“One neat trick to stop Social Security ‘Reform'”
Republicans constantly try to bring Social Security into ongoing debates about ‘Balanced Budgets’. But they face a fundamental problem with their math. For a variety of reasons, some quite reasonable and others nakedly political (seniors vote) nearly every ‘Reform’ proposal out there promises to hold 55 and older harmless. Meaning you can’t have any more than miniscule effects on Cost projections until today’s 54’s and younger start retiring. Except for a handful of early retirees that event happens 11+ years in the future, which is to say outside the 10 year Budget Scoring window.
You can’t have a fix to a problem scored over 10 years with a solution starting Year 11. Sure the ‘Reformers’ will blather about “Infinite Future Horizons”. But any proposal that spares current seniors from cuts will score close to zero by CBO and JCT. You just have to count years on your fingers.
SS is an intergenerational compact. The GOP exemption of 55 and older citizens from SS benefit changes poisons that compact.
Webb – So nice to see your words. I hope that you are well.
As you know, it is current law that SS benefits must get cut (across the board) by 21-25% sometime between 2029 and 2033.
So a person today who is 54 has a great deal at stake, as do all current beneficiaries.
You think it is a “Neat Trick” to end any debate on SS today. Ok, but you are going down the road of across the board cuts with your neat trick.
As that really what you want? That’s the outcome that best serves the country? That’s the outcome that makes SS sustainable for many more generations?
Or is what you want a crisis that hurts old people who do not have sufficient savings?
Krasting as usual you are missing the specific argument.
GOP plans to “reform” Social Security often take this form
1. Américas $20 trillion public debt is unsustainable
2. Current Budget Deficits add to that debt
So far so good
3. Social Security must be part of that discussion
4. 55 and orders must be shielded from changes that allow them no time to adjust
5. (The Bush/Krasting argument) Payrolll tax increases across the board are neither politically possible nor econicallu wise
All three of these are doubtful. This post points out that 2 and 3 +4 (2nd edit) are incompatible within a structure that assumes 10 year budget scoring. Argue or acknowledge that specific point and we can move on.
In context your comment is trolling. Though I am willing to address it.
GOP point one is interesting on several fronts. One it is debatable on its own terms. It it is not clear that current Public Debt is unsustainable on a percentage of GDP basis, especially when you take that in the form of Debt Service at current and projected 10 year rates. A $10 trillion debt at 8% (roughly Bush era) is twice as expensive as a $20 trillion debt at 2% in debt service terms and assuming principal rollover. Simply put Obama years have seen a massive refi of Public Debt. Much credit for which belongs to the Feds QE1 and QE 2.
Once again address this SPECIFIC argument.
Further on point one. Even of we concede that current Public Debt levels are unsustainable it is an odd fact of federal finance that cutting Social Security benefits absent any other change actually increase Public Debt and does not cut it. Odd but true.
On the Bush/Krasting argument that across the board payroll tax increases are neither economically desireable or politically achievable, the s cond point is contradicted by all polling. Given the choice between increased FICA and benefit cuts Americans overwhelmingly support FICA increases. Even without knowing how small those increases would need to be on a phased in argument.
You continually assert that Northwest would never fly politically but NEVER put forward an argument why any other plan would be an easier lift.
Address THAT point specifically if you will.
You also argue that a 22% overnight benefit cut is both unfair and a political disaster in the making. Okay but let’s address those two in insooltion.
If the cut is unfair how does it compare to cumulative benefit cuts on that same date under various reform plans? Any plan that has Millennials taking a cut near 22% ANYWAY then it doesn’t address the issue Joel raises. Instead it is simply a cynical move to make the medicine go down while sparing upper income people any tax pain.
Again be SPECIFIC. here.
I have another plan to cut the general debt. How about the Congress simply discount all T Bills sold to banks and sovereign wealth funds by 50%? What’s that French term? Vois la!! Wasn’t that one of Trump’s often used methods for reducing his own debt in the not too distant past? Yes, I know it’s dumb to renege on debt, especially cheap debt, but that’s better than reneging on debt owed to ourselves, isn’t it? And Trump’s voting base will love the idea of screwing with big banks instead of us forgotten, and older Americans. Or younger Americans for that matter.
Of course that 22% benefit cut is an illusion created by thinking that the SS trust fund is something more substantial than your left pocket borrowing from your right pocket and giving it IOUs. Assuming that we were to simply run out the clock and make no changes to SS until the trust fund ran out. On the day before the trust fund ran out we would have combined general revenues and government borrowing sufficient to redeem the special, non-negotiable bonds held in the trust fund. On the day afterwards, the general revenue and the ability to the US treasury to borrow money wouldn’t have changed. Under current law we would at that point be forced to cut benefits to all retirees by 22%. Presumably that 22% of revenue that was NOT being spent to repay the trust fund would be applied as deficit reduction. Or used for tax cuts or new discretionary spending. Of course those are all political impossibilities, and would never happen. It is important to the Republicans that want to reform SS that people never realize that we can afford to pay the shortfall in SS revenues from the treasury. Because once people realize that, they will be more comfortable with that than they will be with the alternatives.
Jim: yes, Yes, YES
Under current projections General Fund transfers to Social Security amounting to about 25% of 2033 SocSec Cost simply vanishes for 2034. Bingo! Nearly a TRILLION CURRENT DOLLARS for tac cuts or whatever.
On he other hand under the Northwest Plan of phased in FICA increases Trust Fund principal basically never has to be paid back. And interest actually paid at a discount. In effect Dale’s plan shifts future burdens from billionaires to workers. In a sane world the 1% would be jumping on the NW bandwagon. Instead their hatred of FDR and the New Deal has left them insane in their desire to kill this program.
Bruce!! So glad to see yo back.
So glad to see YOU back. You. Not yo.
Thanks Bev.
Short story: major surgery, part way into lengthy recovery. But with unlimited time to blog post and comment. So there is that.
