to worry about.
CBO, OMB, Treasury, and SSA measure federal financials in different ways. If you work hard enough you can reconcile them. Mostly. At least in the bigger picture. But as you and I found out trying to track Social Security financials on a month over month basis between Treasury and SSA was almost impossible, the same dollars hitting various ledgers at different times.
Yeah. Well, the govt doesn’t have assets in the usual sense. It’s more like bank accounts with debits against them and credits to them. It can’t sell Yosemite, for example, to raise cash. It can collect fees from concessionaires for using the park for specifically authorized purposes (camping, hiking, rafting, etc.) And, the fees are revenue. So are FICA, regular taxes, rents on federal lands, cash for oil/gas/other mining leases, etc. But, it can’t sell stock in itself, only issue bonds to secure borrowing. True, it can auction off land and property it confiscates from private citizens or property that becomes obsolete (called “excessing”). But, this money goes back into the Treasury where it is credited as general revenue.
So, every program has money used to run it appropriated every year by Congress. The Treasury controls the money and the Executive accounts for its expenditure with categories of spending given numerical codes, etc. Endless book keeping. The OMB through each Agency gets all the information first then reports to the Congress. Every program or function of the Executive derives from statutes which authorize specific functions and give detailed instructions on how to account for the expenses of required to carry out the programs.
You can’t wait for the money to come in to pay for the govt’s operating expenses all the time. So, the Treasury uses borrowing together with its power of issuing money to pay for anything it doesn’t have in revenues (including FICA) to pay for when the bills come due. Talk about a shell game. From all I can see, any calculatlion of the National Debt or even annual deficits are legal abstractions. No one really knows, up or down, how much money is coming in or going out every day at close of business. The sums are so vast and it’s coming in and going out so fast everyday that it’s really impossible to know. The guys in OMB would disagree with me. But, I just don’t see how you can do it.
So, if it’s a tax that goes into a TF like the Highway TF, there are specific expenses to report to Congress what it gets spent on or if not spent, how much remains. There is a separate set of instructions for how OMB accounts for each program. All this is reduced to line items in the budget which (theoretically anyhow) are subtracted/credited to/from the ledgers of the individual programs and agencies at the end of each year or when the accounting is due which can be at the end of the FY, or at any other point determined by Congress.
Etc after tedious etc. Ledger for in. Ledger for out. Ledger to keep track of all similar types of expenditures at a higher level. A ledger for the appropriated budget. Ledger for the TFs etc. All with credits and debits. A big chinese puzzle that fits together piece by piece and layer by layer. Feel free to go lie down. I want to. Used to listen to this stuff and blank out. Now I sorta understand it and I can’t blank out. I don’t know which is worser. NO
or you can game the accounting by talking about one of the aspects of the transaction as though it was the whole transaction. thus SS income (lent) to the governmetn is Income, and not Debt.
OR you can back away and look at the whole thing from the outside and just talk about the inputs and outputs and whose name is on the invoice. SS Trust Fund is money the workers paid for their retirement insurance, lent to the government, and owed by the goverment to the workers they borrowed it from. any other way of describing it is dishonest.
but see, you called FICA “revenue” which in my dictionary is “a state’s annual income FROM WHICH PUBLIC EXPENSES ARE MET.” this begs the question of whether SS benefits are “public expenses”.
I would argue that they are not. Because the benefits are tied to “taxes” in a way that at least implies ownership: your benefit is directly calculated based on your contribution. You can argue this either way, that is, focusing on a narrow game of words and legalities, or on just looking at the way the system is designed and advertised and understood by the people who are paying for it.
it turns out it makes a huge difference how you “frame” it.
