Three-Card Monte (Spring 2004)
Angry Bear archives reminds us of the longstanding strategies embedded in the current political debate, and trial balloons of possible current Super Committee proposals November 22, 2011. The Social Security surplus as a significant amount of money is recent, in the last fifteen years or so:
Tuesday, March 02, 2004
Following up on Kash’s earlier post about Greenspan, Krugman’s op/ed also highlights a fairly bold bait and switch maneuver by Greenspan:
The payroll tax is regressive: it falls much more heavily on middle- and lower-income families than it does on the rich. In fact, according to Congressional Budget Office estimates, families near the middle of the income distribution pay almost twice as much in payroll taxes as in income taxes. Yet people were willing to accept a regressive tax increase to sustain Social Security.
Now the joke’s on them. Mr. Greenspan pushed through an increase in taxes on working Americans, generating a Social Security surplus. Then he used that surplus to argue for tax cuts that deliver very little relief to most people, but are worth a lot to those making more than $300,000 a year. And now that those tax cuts have contributed to a soaring deficit, he wants to cut Social Security benefits.
As you can see from this post last week, the 2004 deficit is only brought down to a mere $500,000,000,000 by starting with the non-trustfund deficit of $631,000,000,000 and subtracting from that the $154,000,000,000 surplus created by the payroll tax (money allegedly going into the trust fund/lockbox).
To summarize, here’s Greenspan’s 20+ year plan to roll back Social Security:
Step 1. Get appointed in early 1980s to committee to protect Social Security.
Step 2. Successfully propose substantial increases in regressive payroll taxes in order to save Social Security. Workers will pay higher payroll taxes but their retirement benefits will be assured.
Step 3. Wait 20 years; to pass the time, become Chairman of the Federal Reserve.
Step 4. Actively support large and regressive cuts in income taxes. Never mention payroll taxes.
Step 5. Repeat step 4.
Step 6. Observe that in 2004, steps 4 and 5 lead to a $631b shortfall; Step 2, however, created a $154b surplus.
Step 7. Reverse Steps 4 and 5.
Step 8. Just kidding about step 7. Seriously, the answer is clear: cut Social Security benefits.
UPDATE: CalPundit had a post on Sunday, THREE CARD MONTE WITH ALAN GREENSPAN, which made the same observation and concluded, “A normal person would at least be embarrassed by all this. But Alan Greenspan has never been a mere mortal, has he?”
I am sorry but
whatever merit this post might have is completely spoiled by the sheer stupidity of calling Social Security a “regressive tax.”
Apparently even Nobel Prize winners cannot escape the categories they normally think in… or fail to think in.
Social Security is a highly progressive system for protecting the savings of working people from inflation and market losses. The average “return” to poor people is something like five times the “return” to rich people. Calling it a regressive tax is about as intelligent as looking at the back of someone’s head and claiming that he has no nose.
Try to get this straight: the Social Security “tax” does NOT go for defense or farm subsidies or even “the general welfare,” it goes to the person who pays the tax, directly, with his name on it, with interest.
Calling it a regressive tax is exactly as stupid as calling it a “government expense.”
i don’t know how to make this clear to people who can’t think.
The street is starting to get violent, should we be surprised? I am not.
Failure to understand this is a complete failure to understand Social Security and it would explain why the “liberals” are so completely ineffective in defending it.
Social Security can be ‘saved’ with a tiny increase in the “tax” paid by the workers themselves for their own benefits.
But the “liberal defenders of Social Security” won’t hear of such a thing. They insist upon turning SS into welfare by raising the taxes of the rich to pay for “the poor.”
This is because they are so damn stupid they can’t think in any other terms but welfare. The fact that Social Security is not welfare, and it works BECAUSE it is not welfare, is completely lost on them.
Their way of “fixing” it, would make all of the Peterson lies trues. These people are so stupid they can write editorials, or whole books, saying that “the people paid for it themselves” as the reason not to cut it, and then turn around and call for having the rich pay for it as the way to avoid cutting it.
Pardon me if I go off and sulk. The workers don’t have a chance with “the rich” trying to take away their only real hope of being able to retire, while their oh so intelligent, and rather well off, “defenders” can only think of “helping them” by putting them on the dole for the rest of their lives.
Which will end up with the rich not seeing any reason why people should spend their golden years “not working.” for them.
Did I say this was stupid? Stupid. Stupid.
Cutting the taxes on the rich was always a scam and a disaster in the making. But it doesn’t have a damn thing to do with Social Security.