Webb – I think there is no reason for Trump to back any changes to SS in the next four years. Why would he? SS is not going to be a drag the next 4 years. To me, the earliest there will be and serious talk about SS will be around 2022. It could easily get pushed out to 2027-2028.
So I would not get too excited about any proposals that are tossed around today.
I did find the proposal interesting. 75 year solvency with no tax increases. I thought it was interesting that Goss responded as clearly as he did. It was as if he was selling the merits of this approach.
Has Goss done this before with other proposed legislation?
SSA scores all solvency plans.
If Ryan, McConnell and the Chairs of the respective Budget, Taxation , and Ways and Means manage to cram Social Security and Medicare “reform” into a Must Pass Budget Reconciliation bill (not subject to filibuster on final) do you really believe Trump will veto and so shut down government?
The only way to bet these guys back is showing that their arguments are incoherent arithmetic nonsense. If you think this is all wheel spinning then go away and stop burning straw men on my doorstep.
And I don’t see a link to the plan you reference and that Goss comments on.
I believe Bkrasting is referring to this:
https://www.ssa.gov/oact/solvency/SJohnson_20161208.pdf
Big cuts, especially for people with above-average or uneven wages. Not only are there no tax increases, there are decreases in taxes (phasing out of taxation of benefits).
Thanks Mike.
It is easy to come up with a cuts only plan. The problem for “Reformers” is convincing voters who support Social Security by overwhelming margins that “Strenthening” Social Security by a narrow focus on Solvency rather than a direct cost/benefit analysis for that current or future retiree. Sweetening the medicine by phasing in cuts by Chained CPI or Price Indexing or schemes to shield the poorest while means testing the “well off” are generally sleight of hand to get the middle class into 401ks while gutting collective solutions. Including public and private defined benefit pension.
The answer it seems to me turning their surface arguments against them and make this what it really is: New Deal vs No Deal, FDR vs Uncle Milty
Webb – Sorry, I thought you were writing an add-on to Coberly’s bit on the Johnson proposal.
I said at one point that this is interesting. I don’t support it as presented. There are somethings in this that might well be part of a solution one day.
I must admit I had some difficulty with the information. Info is presented on a Net Present Value basis. For example, look at Table 1A. Look at the column “GDP”. I understand why, overtime, GDP actually declines using NPV. But it makes looking at what is happening upside down for me.
Enjoy.
Coberly is spot on in several aspects. One, people must believe that they are paying for their own benefits. Two, any reduction in the benefit schedule will be seen as taking money from the people who were taxed. Three, raising the FICA tax slowly will cause the least backlash.
Almost all of the changes are cuts, but I don’t think any are clearly described as cuts – adjust the PIA formula, increase the NRA, use the “mini-PIA.” Adjusting the PIA means giving a little more to people at the bottom (with some exceptions), a little less for people below average but not at the bottom, and making large cuts for people even a little above average earnings. Increasing the NRA is, of course, across the board cuts. The mini-PIA slashes benefits for those with low average earnings because they worked less than 35 years.
Sure, it’s easy to make a cuts-only plan, but the cuts have to be big, and that’s more true has time goes on (whereas waiting to implement payroll tax increases isn’t as big a problem). I just hope we can make it through the next few years.
What happens to SS if we were to actually start shifting income down the line to where it would naturally be captured by FICA? You know, like when before the income shift started.
Seems no one wants to think about this factor. Seems if we could start shifting income back down the line and awful lot would be better.
Though the wealthy/conservatives don’t like paying the help either.
Sorry to hear you had surgery, Bruce, but glad it is over and you are apparently recovering.
Nothing needs to be done to SS anytime in the near future. We can afford to wait and see. Fica tax increases or other adjustments can be done down the road if they prove necessary.
Trump has a problem in that he has loudly promised not to touch SS, but now we have this SS bill, not to mention Ryan babbling about voucherizing Medicare as well, which Trump also promised not to touch. This will get interesting.
Of course all this talk about needing to balance budgets or whatever is just total hypocrisy given that Trujmp is playing Reagan with pushing almost certain-to-be-passed big tax cuts for the rich along with likely, if completely unneeded, defense spending increases. Hey, at least Reagan had the Cold War with USSR, but Trump is supposedly going to be singing kumbaya with Putin, indeed has already been doing so quite vigorously. And we might have an infrastructure spending program too, although that looks sort of weird and questionable at the moment.
Of course the worst hypocrisy is how this is being sold to millennials and Gen-Xers. This is all to get at the evil baby boomers who are ripping them off on SS, so it needs to be saved for them from the evil baby boomers. But that age cutoff means only the tail end boomers will get hit, while the Gen-Xers and the millennials will take the big hit, with those retirement age increases likely only to be phased in very slowly over time. Heck, the ones agreed to in 1983 are only finally kicking in for people who are now 61. So, these younger people are being told to accept benefits cuts now because if they do not, they might have to take benefits cuts in the future. Bah.
“Seems if we could start shifting income back down the line and awful lot would be better.”
That’s a mighty big IF, Daniel. Any idea how to do that?
Here is a solution for the accountants: statutory direction to the Fed to transfer public assets on their books to the Social Security trust fund so the earnings on these govt bonds cover the payout claims.
Oh, it’s a sleight of hand, of course, but public assets stay on the public’s books just recorded in different accounts.
Cutting and unsettling the system of inter-temporal balancing on income flows, which is what the SS earnings are, in order to satisfy what purpose?? To unsettle matters is one purpose, including misleading the public and obscuring things with backroom accounting ledgers. I just cant think of any good reason to cut earnings back to retirees after we have seen the net wealth and income growths we have had over the decades, though these measures are concentrating to a few. And therein lies the purpose, to protect these concentrating gains and walling off changes.
Must we wait years again ti obtain a thoughtful discourse, alas.
J.F. Nice comment.
I would have to think through the budget and debt accountIng to see the reverberations but a clever and novel suggestion. Not that I agree necessarily but a solid contribution to the debate.
Well, thanks.