Thanks for your insight and your thankfully not overly detailed explanation. The question I ask, who cares about the accounting rules as long as they are consistently applied. The fed gov isn’t a checking account, the accounts payables don’t have to equal accounts receivables at any one point in time, whether today or on july 4, 2045. And the gov doesn’t have to fund SS payments for the population all at once, it is a slow moving tanker that you can only guestimate with. As long as your flows are in a decent direction then your good, its a fiat currency and I do not buy the arbitrary 3% GDP deficit. just print more money for ss. There is an argument that the gov undercounts inflation purposely to avoid too much increase in COLA for SS but thats an understandable area to fudge. If we cared about expenditures we’d stop starting trillion dollar wars that have no intelligible connection with the welfare of our citizens not make peripheral attacks on a SS systems that works amazingly well at keeping a great many million americans above water and avoids having to put our old people in the street. SS should be unassailable.
i agree with you in my heart.
but you will really get into quite a mess if you don’t keep good books. the gov can print money, and inflation may or may not pay our bills, but all that can be accounted for and we can still keep track of a chain of ownership (of claims) and fix a proportionate if not strictly “just” payment for work.
The “deficit vigilante” fiction………..
The $800B of stimulus which is too little, too late, too watered down by useless tax cuts that did not cause a turnaround on 8 years of job less expansion, new growth and employment miracles is about half of the annaul discretionary spending of the US which is corporate welfare, and the war profiteers’ skim.
There are no deficit hawks, there are $4T in newly printed US dollars laying unused in Wall St vaults, money printed in 2009 to keep Wall St from melting down. Where were the deficit hawks about that massive expansion of the money supply?
Who printed that money and what is it sitting around doing?
I listened to Fareed and Krugman on GPS this AM hanging out in hotel, doing what has kept me off the blogs the past 13 months.
What both missed is the vigilantes are fiction; they are the old tax foundation apologists for ripping off SS so that the 35% of US government outlays for corporate welfare and the military industrial complex are left alone.
Grandpa will get cat food so that 18% of GDP controlled by the US G for corporations’ welfare and their protected war profit are not touched.
The deficit vigilantes are the old ‘entitlements cannot touch discretionary spending’s 18% of USG spending’ crowd with a new agitprop name.
But the bad Euro zone lives with less than 10% goverment funded corporate welfare. That is what is really wrong with Greece, the deficit hawks would be quiet if it spent more on corportate welfare.
Deficit hawkery is a sham.
Historically Conservatism is a product of the 18th century and is based on one fundamental principle: Protect property from redistribution by a democratic majority. All else flows from that.
Revolution was in the air from the 17th century on with the English Civil War and the revolution that carved the Netherlands out of the Spanish Empire and created the Dutch Republic. In neither England nor the Low Countries did this result in anything like democracy, but the pattern was set, once you had rejected the foundational principle of the Divine Right of Kings and had previously abrogated any allegiance to the Pope in the course of the Protestant Reformation where was the stopping point?
Conservatism was a largely successful attempt to elevate Property to the position previously held by Divine Right, meaning that any challenge to Property Right was a challenge to societal order itself.
Why do Conservatives hate Social Security? Because however disguised as an insurance plan it rests on the principle that People have rights antecedent or if you will transcendent to those of Property. And you can go down the list, what seems to be an incoherent conservative message on taxes, deficits and debts resolves into clarity when you grasp that Conservatives believe the only proper function of government is to protect Property. Policing, the military, the civil and criminal courts, copyright and patents, regulation of ports, Conservatives see all of that written in fiery golden letters in the Constitution. Whereas that ‘General Welfare’ clause (repeated twice BTW) is just a rhetorical flourish (because Madison was quoted saying as much twenty years later).
To answer Ilsm’s question. Is that $4 tn increase in money supply a fundamental threat to Property? No if anything it was created to preserve the value of Property, in its more abstract form of Capital. And since it is historically impossible to separate Conservatism from Patriarchy you just need to know that for Conservatives, Property includes Family. (Indeed historically ‘familia’ was not limited to the marital community, it included the entire Household including servants and the homestead itself).
Conservatives hate taxes, because they are a direct threat to Property. Conservatives are very wary of social debt, but it raises the risk of future taxes. But Conservatives are not resistant to government spending as such, particularly on war, because so much of it rebounds to the material interest of Property, generally speaking War = Profits, and Profits can be transformed into Property. But Social Spending? Not so much. And it creates bad precedents. Cause the next thing you know you are on the Road to Serfdom and Redistribution of Property.
Conservatism = Property Rights. Depending on your own moral stance this elevation of Property over People may be evil, but it is by no means incoherent or intellectually inconsistent. Just difficult to sell openly in a democratic government ostensibly “of the People, by the People, and for the People”.
