I’m not looking forward to the jockeying over our federal budget. Our structural deficit is too huge for our country to operate as it has in the past. The Republicans’ answer to this is basically to gut the federal government and drown it in a bathtub. The Democrats’ answer seems to be to stay in a permanent state of denial. In truth, neither side can do what they want to do. The left would like to tax the affluent to pay for our government without doing any significant entitlement reform, and the right would like to balance the budget by doing away with discretionary spending and scaling back our social safety net. The votes are not there to do either. That leaves Obama scuffling to split the difference and sell it as a solution. He doesn’t have a choice, of course, because he has to do his best to govern a broken system.
I’m a little tired of listening to the left treat billions in Social Security IOU’s as somehow paid for, when the government long ago spent that money. It’s true that the U.S. government would have to default on its debt to not honor those IOU’s but they still have to raise the revenue to pay for them. When you have to raise revenue twice to pay the same debt, you have a problem. You especially have a problem when you can’t get Congress to raise a dime of new revenue through taxation. I agree it’s sickening to see “budget hawks” complain about the health of Social Security and treat the program as though it is itself the cause of our red ink. But that doesn’t mean that we haven’t created a giant Social Security obligation that we don’t have the money to meet.
I’d prefer to see slogans like, “We spent your Social Security money to invade and occupy Iraq.” Or, “We spent your Social Security money so we could keep taxes low on the rich.” Because that’s what we’ve been doing. We may have been somewhat profligate in our domestic discretionary spending, but that only explains a tiny portion of our staggering debt. Here’s the problem:
Amid complaints about high taxes and calls for a smaller government, Americans paid their lowest level of taxes last year since Harry Truman’s presidency, a USA TODAY analysis of federal data found…
…Federal, state and local income taxes consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010.
Our federal government has not gotten smaller, but our unwillingness to tax the affluent has never been greater. The Tea Party is an acronym for Taxed Enough Already. How ironic that this movement arose at a time of historically low taxation.
Shorter booman: taxing the rich isn’t politically possible, so social security needs to be gutted in order for us not to default on our debt 10-20 years from now
Depressing, but probably a decent read of how the Obama administration views the world.
yeah I don’t think that’s what he was saying but there you go. It’s a shame that it’s impossible to have this sort of debate without unhelpful reductive “reasoning”.
And where is your proof otherwise?
what is my proof for what?
I’m not calling for the gutting of Social Security.
Here, let’s deal will facts:
If you just read Daily Kos or TPM or FireDogLake, you might not know that we have to cash those IOU’s and there is no money to pay for them. To read their narrative, Social Security raises all the money it needs and so there is no problem.
While that should be true, it is deeply misleading. Unless you have a plan to pay for those IOU’s then we’re still fucked. It isn’t Social Security’s fault, of course, except for the stupid way it is structured so that all its money is looted for other programs. That’s why Gore talked about a lockbox. We didn’t get a lockbox.
So you are advocating to cuts in Social Security, yes or no?
An honest question: social security is available to everyone, right? regardless of income, savings, private pensions etc? If that is right, what is the ideological objection to reducing benefits for wealthy seniors? isn’t that actually a progressive goal?
there’s no need to reduce their benefits. Social Security is a contract. It’s not cool to tell people that they’ve made enough money that the contract is cancelled. Rather than doing that, you can just make people pay the payroll tax on more of their income.
Right now, you only pay the payroll tax on your first approximately $110,000 of income. So, someone making a million a year only pays payroll on about 10% of their income, while most of us pay it on close to 100%.
On the other hand, a millionaire probably isn’t going to need Medicare and Social Security so its fair to cap it at some point. But we can go a little higher and balance the ledgers on that alone.
Oh, I agree with the raising the payroll tax limit absolutely. And I don’t really want to cut benefits, especially to those who have already contributed. If the maths works so that an increas in payroll taxes sorts out the problem, I think that is obviously the best way to go. I am conscious that the ratio of pensioners to working folk is reducing all the time so there does, inevitably, have to be some tweaking to make sure the maths continues to work.
It’s a simple question with a complicated answer.
I’m for doing something to address our structural debt sooner rather than later. Doing something means getting the votes to do something. Getting the votes means that Social Security is going to take a haircut.
If you ask me how to fix Social Security, I’ll tell you to raise the level of taxable income, create a lockbox, and be done with it.
But I can’t get the votes for that. At best, I might get an insufficient increase that is part of a package of adjustments.
If my choice is between doing nothing and doing something, I’m going to want to do something, and that involves compromising and agreeing to things I think are unnecessary or even harmful.