And dont forget in thinking this through to remember that the Fed bought those govt bonds by ‘printing’ money by way of making accounting entries into reserve accounts. Somehow the simple and obvious point that these are all accounting entries into ledgers has led to what, appreciation for what SS does for our society, or arcane sleights of hand discourse? Oh, and under this Swiftian proposal the paying back of the face value of the bond and serving the interest claims until its maturity might also be seen as shifting to the flows viewed as general revenues, away from payroll tax burdening, and I think that makes wonderful sense.
As someone who has testified in Congress on the budget, on auditing and financial management, I see the entries being made into accounts, plain and obvious, and I see the raw politics here on behalf of the elite, and misleading sophistry too, for that purpose; that is, misleading.
Wrong Congress and presidency now for us to have thoughtful discourse at this time.
JF
if you have testified before Congress on budget etc matters, it would be interesting to hear from you why raising the payroll tax a tiny amount each year as needed so the workers can continue to pay for their own retirement/insurance can’t seem to get a hearing. i get only stupid looks from my senators and congressman.
i don’t claim to understand what you are proposing here, but it looks to me like more fast talking and hand is faster than the eye accounting legerdemain.
SS is a pretty simple concept. The people pay, in advance, for their own retirement. SS merely protects their money from inflation and market losses, and the workers insure each other against some personal losses due to death, disability, or failure to thrive. why make it complicated.
Jim A is wrong about Uncle Sam shifting money from one pocket to the other, but it seems to be one of those images that is too powerful to overcome by getting people to slow down and “follow the money”,,
it may be that Uncle Sam has many pockets, but the whole point of accounting is to keep track of who “owns” what’s in those pockets. The SS Trust Fund is “owned” by the people who paid the SS “tax” and who expect to get their money back, in time, after lending it to “the country” to pay for wars and other internal improvements..
So please, if you really know what you are talking about, can you say it in plain English…
There is this: if it came to it, a sudden raise in the SS tax of 2% each to pay for the actual costs of retirement would not be a huge burden. Any more than a sudden 2% increase in the cost of cars or gas or homes or food would be. In current terms it would be about a 20 dollar per week hit to a budget of about a thousand dollars per week. Not what you would want… unless you understand it’s not money you are losing, but money you are putting aside in order to eat when you are old… but also nothing you would even notice after the month or two it would take to get over the psychological shock.
what we are seeing today is a bunch of crap fostered mostly by the Peterson group that magically turns the ordinary cost of living into a major financial crisis for the country and a crushing burden for the young… who will never get old.
the one tenth of one percent (NW) plan was mostly to show how tiny the increases needed are when looked at over the time needed to implement them … but apparently there are only two people in the country who can understand it, so the 2% all at once option is discussed above to perhaps get some people to comprehend the total cost, even if they can’t understang “phased in over twenty years.
for krasting who loses his mind whenever he hears the word tax… consider how you would respond if your financial adviser said… “looking at the new information about how long you can expect to live (longer), and how much you expect to make (less), we advise you to put an extra twenty bucks a week into your retirement fund.”
would you cry out in pain and fire your financial advisor and take your money for one last wild fling in vegas, or would you say, hmmm, i can get by on the 980 dollars a week i willl have left after putting away an extra twenty so i won’t have to live in the street when i get old, and best of all, it’s insured, so even if i lose ALL my income, i’ll still have enough to get by.” Yes, it’s the prudent thing to do.
and note, the above assumed an income of a thousand a week. what you have to put aside is not that much more even if your income is quite a bit higher. and it could be a lot less if your income is a lot lower. (note, here “more, and less” are relative terms).
please, please, try to wrest your minds away from fairy tale thinking and magic moving part government financial schemes. (not BY the government, but proposed FOR the government, by people who may be thinking of how much money they can make if they can get their cold dead fingers on the SS Trust Fund and cash flow, but are mostly just insane at the idea of poor people being able to retire.
inartfully said, but not intended to deceive:
the 2% SS increase would be 2% of wages, the other 2%’s i mentioned would be, of course, 2% of relatively small parts of wages… so to be perfectly honest you should consider them as taken all at the same time. It’s still something you would complain about, but it’s not something that you would find a “burden.” and with SS you get your money back when you need it most.
the real problem here is that SS is called a “tax” and people stop thinking when they hear “tax.” but SS is the only “tax” you get back with interest when you need it more than you do today.
the real, real problem here is that everyone has their own favorite scheme to finesse the SS “problem” at no cost to themselves. and their favorite scheme stops them from being able to think about the actual reality: SS is YOUR money for YOUR retirement. It is NOT “government” money, it is not “welfare,” it is not a “tax.”
You are going to need that money when you get old…. at least a 50% chance of needing it very, very much. You can live quite nicely today without it. SS insures that you will have it. If you want more, you have plenty left overs to play the markets. Good luck. But that SS is a safety net… one paid for by you. NOT one you pay for for someone else.
Trying to get by without paying for it is not prudent, not smart, and shows a lack of character.
Follow the money… YOUR money.
Coberly, thanks for asking for my opinion as to why members of Congress do not appear to want to raise visibility on even minor increases in the payroll tax. Lots I can say.
If I were a republican it would not make sense to invite public opprobrium by calling for more payroll taxes, raising costs for businesses and lowering take home pay hoping these wage salary earners dont click on the fact that they have lost decades of earnings in the pay envelop compared to their fathers (who had shared pretty well in the economic gains). Can you hear them saying, ‘You got screwed, and so we’ll add some more burden on your paycheck, it’s not a lot, so you should be happy with what you get.’ Raise labor costs abd employers are likely to go slower on hiring and paying people more. So it seems stupid to get caught proposing such things.
A democrat should oppose the raising of basic payroll taxes for all the same reasons, opposite view of course – we want more employment, not less, workers got screwed for a long time and it makes no sense to cut their take home further while the upper limit shelters the high earners who have been and still are capturing almost all the economic gains.
So with republicans in charge, it seems to me they would stick out like a sore thumb, so they won’t stick thumbs and noses out here without some larger political cover, in my opinion. Hence all these grand bills that simply cut the earnings to be paid, and misdirect or mislead on the other stuff.