Thank you Bruce.
I am reminded as a reformed Roman Catholic of the US church’s denial of liberation theology and silence over the murders of clergy in US cleint El Salvador.
And if someone other than Jefferson had wrote the Declaration of Independence “Pursuit of Happiness” would have been one word “property” although I think Jefferson was in on the gambit.
And “Liberty” was that which conformed to socio religious norms of the Church of England or UCC community.
But it was taxes on commerce which really got things going and brought the poor in to the fight against the King taking property.
Thank you all for this enlightenment of a subject very dear to my sense of beingness. Goodness, I’m over 70 now, and when I read what’s taking place with the so called debt commission, it scares me thinking about what they will cut next from my SS.
This is one of the finest posts that I’ve read that makes sense in a clear way. Thanks also for the info from Ms Ortiz, something I’ve always thought, but didn’t know for fact. I do have to ask the question: Isn’t this keeping multible books/ledgers, a way of obfuscation of the truth? Like real & not so real?
Bruce, I think you are essentially right about conservatism = propert, but you miss a critical point about Social Security. Social Security is not welfare. It is the workers own money put into an insurance pool, with the workers chain of ownership intact. It is paid as benefits, not as welfare, or a tax on the rich man’s property, but simply, out of the savings of the worker himself.
The pay as you go, and the insurance aspect of this confuse most people, but the “liberal defeders of Social Security” aren’t helping the problem by trying to turn Social Security into welfare.
There is a place for welfare in Society. But don’t destroy Social Security by making it carry that burden. It was carefully designed… by Roosevelt himself, beause his “experts” didn’t understand the point… to be not welfare.
Wher the “protection of property” comes into the Social Security debate, is that Social Security has lent a good deal of money TO the owners of property. And the rich don’t want to have to pay it back. And they can fool us, and probably themselves, into thinking it was “the government” that borrowed the money and spent it, and would now have to raise taxes to pay for what they see as a welfare program. We need to try to get peope to think straight about this. On both the left and the right.
I don’t think they will cut “your” Social Security. They will cut your children’s and your grandchildren will not know that Social Security was something the workers paid for themselves. They will think it’s “the dole,” with all the humiliation and insecurity that goes along with that idea.
As for the ledgers etc. I think the govt itself is doing the best it can to keep the books it needs to manaqe it’s own “business.” But it is really easy for the Big Liars and the politicians (who are only little liars) to obfuscate the finances. Uncle Sam is not Enron. But the Petersons use Enron accounting to describe Uncle Sams fiscal situation.
No not really. The needs of Treasury to measure revenue and borrowing are not in perfect alignment with the needs of OMB to evaluate future spending, and neither match up exactly with the Trustees of Social Security need to evaluate the income/cost ratio over the short and long-term.
On the other hand it is not helpful that CBO and SSA have midline predictions of long term gaps between income and cost for Social Security that vary by 33% to 50% (2009 1.3 to 2.0, 2010 1.6 to (my est) 2.2% of payroll) even though CBO explicitly adopts SSA’s demographic projections.
Still there is good reason why CBO bases its main numbers on Current Law, while OMB instead includes projections based on the President’s policy proposals, each is answering a different version of ‘What if?’. And some of the more bizarre budget rules, such as those as to the varying treatment of Social Security interest between CBO, SSA and OMB were in origin measures to prevent specific types of game playing by Congress and the Administration.
But it does make it difficult to keep your eye on the budget ball, it is kind of like the first time you watch a hockey match, action is going on all over the ice, what any of that has to do with the movement of the puck is initially petty mystifying, as are the reasons why some action stops play (icing, stick violations) while the initial stages of a fight don’t.
It can be bewildering. Each month the Treasury releases a Report detailing to the penny the results of Trust Fund Operations. And the Social Security Office of the Chief Actuary provides a web-tool that does the same thing. Except the numbers don’t match. And figuring out why took Coberly and I some long hours, but we think we got it, and I think I even understand the underlying rationale: the OACT is not allowed to count its eggs on a monthly basis before they actually hatch, while the Treasury has custody and control of the egg-house.
So the system is not really malicious, though the unscrupulous use it in mischievous ways.
