Mi’lord, I have a cunning plan Posted by: McQ
on Thursday, November 01, 2007
Josh Marshall thinks it would be a mistake to save Social Security because, doing so would only enable more deficit spending and, God forbid, tax cuts for the rich. You see we've been using the SS surplus to finance all that up to now. And if we don't fix it, we'll run the surplus out faster which means we can't finance more upper income tax cuts and hide the consequences as easily. Seriously. I kid you not:
If we start pumping a lot more money into Social Security coffers now it will by definition go into more government bonds, which is another way of saying that it will go toward funding our current deficit spending. In fact it will enable more deficit spending and probably more upper-income tax cuts because it will make the consequences of both easier to hide.
Uh, ok. Even if the tax cuts were eliminated and we financed no more deficit spending, as long as the government has a debt the money going into the SS system will be used to fund present programs and service that debt. That's the way the present law is written. The SS revenues go into the general fund with an IOU saved to note it's passing through. So regardless of whether SS is fixed or not or whether there are new tax cuts or not, the money isn't going to sit in some account waiting to be withdrawn at a future date:
We need to remember that now and for at least a decade into the future Social Security is actually subsidizing the rest of the federal budget. The program brings in much more than it pays out. As we all remember from the voluble debates two years ago, the surplus is being used to buy US government bonds which go into the Trust Fund. And that socked away money will keep the program solvent through the middle of this century as the baby boomers retire, and revenues in no longer cover promised payments out.
Once the SS fund is dry and no longer running a surplus, those promises to pay have to paid from somewhere else such as the general fund. It is the same fund, btw, that will be paying for Medicaid, Medicare (or universal health care, God forbid), education, and umpteen hundred entitlement programs along with Social Security and any other harebrained scheme they've managed to pass in Congress. And of course, we know who provides that revenue stream, don't we?
Thus the only "socked away money" the SS system has in its "trust fund" is the surplus it is presently running which allows it to pay present recipients and buy debt instruments. IOUs.
I understand his point is that up to now, SS has been running a surplus and, thus, funding a lot of government spending now going on. And both of us understand that at some point in the not too distant future the SS "trust" becomes nothing more than a collection of IOUs because revenue in will be less than revenue out. And that's where his idea about not "fixing" it comes from:
If there is any sense in which the 'Trust Fund' is not 'real' it is that it must be paid back from general revenues. And that will only be harder the more other debt we're running up. So rather than solving the problem, I think we're actually enabling it.
Its not as if denying the Congress a revenue stream has slowed it down in the past if you've noticed any of the deficit levels run in previous decades. So I'm not sure what slowing down the revenue stream from SS which flows into the government's general fund is going to do to change that culture at all.
In essence, what Marshall is all worried about are more tax cuts. That's it. He's swatting at a fly while ignoring the 800 lb gorilla in the room - the continued unfunded growth of entitlement programs.
In reality, no one is going to "fix" Social Security without fixing everything else first and that simply isn't going to happen. What's the number floating around out there - 30 trillion dollars in promised but unfunded liabilities over the next few decades? Do you really believe that fixing or not fixing Social Security is going have any effect on that? Does anyone really believe that not fixing it is going to stop "enabling" deficit spending?
Yeah, neither do I. So I guess the answer to Marshall's inquiry is, feh, do what you want. It won't make a hill of beans in 2050 or so when this whole rotten entitlement heap collapses and the government grinds to a shuddering, gasping, bankrupt halt. But on the bright side, then you won't have to worry anymore about some rich guy getting a tax cut, will you?
SS was wrecked a long time ago. However, most of those who are the most guilty of letting the government wreck it will barely feel the full consequences, if any. Its the generation after them that will get their benefits slashed and their ’old age’ tax raised.
SS was wrecked a long time ago. However, most of those who are the most guilty of letting the government wreck it will barely feel the full consequences, if any. Its the generation after them that will get their benefits slashed and their ’old age’ tax raised.