Except to provide the folks who have always hated Social Security with another phony excuse for cutting it, by prentending it has something to do with the deficit.
It does not. But it will if you make the rich pay for it.
Which is where calling it a “regressive tax” leads.
you see, it’s a variation of “percent paresis.”
economists go to school and someone teaches them about “regressive taxes” and “progressive taxes.” you see, the idea is that the rich should pay a higher percent of their income than the poor.
but they get stuck with the idea and can never think past it.
“The old have no bread, Sir.”
“And why is that.”
“Well, some of them were just improvident and didn’t bother to save when they were young for when they would be old. And some of them were just too poor to save anything. And some of them saved and lost their money to inflation. And some invested to beat inflation and lost their money when the Market went bad.”
“Well, lets see, if they are going to live about twenty years after they get too old to work, we can make them save enough every day for half a loaf of bread, then after forty years they will have saved enough for twenty years worth of bread. And we can protect their savings by “pay as you go”. And we can work it out so the better off save just enough extra to provide bread for those who never manage to be able to save enough. Yes that should work.”
“But boss.. That would mean that rich and poor alike would each be saving enough for a loaf of bread a day. That’s a lot bigger part of a poor persons wages than a rich person. That makes it a – gasp – REGRESSIVE TAX! That would be so unfair!”
And the rest of the story, my friends, I can’t tell you. Because some of you will always think it’s not fair that the poor should have to save enough for their own bread… even when the government protects their savings and arranges for a little extra help for the needy. But here’s something to think about: the rich will not want to save enough to feed the five thousand, every day, and they make the rules. Even if the workers wanted to live on the handouts of the rich.
What about the unified budget?
Doesn’t the availability of federal funds (much from SS “savings”) lend to an increase in other outflows thus imperilng future SS?
I know you’re keen on the notion that “SS is nothing more than repaying what was once paid” and that’s true in sense… but if I took your “savings” and spend it on hookers and blow how does the fact that I “owe you” say anything to whether or not you can be paid?
As long as the borrowed money is repaid, you don’t have to worry about how it was spent. Do you ask your bank to account for how the spend your money to earn the interest they will pay you for the use of it?
As for the bank known as The United States of America being able to repay the money it borrowed… that is pretty much of a joke isn’t it? America is still a big, rich country. And it pays it’s debts the same way as it pays for B-1 bombers: by taxes.
The fact that some people want to keep taxes too low to pay for what the country buys and owes is not the same as saying “we can’t afford it.”
Any time you want to cut taxes is fine by me. But first pay for what you already bought… and borrowed. Then note that Social Security has nothing to do with “the budget.” It can pay for itself forever, pay as you go. Even if The United States of America welshes on the debt it owes the people who already paid for their Social Security.
It’s Oakland. The police there are awful. They shoot people from time to time with guns with real bullets on a random basis. Gives ’em a bad reputation which they resent, still….they shoot people. Not so surprising that they also gas and pellet gun people. I have the impression that some officers on the force are as fearful as the protesters and have predictably itchy trigger fingers. Also, Oakland is directly located on a whole buncha N/S freeways. So, anyone from some disreputable place like E. San Jose or the bad parts of Gilroy or Prunedale can zip in and join the fun in an hour or so. Determined people from S. Sacramento take longer to get there but, you know, better late than never.
What happens during peaceful periods certainly represents the majority of the OWS people. But, in LA, when the Lakers win, the inhabitants downtown riot and burn up cars and trash, and get busted in the most predictable way. And, that’s when the home team WINS! So, downtown Oakland and LA are not all that peaceful under the best of circumstances.
However, here’s a link to TV coverage of an incident in which a police officer shot and killed an unarmed man. http://www.youtube.com/watch?v=MEDZy9Eib-U If you google “oakland police shoot civilian” or something similar there are many reports of smilar events. SFO is more upscale and less likely to have police involvement in street shootings, but even there things like this can happen. Thing is there is always a potential for violence on the streets in Oakland and LA. So, I think this has less political significance than the core of the non-violent protesters in the OWS movement as a whole. NancyO
oh, and please spare me
the “avaiability of SS funds leads to an increase in … outflows.”
this is the same argument that “she wore that sexy dress and forced me to rape her.”
That said, Greenspan was and is duplicitous and deserves to be called-out. Although building the trust fund was the right move, using this to cover-up deficits (caused by lower taxes, especially on high-earners, and more defense spending) was simply a dishonest bad policy. While we were building debt to Social Security, we needed not to be building debt on top of it for other things.