To me this is about national income flows now and inter-temporally (how to share incomes) and it is about employment policy (we want more of this, not less since we are still growing population wise) — it is not about the accounting ledgers balancing on basic wages/salary as the tax-base subject to tax rates. I consider that narrow discourse to be artificially constrained While it is exploited by factions who see the workforce as just a cost to be walled off from their gains.
It should be clear why I opposed even Sanders proposals and suggested to them that they pursure wise policies but use general revenues as the source of public finance, not more burdening of payrolls (even such modest ones as you highlight them).
J.F. let me use editorial privilege to interject a direct reply.
Your comment assumes a lot of standard economic theory that is not always seen in evidence. Buried deep is the idea that total labor compensation for any given job is relatively fixed, whether by marginal labor productivity or something else and that increases in FICA to the employee (and in some formulations to the employer) are elastically transmitted to reduction in take home. This in turn assumes that labor markets clear at gross pay and not net (take home). It is not at all clear that labor costs are this elastic and that some or most of that tax increase would cut into employer net income and so profit. Which is after all why employers care about this in the first place.
And of course you get similar arguments about the effects of minimum wage. Under right economic theory all such either just flow through to elimination of hours/positions or flow through seemlessly to prices meaning labor/consumers are just caught in zero sum. As opposed to say shifting overall labor/capital share back.
The real world is not as simple as the maxims found in Chapter 1 of Mankiw’s Intro to Econ textbooks. A lot of things are just given as articles of faith. Including versions of labor cost rigidity vis a vis produtivity. God forbid the term “rent seeking” ever hit the index.
JF,
You still got that “tax” thing in your head.
SS doesn’t fit there.
EMichael
thank you so much. i don’t know if they can understand that. let’s keep chipping away at it. see reply to JF below.
Jim F
thanks for the reply.
would it change your analysis if the Congressman understood it was a
ONE DOLLAR PER WEEK “tax” increase?
would it change your ana
Jim F (continued)
would it change your analysis if
“most economists agree” the “employers share” of the FICA “tax” is “really” the employee’s money. money the employer would pay the worker if he did not have to pay the FICA “tax”?
so how does raising the workers pay a dollar a week so he can put it into his retirement fund … which is immediately paid out to current retirees… slow the rate of economic growth?
pardon me, but this kind of “thinking” is just mouthing political platitudes without thinking at all.
if it comes to that, let the workers pay the whole two dollars a week themselves, then we can cut the crap about the “employer’s share” which otherwise comes up when the bad guys want the workers to think their “return on investment” is actually only half what it would be if you counted only the “employee’s” share.
it’s throwing words around that turn out to be meaningless when you look at the actual problem.
the democrats have bought into this idea that a dollar a week raise in payroll (or in the payroll tax) will cripple the economy. meanwhile calling for an increase in the minimum wage and a cut in “benefits” so that old people will have nothing to spend on the economy..
you…. they…. are not giving serious answers. just throwing out political slogans that are meaningless, and which they admit to being meaningless with the very next slogan they spout.
and the people go, ” ooh! that was a good one!”
worth adding here in re Rosser:
i assumed a sudden increase in the tax of 2% “today” in my comment above. at today’s average income of 1000 dollars per week.
by waiting 20 years, the average income should be about 1200 dollars per week. so the 2% tax increase would be about 24 dollars per week. leaving the worker with an extra $176 per week in his pocket AFTER the tax as compared to what he has in his pocket today.
but you should also note that by gradually increasing the tax, it will take more than twenty years to reach the need for the 2% increase… because the increases meanwhile will be adding to the TF, slowing the rate of decline, putting off the day of TF exhaustion. ‘SO THE ACTUAL REQUIRED RATE OF INCREASE IS LESS THAN ONE TENTH PERCENT PER YEAR. LESS THAN ONE DOLLAR PER WEEK (in today’s dollars, today’s wages).
This stuff is not hard, but you actually have to think about it in order to see how all the moving parts work.
Yes EMichael and Coberly this is a tax policy debate too. And as EMichael might know from comments on Economists View, I have led ten month study efforts on the design of revenue systems in the US, using an intergovernmental perspective. There are a lot of wats and means, we ought to devise an overall system that is sensible, and maintain it so. I am not mysitified or mythologized by the way payroll tax regimes work except that the cap makes it plain that it is just another form of a basic income tax, burdening the same income again, but uses the unit if paid labor as the triggering incidence.
Almost all of us agree that the workforce likes its direct ties to the program and almost all support its retirement earnings purposes and its insurance aspects. I truly admit to being in love with all these things. Wish we honored them more in discourse and understood them better too, especially the intertemporal earnings aspects (which should be tied to net wealth and overall gains in economic flows, paying people more as a result since their wages or salaries did not keep up with the gains). But how to finance this, well, it should be done sensibly in light of other public purposes (like encouraging labor incidence in the US), so we can and should open our eyes to something other than the wage/salarues paid as the tax base. The tax base, like everything else, note – it is the same for every public purpose, it is the net wealth and the annual flow or GDP (which normally increases net wealth). So can we not talk about it?
Or is the purpose to trap the debate to the narrow constraint of a tax base controlled not by the workforce but by a labor market that shows plainly how distorted it has become compared to the generation just before.
JF
probably we can’t talk about it. you seem to think in terms of abstractions that may or may not mean anything in the real world… other than the bizarre things they lead the Congress to do.
as for the FICA cap “makes it plain that it is just another form of a basic income tax, burdening the same income again…” i think you have it exactly backwards.
the FICA cap is what keeps FICA INSURANCE and not “another form of …tax.” FICA is applied to wages up to the point where it makes sense as an insurance premium in case of insufficient earnings or savings to pay for retirement. Applying to to all income, even in amounts that make no sense as insurance would turn it into a tax and turn SS into welfare, which appears to be what you think it is.
i have no desire to trap the debate, certainly not tie it to some theory of cosmic justice. I just want to protect Social Security as the best designed system of retirement insurance that we have any realistic hope of having in the United States for the foreseeable future.