If ever there was a classic example of a Ponzi scheme ...
Let’s say there’s a 2008 version of the early-80’s Greenspan Commission that says in order to save SS, we need to raise the OASDI tax rate. Since most politicians report progress on the unified deficit (I think all since LBJ) rather than the general deficit, all of a sudden, the deficit is in balance because of higher SS receipts. Then we get politicians saying something along the lines of deficits don’t matter, the U.S. economy has run deficits at 2% of GDP since WWII and thus let’s cut taxes, run low deficits, spur growth, etc. etc.
Except all that’s been done is shift the taxes from income to payroll and improve SS surplus at the cost of worsening the general deficit. But the SS surplus is a figment of the imagination. It doesn’t matter how large or small it is. To pay benefits in the future, the payment stream comes out of gen revs.
But the SS surplus is a figment of the imagination. It doesn’t matter how large or small it is. To pay benefits in the future, the payment stream comes out of gen revs.
That’s it in a nutshell ... all the rest is smoke and mirrors.
As Winston Churchill reputedly said, "America always does the right thing, after having tried every other option." I believe we will muddle through this just as we did World War II or the stagnant 1970s or the Cold War. Anyone looking at the situation could and should have concerns about Social Security or Medicare or any other unfunded entitlement program. However, it should be clear that the problem is lack of political will, not a lack of solutions. Almost anyone who reads this knows instinctively what needs to be done, in short, the solution is simple, but not easy. Social Security is like many other Federal government programs (for example, the Alternative Minimum Tax) — a program designed many decades ago to solve a relatively simply problem. After decades of political and bureaucratic tinkering we have a program quite unlike its original incarnation because the political process has always found it easy to entitle additional beneficiaries and to raise benefits. Payroll taxes for Social Security have also risen, but the rising tide of boomers will presently lead the system into annual deficits. That’s the problem.
The solution will not be perfect and it will be messy and it will have inequitable outcomes particularly for higher income folks who have duly paid into the system for many years. Unfortunately, what with means-testing and other techniques, higher income folks will miss out on most of the benefits they are due.
Nonetheless, eventually the political will to fix Social Security will coalesce and we will do so. Same with Medicare. The future extrapolations of untold trillions of dollars in indebtedness are overblown for two reasons: 1) They are forecasts of as far as 75 years into the future. None of us can see 5 years clearly, much less 75; and 2) they assume no changes, no innovations — a static situation. And, as we have seen over the past 10 years are lives, our occupations, our communications, our productivity and many more factors are anything but static.
Then we get politicians saying something along the lines of deficits don’t matter, the U.S. economy has run deficits at 2% of GDP since WWII and thus let’s cut taxes, run low deficits, spur growth, etc. etc.
We don’t "get" these politicians, we vote for them. Over and over and over again. This is exhibit A that Americans simply won’t tolerate high taxation beyond the short term. We are not Europe. We are not Canada. And all of those who think that when social security hits the fan we are finally going to suck it up and vote European/Canadian level taxes upon ourselves to "fix" it have another think coming.
And all of those who think that when social security hits the fan we are finally going to suck it up and vote European/Canadian level taxes upon ourselves to "fix" it have another think coming.
When SS hits the fan there are finite options: * cut benefits * raise taxes * borrow more (increase deficits/reduce surpluses)
In this case, since it would just be a financial transfer as opposed to investing in something that has the potential to increase growth, increased deficits are just deferred taxation. Cutting benefits is essentially similar to defaulting on treasuries, which may happen, but I suspect interest rates will be much higher if it does.
So maybe we won’t have Euro/Canadian tax burdens, so instead we’ll have something like Japanese levels of government debt at a much higher cost of debt.
"it will have inequitable outcomes particularly for higher income folks who have duly paid into the system for many years. Unfortunately, what with means-testing and other techniques, higher income folks will miss out on most of the benefits they are due."
I’m perfectly happy to forgo all earned benefits if I can stop paying the FICA tax now.