Norman–Multiple books and ledgers are actually like levers and gears on a machine. The idea is that the book keeping allow Congress to oversee and control the actions of the Executive. Of course, Presidents have traditionally defied Congress and run up huge public debts for their own reasons.
The two current wars are good examples of what happens when the President takes some sort of military action and demands Congress back him up with funding. Hard to say no when Marines are getting blown up by IED’s and don’t have adequate body armor. Another example is the Iran-Contra scheme which was intended to circumvent the Congress’s refusal to pay for our Nicaraguan adventures. There have been others, of course.
The Executive Branch has always been hard to control even though it is designed to be weaker than Congress. This is especially so in military spending. Any military conflict, no matter how small or ultimately futile, increases the power of the Executive. It can take years to reign in the expanded Presidency even long after a particular war is over. Consider the Cold War. Hardly a shot fired until we end up in Viet Nam. Yet, the military establishment continues to control the majority of government spending other than SS, Medicare/Medicaid/ and other social spending to this day.
So, all those ledgers are supposed to help Congress control the Executive so that our elected Representatives can decide how our taxes are spent. If it’s complicated, it’s because you have to think of every conceivable way the Executive will move money around to escape control by Congress. Example–Iran Contra when the President sells missles to Iran (!) for money to keep fighting the Sandanistas in Nicaragua. So, it’s real and onerous for the Executive and its allies. It’s easily lied about though because it’s so complicated.
The Clinton administration had Al Gore to help manage the day-to-day operations of the govt. Ole Al was one of the people who designed the levers. So, they did a remarkable job of managing the budget process and the public debt. The Bush II administration spent money as if “deficits didn’t matter” and for their purposes they didn’t. The Congress was in the hands of the President’s party and he had 9/11 to justify his wars.
Point is the Executive is more powerful today than at any earlier point in history. I think it’s time to oil up the levers and buttons and crack down on the Executive. Fat chance, but that’s what I think. Nancy Ortiz
Well, don’t keep your eye on the ball. Don’t try. It’s not a ball anyway, it’s a pea under one of those shells the nice man is moving around on the table.
Unless you are prepared to spend some time actually counting on your fingers (warning. metaphor switch).
Then it’s not that hard to figure out.
But long time ago physicist noticed than instead of trying to account for the dynamics of every particle in a moving system, they could describe the whole system in terms of energy conservation and know everything they needed to know about it.
IF you don’t have time to understand the details… mostly lies anyway… all you need to keep track of is how much you pay for Social Security, and what you will get back, and whether you have any better way to BE SURE you will have at least enough to live on when you want or need to retire.
The answer is you pay a small percent of your wages… on the order of ten percent. Don’t worry too much if it is a little over or under. You will get back, on a monthly basis, about forty percent of your wages for as long as you live after you retire. That is about a ten percent return on your money if you are near the low end of the lifetime income scale, or about 2% REAL return if you are near the high end.
And you get insurance in case you die or are disabled. Or end up poor for one of the many reasons that can happen to even a smart feller like you. You simply cannot get that kind of insurance for any price. And you’d be hard put to find an investment that does that well consistenty for forty years, without risk of losing everything.
Second question.. well is Social Security going broke. Not unless you let it. The money comes from that tax, and there is no reason the next generation won’t pay it. They are going to want the same deal you get. And if their return is a percent or two more or less than yours, that is just not important compared to the guarantee.
We can go over the details here as much as you like. But if you don’t understand this much, it’s just a waste of time.
And no, the Trust Fund does not matter.
You can’t explain this to the ordinary voter. Every rookie city councilman has to struggle with fund accounting and why he doesn’t understand the staff’s answers to his simple questions. Governments are not run like businesses or households and the Federal government with its ability to wage war and create money even more so.
The issue is that Peterson sees a pot of 2 tn dollars going to waste. He doesn’t want to dance on FDR’s grave, he wants a 10% front load and a high churn. All roads lead to investing in publicly traded paper, with minimal regulatory oversight.
Why, Mr. Williams–That is a very astute comment. Peterson just wants the money alright, but he wouldn’t mind crushing a few cherished New Deal principles in the process. The other thing is that he might not get the money at all. Don’t need the Trust Fund? Ok. Gosh, we just reduced the National Debt by $2.5T USD!