JF,
I know your heart is in the right place, and I agree with a lot of these thoughts, but not on the funding of SS.
Allowing the program to be funded in any way, shape or form by the general fund is a disaster in the making. Once that starts, attacks get easier and easier to mount. And the results could be disastrous for the worst off in our society.
Imagine another sequestration fight with SS not exempt.
We are talking an insignificant amount of money from citizens in terms of the return they receive. If it ain’t broke, don’t fix it.
Sorry, but I’m thinking that if the NW plan received the publicity it should and was picked up as a major goal of the Dem Party, we won;t have to worry about trumps down the road.
i should have made clearer in comments “in re Rosser” above:
if the employer’s share of FICA is “really the employee’s money” (as they like to say. sometimes) then a raise in FICA would be offset by the employer by deferring some otherwise ordinary raise in pay.
This would result in NO cost to the employer. Having NO effect on hiring or job creation or growth in the economy.
Nor would “imposing” the entire 2 tenths of one percent increase on the employee have any effect on the economy. The employee would merely be deferring spending a tiny bit of his wages against the day he would need the money more. This used to be called “saving” before the economists insisted that SS destroyed savings (but the governor of the bank of england blames the last recession on “too much savings”).
By saving his money through FICA, he gets a credit he can cash when he retires (this is not the exact mechanism, but it is for all practical purposes the exact mechanism) while SS spends the money that same day on benefits which are immediately spent into the economy.
but you can’t expect a politician or an economist to follow all this.
The point, for those that did not follow, is that a small raise in FICA has NO EFFECT ON THE ECONOMY WHATSOEVER, unless it is to provide that small measure of security people need to spend a little more today or even take entrepreneurial chance.
For what it is worth, I believe my heart is in the right place too.
I am worried by things like the Greenspan Commission. It led to increasing burdening on the incidence of basic work, increases in FUTA taxes too, punishing the workforces of the reeling rust bucket at that time for things they did not cause and were just the ones who paid. I wrote then and still write about the stupidity of the accounting ledgers defining the debate then and now. We have seen this before, it is very clear to me that the tax base trap is used by unctuous dissemblers to rationalize their views that labor is just a cost, providing a huge signaling effect for managers of capital while helping this faction to reverse the New Deal spirit of these public laws providing arbiters to promote economic security for our society. And darn it, the program worked incredibly well, didn’t it. And I take the Greenspan Commission as a watershed point, and it was based on the accounting ledger debates around wages as the tax base alone (though we know the law provided differently in the beginning).
So protect the link to workers contributing directly, sure, but please keep your heads about you so you do not end up helping this other faction in doing so.
Enough pontificating for the day, but glad to have the opportunity, and thanks for listening.
I would like to return to J.F.s original proposal regarding the Fed. Please jump in if I distort something.
T.he Fed funds its operations currently and largely through returns on its Open Market Holdings and rebates any “profits” to Treasury. In recent years this rebate has amounted to over $100 billion due to interest payments on the long bonds aquired through QE! and QE2. Those interest payments TO the Fed are certainly scored as ‘outlays’ for budget purposes. I am not sure the rebates actually score as ‘revenue’.
Either way diverting those holdings to Social Security creates some oddities. Rather than a system of payout to Fed and rebate of balance to Treasury we now have interest payments flowing from GF outlays to the Trustees who in turn have to oark that interest somewhere, presumedly in the form of “pruchases” of Special Treasuries. Whose interest payments DO NOT score as outlays for budget purposes.
You say all this is simple. It doesn’t seem simple to this simpleton, Can you expand on the budget accountng mechanics here?
bruce
what i get out of the conversation with Jim F is this:
coberly: “Timmy’s fallen in the well again!
Jim F: “Relax, Have a home brew.”
coberly: “Timmy’s in the well!”
Jim F: “God’s in his Heaven, All will be well through the grace of advanced economics.”
coberly: “read my lip’s: Tiimmy WOOF! in WOOF! well WOOF!
Jim H: well, enough pontificating for today. have a home brew.
Dale you get out what you take out. I think the Fed idea illuminating, At least as aiding my understanding of budget accounting.
Jim F said, “I am worried by things like the Greenspan Commission. It led to increasing burdening on the incidence of basic work, increases in FUTA taxes too, punishing the workforces of the reeling rust bucket at that time for things they did not cause and were just the ones who paid.”
what the hell are we supposed to make of that?
The Greenspan commission solved the funding crises SS faced at the time in an way that preserved the design and intent of SS: worker paid insurance for workers. It did it by raising the payroll tax. As a political act it did what needed to be done. And by 2033 it will have worked for fifty years.
If we were only that smart. Even in 1983 the SS actuaries could foresee the need for another tax increase at about this time.
But you have the R’s saying, Oh, no! more taxes! we are all going to die! And apparently the Democrats secretly agree with them. Except for those who think the answer is to tax only the rich.
Because there is no reason the poor should have to pay for their own groceries. And the poor have no other way to increase their incomes than to beg from the rich. or “demand” from the rich.
a dollar a week.
Becker
of course “the” answer is to pay the workers more. but that will take some doing. meanwhile Pauline is strapped to the tracks and the train is coming.
Maybe you want to go talk advance economics and ethereal politics with Jim F, and lassie here will just do what she can.
Bruce
i learned something from Jim too. Mostly why I get dumb looks from senators and congressmen.
Timmy’s stuck in the well.
Bruce, The money remits via offset, accounting entrues.
I just threw thus out there to stimulate debate, and thus was interesting.
But the statute would redefine accounting for the Fed itself, perhaps directing as a matter of the law that when they transfer the asset to SS it is still an asset offsetting their liabilities as defined (monetary theorizing here).
So Treasury still continues to borrow in the open market to obtain the cash needed to pay the interest to the new holder, the SSTF. The Fed could buy these new issues from the dealer network, or not, so we can ignore this point. But at the time the bond held by SS matures, this could be big money (a transfer schedule would beestablished to match expected outlay claims so the redeemable amounts could be reasonabke within a quarter) and Treasury would be said to borrow this anew to etire the bond. The Fed could buy these in tge open market using new money, but this woukd not be the Trust Fund’s concern.