Like his beloved Ayn Rand, Greenspan hated the Social Security system and perhaps he even hoped to never repay the mounting debt to it. Within his commission on Social Security, he even helped block a formal recommendation by SS-friendly members that we needed a one-half of one percent increase in the payroll tax in 2010, perhaps because he hoped the “solvency” issue would kill the system by then. He and Bush tried to “privatize” the system in 2005, you might recall.
The United States will never default on its own debt held in its own reserve currency.
As to your point on how they repay debts and B1 purchases… sure they use taxes in part but they also float more debt. So they’re using new debt to repay old debt… fine in the short term provided your growth is sufficient.
It is absolutely not analogous to the “sexy dress” scenario you posed. Having a pile of cash in a unified budget (rather than some requirement to “trust fund” SS money) certainly leads to them “borrowing” from it to pay for other things. I don’t really see how you contest this.
Again: if I “loan” Uncle Sam my money, then he wastes it, then he “repays” me by borrowing from two other people… how is Uncle Sam different from Bernie Madoff? I’ll tell you: Uncle Sam has a much larger pool to borrow from, so his game can go on much longer and affect way more people.
taxes how debt is ultimately repaid. presumably the borrowed money is put to some use that makes the country stronger and the people richer. that’s where the money comes from to pay the taxes to repay the borrowed money. it’s very much like a corporation. except immortal. with the power to tax. you may not like taxes, but don’t confuse that with actually saying anything meaningful about the finances.
and darn if I didn’t think the SS surplus was in a “Trust Fund.” … that is legally required to be used (including interest earned) only for Social Security.
as for whether or not the “they made me borrow it” is analogous to the sexy dress defense… i don’t really see how you contest this.
your ideology is getting in the way of your brain function. maybe you could get a Nobel Prize in economics too.
i have no doubt greenspan was an idiot… anyone who liked Ayn Rand would have to be. And I have no doubt the Congress and the oh so intelligent press have used the Trust Fund to play games with “the deficit” numbers. But the facts were always there for anyone to see, and as long as the Trust fund is paid back on time, no harm, no foul.
The Trust Fund served the purpose of allowing the Boomers to pay for more of their own retirement than simple pay as you go would have called for, thus redressing a minor “generational inequity.”
The money had to be saved…. invested… somewhere. US Treasuries seemed like a good idea for a number of reasons. What the congress and president did with the money is a whole separate issue.
Tell me about the effort to increase the payroll tax. I missed it.
coberly: “Cutting the taxes on the rich was always a scam and a disaster in the making. But it doesn’t have a damn thing to do with Social Security.”
But wasn’t one reason for those tax cuts undermining Social Security politcally? Why do you think that Obama — of all people! — put it on the table?
PJR–Ayn Rand may have hated SS but she was able to bring herself to cash her monthly check and use her Medicare card just like the millions of other beneficiaries who loved these programs. So much for her much vaunted individualism and objectivism (or whatever you call it.) She would have been foolish to forego those benefits and acted in her best interest, of course, all the while advocating that the rest of us would be selling our souls by doing the same thing. Yep, it appears that Greenspan’s heroine was just as much an opportunist as he was. NancyO
At the SS website, Coberly, you can find the entire report from the Greenspan commission. Chapter 4 contains dissenting/additional opinions from members. http://www.ssa.gov/history/reports/gspan.html The second opinion is worth reading (it is perhaps inappropriately entitled as dealing with issues of concern to women). It is written by Commissioners Robert M. Ball, Martha Keys, Lane Kirkland, Daniel Patrick Moynihan and Claude Pepper (members selected by the Democratic leadership of the Congress) Here’s a sample from the first few paragraphs:
“We recommend that the remaining 0.58% of payroll deficit be met by providing additional revenues starting in the year 2010, in advance of the period when the bulk of the deficit is projected to occur. Sufficient additional revenues would be provided by an increase of less than one-half of 1% (0.46%) in deductions from workers’ earnings beginning in 2010 and a like amount in employer payroll taxes (with an equal combined rate for the self-employed) or the revenue could be supplied by an equivalent general revenue contribution, or some combination of the two. For purposes of present legislation we would support putting in the law now an increase in the contribution rate beginning in 2010 of 0.46% of payroll (with the employee contribution offset by a refundable income tax credit) recognizing, of course, that in the next century the Congress may prefer to raise the money in some other way and that, in fact, such a rate increase would not be allowed to go into effect unless estimates at the time of the scheduled increase showed that it would be needed.”