I can’t figure out how he gets this or any other Congress to just sign over the money to him. He must have a way. Probably something like converting the TF and future FICA into some sort of bond-based individual retirement account, or something like that. Managed by the Blacksone Group, of course. Wish I didn’t think that’s true. But, it has to be something like that. NO
conservatives hate taxes because, well, because taxes cost them money.
and they go to war to protect their property as they see it. not necessarily “for profit.”
Conservatism = Property Rights. Depending on your own moral stance this elevation of Property over People may be evil, but it is by no means incoherent or intellectually inconsistent. Just difficult to sell openly in a democratic government ostensibly “of the People, by the People, and for the People”.
but the conservative would reply that defense of property IS defense of people. after all people have to eat, and property is what makes that possible.
it sold pretty well to my family who at that time were “lower middle class.” it was only when the “conservatives” went insane that they saw that “democrats” were actually the defenders of “family values” which at the time had more to do with food on the table than sex on the table.
this tendency of “liberals” to see themselves as THE moral party is not helpful to them, either their mental hygiene or their election prospects.
i don’t think they have to go that far. just cutting benefits or raising the retirement age so people are forced into the markets if they are to have any chance of retiring at all would put more money in peterson’s pocket than he can count.
but i think it is more than that. dancing on roosevelts grave is not just about roosevelt, it is about a deep hate people of that class have for the idea that a worker could look them in the face and say, no thank you.
When you said
“probably one thing i did not make clear is that the trust fund is debt owed to a set of actual people who are not, in general, the same people who owe the debt”
that’s it in a nutshell for me. Tax money especially federal tax money is fungible, it doesn’t really matter if I pay x tax or y tax, it all ends up at z or some other place. See, I’m one of those folks who has prepared his own tax returns since 1972 so I’ve had reasons to follow this stuff closely. I have never made a lot of money (best year ever I saw $48K) & for many of my tax returns especially after 1983 I noticed I was paying as much or more in FICA than in Federal Income tax. And that is likely pretty much the same for most taxpayers, especially those with families or home mortgage deductions. Yet the top federal rate fell during that time to 35% or thereabouts & the capital gains tax went to 15% or in real estate, from substantial tax on the sale of an appreciated home to a single lifetime exclusion to multiple exclusions. GWs tax cuts did not affect me at all, only Obama’s “Making Work Pay” credits did anything for me at all.
Those SS Trust bonds are an IOU for general revenue expenditures which prior to the FICA increase would have been paid for with Income tax dollars (or not incurred at all due to fiscal restraints). Monies that would have come from the existing Federal tax rates. And those on the top who benefited from our higher FICA taxes by having their taxes reduced now expect us on the lower end to repay their debt. And expect those of us w/tea bags to cheer them on while doing so (not me personally, however).
Did you see what Kevin Drum had to say on this last May?
Damn, did it again. Maybe I should go back to lurking… Cleanup appreciated. But I bet this one doesn’t triple-post. WinXP, latest FireFox cookies mostly off
that looks about right to me.
but i keep thinking its only the opportunity of the moment. congress never wants to pay its bills. and the rich truly do not think they spent the money. so the tax to repay the Trust Fund looks to them like they are paying for Social Security (hey, never said the rich were smart). but the petersons have been trying to kill social security using one excuse or another for seventy years.
Wooow! You all seem very preoccupied to keep the SS…and very attentive and knowledgeable and a lot less biased as Mr Peterson&Cie! This commision look like when they do brainstorming session but in reality try by some actors in the group to direct in a certain direction satisfying the direction…and telling it is the group view!
So just wondering something: can it be possible nothing about numbers? Let me explain; they get a couple of problems as they would need to keep interest low to very lows for very long time….to bailout….banks and replenish balance sheet as ordinary people would pay the full rate…so very low, more capital needed…plus the money paid by contributions have been used somewhere else(IOU) instead of kept in arm’s lenght…and now the gov want to continue buying some bonds in the markets which even if classified as AAA…with a tendencies down..so to liberate balance sheet try to limit what has been paid by citizens…So pension will go to the banking system…Can it be possible?