Note that redemption where the Trust Fund then outlays the cash induces the Treasury to borrow more, though this is converting to general fund matters then as money is fungible though not a SS matter, it is normal cash management by Treasury then and its future is on Treasury’s ledgers then. It is funny to consider, but if the Fed redeemed instead of the SSTF (right now they rollover the debt, so Treasury and they just continue along in practice, no apparent change in one view of this), but redemption instead would reduce the amount Treasury would need to borrow as the Fed manages both sets of books and would just offset the amounts, reducing the fiscal deficit meaning that they erase each other so need to sell bonds in the auction to fund the rollover.
So note, there is no conversion if the bonds into these special SS bond status, so none of those accounting rules apply at all. This is an earning asset whose redeemed value is certain nominallyThese are the same bonds you or I could hold, though the statute directing this to happen might put in place some constraints, not permitting it to be traded or sold elsewhere by the SSTF.
I think the monetary theorists would freak out as the redemption privilege is transferred to SS, and at maturity the SS program uses the money it reveals it at that time to be what has been known as helicopter money (remember the Fed just made up the amounts originally). Right now the Fed is not redeeming (and boy is this a topic about power and how to see the public’s debt, and fiscal deficits).
The Fed might also be said to lose some of its independence and discretionary power over these considerable funds. Worth it to me to get back some rationality in seeing the SS system for the incredibly important economic arbiter that it has become (and could be even better as an arbiter).
Too much writing, on the fly too.
The problem here is that unlike the Fed the Trust Fund have no place to stash interest earnings other than in new securities. The Fed has mechanisms to accept checks and other cash equivalents, in fact managing check clearance and money/cash supplies is what they do everyday. But the Managing Trustee of Social Security does not have a checking/savings account.
I am still working through this and it may be that it would work with Treasury Bill and Notes (whose interest is carried within the note and payable at redemption) as opposed to Bonds who get cash interest payments to the holder twice a year. So what you have in On Budget outlays in the form of interest on Debt Held by the Public going to an Off Budget entity in Social Security.
The accounting relatins between Fed and SSA opearations on the one side and the Treasury on the other are compliated enough separately, intertwining them in this way seems a path to greenshade madness.
“Bruce, The money remits via offset, accounting entrues.”
Yes considering the Fed and the U.S. Government as components of one sovereign entity. But in practice we have three sets of separate books in play here: Treasury General Fund, Social Security Trust Fund (managed by Treasury to be sure) and the Fed.
You can’t just move assets from one corporate entity to another on the basis that they “really” belong to the same people in the end. Paramount can’t just move assets off its books to Viacom even though both are controlled by Summer Redstone/General Entertainment (or whatever the parent company is). This is particularly so for the Fed which is in some sense ‘owned’ by the Member Banks who have capital there (different than reserves). The fiduciary responsibilities just don’t run in the same directions.
What use calling the Fed an “Independent Reserve Bank” if the Treasury and Congress can just use its assets as a honey pot to meet their own obligations?
JimF
if the payroll tax is raised one tenth of one percent on each the worker and the employer… per year… until SS books are balanced
the Trust Fund priniciple NEVER becomes due.
and only part of the interest will ever has to be paid, as much of the interest just goes on the books as part of the required reserve for SS.
I don’t understand your “accounting rules.” I would like to. But I have a feeling that what the congress, and perhaps you, are engaging in is self deception.
i may have misunderstood, but the TF contains not just bonds arbitrarily made up, but bonds issued in return for real money… the money paid in by people expecting to get it back when they needed it for retirement. Any accounting rules that regard that as “helicopter money” or “revenue” (with no mention that it is debt) is dishonest.
Becker
just to be clear, i wasn’t intending to be rude to you. i was just expressing my feelings about long term pie in the sky “solutions” when there is a real time critical problem that can be solved entirely with a simple real-world understandable, one time phased in tax increase, which is really just an increase in the amount people have to save for their own retirement…. something can understand if explained to them and not obfuscated by “theoretical” considerations… some well meant, some damnable.
you’ve already had the Big LIars telling people that SS was a tax and tax and folks would never see their money..
well, the people have been seeing their money for 80 years. so it’s a damn shame the congress, and the accountants should always talk about SS as if it was on budget, and if the money was “fungible.”
that kind of fungible is called embezzlement. there is a reason the Trust Fund was created: to legally separate money paid to and for social security from money paid to and for the general government.
turns out one of Uncle Sam’s pockets has a sign on it “keep out under penalty of law… money in this pocket is for Social Security only.
it can be borrowed, but only under proper legal procedures, including the issuing of a full faith government promise to repay bond.
relax. have a home brew.
For all those folks saying a 2% (of income) increase is unbearable, do you remember how painful that was in 2013?
Neither do I.
Lassie sees that mom and pop are going to have another home brew and check out their favorite blogs. So she runs out to the well to see what she can do. The only thing she can think of is to hang on to the edge of the well with her front paws and dangle her tail down to where Timmy can reach it if he tries.
“What are you doing, Lassie?” says Timmy. “go get help!”
Lassie barks and wags her tail furiously hoping Timmy will get the idea. Timmy just says, “Lassie, go get help.”
Finally the edge of the well caves in and Lassie falls into the well along with Timmy. It’s a cold night and neither of them makes it to morning.
That’s Sunday morning, well, early Sunday afternoon, Mom and Pop ask each other, “Where’s Timmy?” and decide to walk around the farm and see if they can find him. Finally they wander over near the old well they have been planning to have covered since the last time Timmy fell into it. They look, and “oh my gosh!”
“It’s easy to see what happened,” says Pop. “Lassie fell into the well and Timmy climbed down to help her get out.” “Damn dog!” says Mom. “Oh, well, there’s nothing more we can do here. Let’s go home and get breakfast.” “I don’t feel like fixing breakfast. Let’s go out and eat.” “Suit’s me.”