“An increase of less than one-half of 1% in the contribution rates in all probability would not mean an increase in the burden of supporting OASDI because: (1) By 2010 real wages are likely to be substantially higher than they are now; and, (2) although levied at a higher rate, the rate will apply to a smaller portion of total compensation than today if the expansion of non-taxable fringe benefits projected in the estimates actually occurs. (If such expansion fails to materialize the contribution rate increase would be unnecessary.)”
coberly: “Social Security is a highly progressive system for protecting the savings of working people from inflation and market losses. The average “return” to poor people is something like five times the “return” to rich people. Calling it a regressive tax is about as intelligent as looking at the back of someone’s head and claiming that he has no nose.”
Social Security taxes are, in fact, taxes, as the Supreme Court has held. But the basic idea of Social Security is indeed retirement insurance. (That’s not all it is, but that is the basic idea.) However, the income cap for Social Security taxes is inconsistent with the insurance idea. You don’t give a rebate on flood insurance because there has not been a flood. You don’t give a rebate on fire insurance because there has been no fire. You don’t give a rebate on retirement insurance because someone makes enough money that they probably won’t need it. Otherwise you get insurance for everybody provided by those who can least afford it. And that is regressive.
Jesus. I could have written that myself… except about the “general revenues” or the tax credit.
How come I am fighting this alone than?
you see, it was okay for first raters to recover part of the money stolen from them by taxes, you see.
you are confusing yourself. you pay fire insurance on the value of the property you are insuring. the insurance company doesn’t give a damn if you are rich or poor. you pay up to a “cap” enough to pay for your potential loss.
SS is a “tax” because that’s the only way it can be involuntarily collected. and SS has to be involuntary because most people are too stupid to pay for it voluntarily… until it is too late. but it is a “tax” you get back, with interest, with your name on it.
lets try it again… a poor person might pay say 1200 dollars a year for his Social Security insurance and get back about 6000 a year when he retires (ignoring the rise in both inflation and real wages).
a middle income person might pay about 2500 to 5000 a year… depending on how you count the “employers share”, and get back about 16000 per year when he retires.
a high income person might pay about 12000 per year and get back about 26000 per year when he retires.
now tell me how this is “regressive”?
like damn near everything else in life, if you marry the word, you can’t see the reality. SS is what it is.
be careful. it was Bush who cut taxes on the rich… and Obama who kept them cut.
but it was Obama who cut “taxes” on the poor. meaning he took their retirement savings and told them, go, spend, give it to Mr Wal Mart who needs it more than you will.
Yes, that undermines Social Security… and Mr O did it because he is a fool or a creep.
But the Bush tax cuts on the rich… and the O continuation of those cuts was also a scam and a disaster.. you can’t pay for government if you don’t collect taxes. we had already learned that supply side tax cuts don’t work, and O has no excuse.
if they want to cut taxes, they need to pay for what they have already bought, and the cut spending. but not the spending that the people spend directly for themselves… Social Security and Medicare.
The system demands it.
I don’t fault people for taking handouts, I fault people for offering handouts.
then you ought to agree with me. Social Security is not handouts. it is insurance. it’s the”regressive tax” idiots who want to turn it into a system of handouts.
I assumed you did write that. Just kidding. The general revenues reference probably was a bone for the left, and the tax credit a bone for the right, but they basically recommended the intelligent approach. I give them credit even though their idea was lost (buried).
SS problems are symptomatic of the larger problem of unsustainable government growth.
It’s not SS that’s inherently “wrong” it’s that we allow it to persist as a funding source for other reckless government spending. As it is part of the unified budget there is no segregation of funds. Per SCOTUS, SS is a tax not a retirement plan. It just to happens that we also have an outflow of benefits.
Reduce the ever-expansionary policy of government and you mitigate the “problems” politicians pretend to have paying for SS.
Let me give you a personal anecdote to illustrate what I’m getting at regarding the self-perpetuating system of handouts.
I have family with farms in the midwest, thousands of acres. They, like all other midwest corn/soya farmers are the recipients of ag subsidies and they participate in a heavily manipulated market. In a sense, they have guaranteed profits.