I wouldn’t vote for the commission’s proposal, but I’d consider voting for something that does involve “cuts to Social Security.” And in return I’d expect the other side to consider some tax hikes.
Years ago when I was working as a law clerk for a firm one of the secretaries told me she had a problem. She was quite well off after her husband died. She only worked because she enjoyed it. Being over 70 she was receiving her husband’s social security survivor benefits and also receiving her own, even though she didn’t want them. She actually came to me one day to find out if there was some way she could just say no to her social security benefits. I didn’t know of a way, does anyone else?
My point is this: We SHOULD do a few things to assure the viability of social security AND Medicare for the future. First, we should end the cap on contributions. I’ve never understood why it would be a good thing to have such a cap in the first place. The result of the cap is that people making piles of money may indeed be paying most of the federal taxes in this country, but they’re getting a benefit in that they do not pay the same percentage of their income into entitlements programs as other people. Second, allow people the option of opting out of their social security benefits if they want to. Some people would be happy to forgo the benefits just to contribute to society. Third, re-instate taxes on people making more than $250K to the same levels they were at when Clinton was President. That’s a big 3% increase which I’m sure would cause all sorts of wailing and gnashing of teeth, but honestly, just how many jobs have been created by that 3% decrease the rich got from the Bush tax cuts?
I’ll give a good reason to have a cap.
If I make a million dollars a year and pay 4.2% for Social Security, that’s $42,000 a year for every year I’m making a million bucks a year.
The average annual Social Security benefit is less than $13,000.
That’s not old-age insurance. That’s a raw deal.
Why are you going based on the average? If recent income is more than $150,000 then the average is over $2,100 per month for those who start receiving their benefits at age 66 and over $2900 per month for those who start receiving them, which works out to over $35,000 a year the employee would be getting back. And for how many years do people who earn over a million dollars actually earn over a million dollars? It’s got to be an extremely small number and even people up in that bracket aren’t likely to be in it for more than a few years. What if you live for another 20 or even 30 years after retirement? At some point you start exhausting what you paid in. You might argue that it’s unlikely that the person retiring at age 70 will live to be 90 and therefore the social security payments that person made would be forfeited into the social security fund but for the survivor benefit perhaps paid to a spouse. However, that argument is not unique. The same thing happens to those people who paid into the system all their lives and then dropped dead on their 70th birthday. Is it a raw deal that THOSE people never get back what they paid in? Might be, but that’s just the luck of the draw. What about all the people who pay in and never even make it to retirement age? Sure, some of them may have survivors who qualify for reduced payments, but plenty do not. They don’t get all their money back either.
Forgot the link I meant to post:
http://www.vaughns-1-pagers.com/economics/ssa-monthly-payments.htm
If you’re making a million dollars a year by telling folks who make $24,000 a year that they can’t make $36,000 a year because the budget doesn’t allow it, you have not right to talk about raw deals.
Round two: If you are making a million dollars a year and taking it all as wages and salary subject to the payroll tax, instead of as various offset and deferred income that will show up later as capital gains, you are a most unusual million-dollar earner. And maybe too dumb to earn that much money.
I understand the situation. You’re not a policy wonk booman, you’re a brilliant guy who understands the politics of what’s going on better than almost anyone in the blogosphere- which is why i come here everyday. So when I see you start putting social security “on the table” i get very nervous.
Social security is not the cause of our structural deficit. Wars, the 2007-08 crash, defense spending that dwarfs the rest of the world, tax cuts we can’t afford and out of control health care costs are how we got here.
When social security gets gutted, it will happen not because it should, or because its fiscally responsible to gut it, but because its just sitting there ripe for the gutting and our elites, who don’t need thousand dollar checks each month to stay alive like a lot of old people do, will gladly take the scalpel to it. They’ll cut it because they can, not because they should, and they’ll be able to do it because it will be phased out- nobody who currently receives it will lose it- its suckers like me and my under 55 brethren who will enjoy going forward the welfare state equivalent to a middling Latin American country, rather than Europe.
You could have used your soap box to talk about organizing strategies to save Social security, potential candidates in 2012 who will be allies, urge us to call our congressman or thank senators like Schumer who will fight to protect this program. Instead, you’re trying to get those of us on the left to “wake up” to the fact that this is happening, whether we like it or not. Message received.
There’s a tension between advocacy and honesty. As a negotiating position and as a matter of balancing the debate, it makes sense to say things like “Social Security is not a problem, it’s fully-funded, it doesn’t touch the deficit.” But it’s really, really misleading. I mostly keep quiet about it, but every once in a while I feel compelled to point out that we’ve got a couple of trillion dollars in IOU’s issued and we have to honor those IOU’s or we’ll default.