Warren despite Dale’s quirks he is a long time valued Angry Bear commenter and contributer.
You are valued in neither role but instead tolerated for your occassional educatinal value, much like the poor stooges in the Dialogues of Socrates. Perhaps you could try to stay on topic and not assume an editorial role. If AB has an opening for a moderator be sure you will be on the list. At the bottom with multiple black balls.
Warren who?
Note that the discussion is beginning to recycle over familiar territory. That doesn’t mean that new ideas are being submitted for discussion and illumination of content. It only means that the discussion is in orbit; going round and around. Some reference has been made to the Congress and its members, but that seems to have been done only as an aside and to disparage the group which certainly deserves the attention it gets. Whether FICA is a tax or some other form of payment.
Whether some set percentage of additional contribution is too much of just right. Whether the intents of all the players are in support of the working man.
The only talk that seems to do any good is the threat of job loss. Not our job losses, but those of the crowd we refer to as the Congress. Loud noise needs to be made that suggests that less is not more. Less social security funding is not more social security benefits. Members of Congress need to understand that they are being watched and listened to and evaluated by a great many voters, not just the people who contribute money. Nothing influences a member of the Congress as much as the real threat of losing his/her place in the club. We can argue the details of Social Security funding until we are well satisfied that someone is actually listening to our ideas, but we would be making a greater contribution to supporting the program by persistently addressing the issue to the people who will actually vote on these ideas. And I doubt seriously that anyone of them reads AB, or spends much of any time on the more educational parts of the WWW. And encourage your friends, neighbors and relatives to do the same thing. And don’t communicate with members of one side of the political stream. Every member has to feel the same public urgency that Social Security is on the minds of all voters regardless of their screwed up and cockeyed political agendas.
Since I got invoked by coberly and he has Timmie stuck in the well, I guess I shall throw in a few comments.
One is that fica is a tax, pure and simple. While some theorists may think of it as an insurance premium, the vast majority of people paying it see it as a tax, pure and simple. That said, I think it is worth keeping it separate from the GF for reasons mentioned above.
Two, the Fed is officially a separate entity, actually officially privately owned by the national banks, even if it is a creation of Congress. Quite aside from basically being an accounting scam, I think that JF’s proposal is simply not going to fly for more fundamental reasons.
Three, I long held off on Coblerly tax proposals (help help! Timmie is in the well!), but I am less optimistic about longer run revenue projections than I used to be. The GOP controlled Congress will simply not consider any tax increase, much less this one about gradually increasing taxes.
But if one is going to push something along such lines, I would suggest doing it in the form of pushing a more rapid raising of the cap, which currently does rise with some measure of the cost of living, I believe. Let the burden of that gradually rising tax fall on somewhat higher income people. As it is, more realistically if we need more revenue for SS it will probably be Dems in Congress passing a one shot big increase, sort of like back in 1983, although that had the approval of anti-tax Ronald Reagan.
yes, professor rosser
the payroll tax is a tax. and it is not a tax.
unlike a tax, you get your money back. it does not go to fund the government.
i went to school in a time when they were very anxious to teach us that the word is not the thing. it points to the thing. i am trying to point to people that SS is not a tax that sends your money into a government black hole.
it is a tax because that is the only way roosevelts commission thought they could get the Supreme Court to approve a mandatory insurance contribution. but they call the payroll deduction a dedcution for the Federal Insurance Contributions Act.
I know that some don’t like to make these fine distinctions when they can have The Word to worship. But please forgive me if I try to tell the people that it is a (tax) they get back with interest when they need it most.
The longer run revenue predictions are the SSA Trustees, the official office for making longer run revenue predictions for Social Security. I use their predictions because they are the official… And because the bad guys like to pretend they are “a looming crisis, a crushing burden on the young.” Turns out, if you are willing to do reasonably simple arithmetic that the crushing burden turns out to be an extra dollar a week each year while you are “predicted” to be earning an extra ten dollars a week each year.
I just can’t get excited about pure and simple definitions and private crystal ball predictions. Well,not “excited,”, but I do get excited.
And Congress will not consider any tax increases unless we tell them we want a payroll tax increase instead of Social Security benefits. I can’t see what is “much less” about a gradual increase. Do you stop your car gradually or just wait until it hits the back of the garage?
Raising the cap will turn Social Security into welfare as we knew it. It would be a HUGE tax increase on “the rich” for something they would see as “welfare, pure and simple.” The cap currently rises with “average wages” (i believe.) The problem is that “average” wages don’t rise with average wages. But you’d have to think about that one.
I am glad you think the Dems will come through with a tax increase, I think we should help them understand why a small, gradual increase on the workers who will get the benefits makes more sense than a soul satisfying welfare as we knew it one shot big increase on people who will use it as an excuse to tear the system down.
the reason timmy is still in the well is because all the smart people on the show can’t understand what “woof! woof! woof!” means.
relax. have a home brew.
Terrible typo in my reply to Rosser
We need to tell the Congress we’d rather have a tax increase than a CUT in benefits.
Of course we need to help them understand why a gradual tax of one tenth of one percent per year, each, about a dollar per week per year in present terms, is better than one big “immediate and permanent” or a huge scrap the cap increase.
even “immediate and permanent” would be better than cuts.
see, there, i used the word “tax.”
attentive readers will have noted that i often use the word tax (though not pure and simple).
even more attentive readers will have noted that “you get your money back. with interest. when you will need it most.”
and the most attentive will remember that Roosevelt said “we put that tax in there so no damn politician can take it away from them.” he meant tax on the workers.
he had to overrule his own commission, social scientists, who couldn’t think in any terms but welfare: the government dole.
that’s why SS was “the third rail of politics.” the social scientists want to throw that all away. they are peter petersons best friends.
But they do not get it back with interest. Fica goes to pay for current recipients. It is not put in a “lock box” earning interest, although in the days when the fund ran a current surplus, it was invested in buying US govt securities, which do earn interest. If somebody dies before they reach eligibility, they get nothing, and if somebody lives to be 110, they get a whole lot more than what they put in and its interest.