They recognize that the subsidies they recieve are unsustainable in the long term and that they directly result in a lower yield, artificially higher prices, more subsidies and a lower competitiveness of the market. Subsidies have driven the prices of land up (directly against the best interest of the “small” farmer and non-farmer alike).
Though while they know the folly and bubble inherent in this system of handouts… if they do not participate they will be driven out of business because other farmers will, and their “handout share” will move to create other GSE competitors.
This is how the system becomes (became) entrenched.
We are all bankers.
reduce the size of the malefactors of great wealth and you might be able to reduce the size of government.
as for there being no segregation of funds, you are talking nonsense. the SSTF IS the legal segregation of funds.
SS is a retirement plan that has saved about half the elderly in this country from dire poverty for over seventy five years… whatever you call it.
it seems to be approaching insanity to say it “just happens to have an outflow of benefits.” the benefits just happen to be what it was designed for.
I was with you right up to the last line. I get many things.
I will assume you are right about the waste that farm subsides represent. Does that mean the answer to every question is to reduce the ability of government to solve the kinds of problems that are impossible for individuals to solve on their own?
I wish there was a way to get you to think harder. I am no fan of “big government” and have my share of aggravation dealing with government power and stupidity. But when I see you apply your general hate of government incorrectly to something like Social Security I see that you have become incapable of thinking about separate things and resort to a one size fits all answer to everything.
Trouble is you cannot get rid of government, ever. All you can do is try to direct it toward making your life better instead of worse. Social Security hurts no one and saves millions, if not all of us, from desperate poverty. And there is no other way to do that.
I am trying to get a kind of ag subsidy myself. I have some land that the government would pay me to set aside to provide a filter between farm chemicals and the rive system that supports another kind of life just as essential in the long run as farms. I would probably set aside the land anyway just because I am a good guy. But my neighbors aren’t… not all of them. The government could just force us to, or they could pay us to. Naturally I think paying us is better. On the other hand I am extremely leery of entering into a contract with the government. don’t trust them… especially considering that your friends seem to be coming into power. and your friends are the sort that will sell me down the river to make a few bucks, or just enhance the power of their friends, who tend to be bigger than me.
I don’t know, but
it is entirely possible that without the farm subsidies that you don’t iike, the law of the jungle competition that would result would reduce all farmers to subsistence levels or less until they were forced to sell their children into slavery and their farms to Safeway…
I don’t know, but it is the sort of thing you have to think about before you just take the top of your head view that “it’s a waste.”
“It’s not SS that’s inherently “wrong” it’s that we allow it to persist as a funding source for other reckless government spending.”
I take it that you are fine then with SS as a way for workers to protect their own savings for their own retirement from inflation and market losses by pay as you go financing with wage indexing.
That you object only to keeping the Trust Fund in government bonds, preferring to invest it on the Market. But of course every business invests its short term cash surplus in government bonds because that’s the safest place to put it.
It seems to me that the next step for you is to explain what you would do with the money instead. And please give some attention to the risks and unintended consequences.
It would probably help if you understood how the Trust Fund is “legally segregated” from the general fund, and why the enemies of Social Security work so hard to fool you into thinking that it isn’t. And of course the idiots on the left who would be just fine with paying for Social Security out of general funds.
Thing is you have to keep thinking AFTER you get the answer you want. Sure there are consequences to government action we don’t like. Question is what are the consequences to failing to take that action. And of course can we fix the bad consequences of one without falling into the worst consequences of the other.Today, 11:02:12 AM PDT
“…now tell me how this is “regressive”?
No doubt that you are correct in your analysis and explanation. It is not regressive so long as the payroll taxes that flowed into the Trust Fund don’t some how migrate into the general fund as assets rather than as the debt that those funds represent. I know that that statement needs clarification. Said another way, the payroll tax can be made to have been regressive (it didn’t start out that way, but) if in some manner the benefits paid at any future time are restricted or reduced in order to abrogate the government’s requirement to honor the assets of the Trust Fund. If that’s not clear let me knnow and I’ll try again. It’s subtle, but the entire effort to “control” Social Security benefits in any manner results in a regressive character to all the prior payroll taxes paid.
nothing subtle about it. you are entirely right.
but meanwhile the Trust Fund is being used … that is paid back… just as designed.
It’s being used as it shold be at the present because the law is still on our side. The effort of the “fixers” is constant and at present the word on the street, so to speak, is that a fix is needed, even though it is not. Their hands are all over the Trust Fund, or at least would like to be. It’s those hands that need to be chopped off before they can grab what is not theirs to take.