Of course, the same holds for insurance premia. You only get it back if you have that bad thing happen against which you are insured, such as your house burning down if you have fire insurance. Otherwise, what you are getting is the feeling of security knowing that it is there if you need it, hence why it is called “Social Security.” As it is, in reality it is several things, even as we insist on it being “social insurance.”
But it certainly is politically important to keep it from being viewed as “welfare,” even if in some sense it is that, although for such a broad group it does not get viewed as that, particularly by those well-off recipients who deride “welfare” as something for the undeserving poor.
Rosser,
there is no point in us arguing. I am willing to let you have the last word… between us.
i’ll keep selling my point of view to whomever i can, because i think it is right as well as important.
It might help if you thought of it as “effective interest” or an “interest-like” return on your “investment-like” (mandatory) contribution. It has nothing to do with the interest on the Trust Fund. It comes from the growth in the economy and the fact that under pay as you go, benefits are taken out of current taxes (which keep up with inflation). No lock box necessary.
And the “insured event” is “getting sick old or dead-with-dependents without sufficient savings.” Of course you get back the savings you put in, with effective interest to at least match inflation, the insurance part is that if you haven’t saved enough you get a boost taken from the effective interest of those who managed to save more than enough. It’s really a pretty brilliant idea.
would you believe there are people out there who insist it “can’t be insurance because with insurance you pay a small amount on the small chance of a big lossk while with social security you pay a big amount on the big chance of a big loss.”
word bound..
The minutia of the details of the program are not the fine point. Barkley and Dale can both be said to be correct in their descriptions of how the program works. Workers pay a membership fee based upon level of earnings during their working lives. Yes there is an investment characteristic because each worker’s benefits are calculated from their individual income levels over their working lives. Such levels are an indirect measure of the “fees” each has paid into the program over that work life. Therein a benefit is determined. So one thing does flow from the other. Earnings determine FICA and that C = Contributions. And earnings also determine benefits, thereby linking contributions to benefits. FICA is not just another tax. It cannot be utilized by the Treasury for the purpose of supporting expenditures in the general budget without being denominated as Treasury Notes issued to the Trust Fund, and only when such funds become available as excess inflows of FICA funds.
It’s all words and their exact meaning is apparently up for grabs unless the working people, of all ages, understand that they must be vigilant in holding their elected representatives to t he fire, so to speak. “Keep your damned hands off of the social security program. I vote and I’ll be watching how you vote”
Well the modest proposal I threw out generated reactions. Bruce Webb made note. His last comment properly pointed out that the proposal requires Congress to pass something including something affecting the Fed, so not much chance of that in the 2017 Congress. It is as I said, alas, it take a different political mix to entertain dufferent views. Of course, if we git that mix much if the concerns should then be addressed in bill.
But two things I want to say. My main point is that the tax base for Social Security system is the net wealth and also the annual economic flow of the US. We absolutely can fund a lot of stuff, and I wish people would stop being trapped by just seeing the world through the wage-base. Yes, calculate what earnings the retiree is to be paid based on their wage/salaries with some basic floors in there, but the resulting calcuaktion factor shoukd be applied to this net worth and GDP success, with its own floors in the earnings results in case these measures of success go down (did we all not contribute, including dependents and those who stayed home?). It a shift in talking about it. I recommend that all who support the system start every discourse by pointing first to the huge economic success the US has had, and proudly claim it to be the outcomes of its residents, all its residents. After you get listeners to see this then you can get into the tax base design issues. Do that and you are telling the opposition they first must agree with that view before it makes any sense to get into the details of the financing.
And I just cant help but say that it is completely wrong to view the Fed as anything but a creature of the public’s law following the coinage and value clauses solely in the legislative article of the Constitution (I checked, didnt see the Article where the people granted this power to banks). Just didnt want that banks-own the central bank stuff to just stay unchallenged. There shoukd be no doubt that Congress can present to the president a bill to direct the accounting and ministerial duties of these agencies that deal with such matters (agree, getting something passed and then signed would face a lot of contention). But it could be done, we are a Republic, not owned by the banks.
And my real proposal is that we should leave the system as it is but cakculate earnings using new wealth and GDP so wage earners are paid relative to the economic outcomes, in this way ensuring that the gains are shared in some modest proportion. And we must all call the retirement outlays what they are – earnings (not benefits, and not welfare).
On the financing side, yes keep a modest payroll tax but have it adjust downward via agency rule when unemployment crosses a threshold, and cap the rate (though expand it to higher and other types of income) perhaps at the rates we saw in the 1960s. Since we have had great economic success the earnings and insurance benefits would increase, financing needs to cover the outlay claims as the SS program would have an automatic entitlement and permanent appropriation to any revenues with Treasury and SSA working out the cash management details.
I look to bills on something like this for movement four years from now.
Net Wealth.
The typepad made that new wealth in the comment above.
JF
your modest proposal — to eat the Irish children?– was complicated and obscure and abstract enough to make your recommendation that we insist upon accepting it before fixing the lead in the dike may be a little impractical.
i like calling SS benefits “earnings” but you see the trouble i get into when i point out the FICA tax is not a tax.
you might not be aware that SS already counts the “contribution of all of us” to growth in gdp. Earnings under pay as you go come out of the current level of wages (and prices) and so the “interest” on what you paid in over the last forty years comes from the wage growth over that time… presumably made possible by the contributions of all of us and not just the successful investors in stocks and bonds and private enterprises.
i think you and Jackson might have a lot to talk about the Constitution and the Bank. but as i have seen it really doesn’t matter what “the founders” said or intended, it’s what you can convince the congress and the Court is “meant” by what they said… and they clearly did not mean the fourteenth amendment, so we can ignore that.
Jack
you are absolutely right, but i don’t see anyone reaching for the phone or painting protest posters.
even Timmy can’t be bothered to try to grab a hold of Lassies tail.
typo alert
that should have been “LEAK in the dike,” not “lead in the dike.”
The lead is in the drinking water.