Yes, the problem is that we robbed the trust funds, not that we didn’t collect adequate money within the SS system. That’s why I frame this as a problem of having too-low taxation in other areas (like income tax) and profligate spending on foreign invasions (Defense).
But, if you’re the president and you have to deal with our deficits, you can’t ignore a two trillion dollar hole. You can’t say it isn’t a problem. And if you have an opposition who won’t agree to sensible solutions, you have to work with sub-optimal solutions.
I don’t disagree with your assessment of the situation. But, if I made you president, you’d still be in the same bind. Do nothing, or do something that’s fairly shitty.
It’s only if you’re a Democratic President that you have to worry about a 2.2 trillion dollar hole in your budget. If you’re a Republican you can just paper it over by not counting it IN your budget. Take out two wars and Medicare Advantage from your budget calculations and voila! See, it’s not too bad …
That the Republicans seem incapable of actually dealing with money issues in a realistic fashion is evidenced by their decision to exempt HCR repeal from their own newly imposed “cut as you go” rules, but that’s the way it always is. On the other hand we have the left, which regards ANY discussion of entitlements as treason and evidence that one is a DINO.
Fortunately, we do have a President who is not only the adult in the room, but one who unflinchingly refuses to back down from these pesky fiscal realities.
Agreed. But if you made me president in January 2009, I would have made some different choices and political strategies that may not have put me in this bind (or may have put me in a much worse bind). Probably not worth dwelling on “what-ifs” since we’ve got enough on our plate right now, but historians may not see the politics of social security reform as something that just happened in a vacuum and then Obama just had to man up and deal with it.
Sure, there are some people who read FDL and Kos and see the headline that social security is fine and then just get mad when people like you suggest otherwise. I agree these people need some sense talked into them. But that’s not where I’m coming from. I understand the politics and the practical realities of having IOU’s.
But why not just say social security is off the table and make the GOP house pass a bill first that guts social security if they want this to get done. No one’s stopping them. This and medicaid are the backbone of our welfare state- take them away and we’re basically Mexico.
If you made me president, I’d tell Boehner that I’m open to seeing their proposal on SS reform and leak that conversation to the press. Then its Boehner’s move. Meanwhile I have Reid, Schumer and Brown (and whoever is in the social security caucus) organize hearings to illustrate how social security would be financially sound if it weren’t robbed to pay for tax cuts.
Looking forward to you explaining just how you would have kept the Republicans from enacting their strategy of no to everything, even the stuff they originally proposed, by way of doing things differently. Their obstructionism was so fervent, unified, and obstinate that there is no corollary for it in US history.
Obama couldn’t have known he was dealing with people so determined to make him fail that nothing less than utter rejection of the Dems’ legislative agenda would do.
As to telling Boehner you’re open to seeing the GOP proposal, we’ve seen and heard several statements from Obama over the past few weeks saying exactly the same thing. He has been inviting the GOP for weeks now to tell him just what they propose.
First, I disagree with your “nobody could have predicted” line of thinking. Lots of dirty hippie bloggers and progressive authors have spilled a lot of ink talking about how the modern GOP doesn’t act in good-faith, don’t have “compromise and consensus” as one of their values, believe governing is about enriching themselves and their supporters in the private sector etc.
I think the big tell was Judd Gregg (one of the key capo’s in McConnel’s party of no racket) turning down a plum job as Secretary of Commerce instead to stay in the senate and not run for reeelection. That was a huge tell that things weren’t going to be business as usual for the next congress. After negotiations with Snowe and other moderate GOP senators broke down on the stimulus, despite giving them what they want, I would have read the tea leaves about was going on (McConnel was now controlling the procedural votes of each of his caucus members), had Joe Biden sit down with all 59 members of our caucus, explain to them what was going on and telling them in order to enact our agenda and survive in the midterms, all members would need to give their procedural votes (not subsantive of course) to Reid. We would have to fight fire with fire. Those that threatened to use their procedural votes against Reid and the White House would be dealt with harshly. Hang together or hang separately and all that.
And if you think this is revisionist history, go ahead and read my comments from summer and fall of 2009.
Would this have turned out better? Booman certainly thinks this would have been a disaster. But as an astute commenter noted above, we could be running on CR’s until 2013 since neither party has any incentive to cave in on the budget.
I understand the need for the President doesn’t necessarily have a choice but I worry that the focus in the news reporting will be the cuts and that politically this will cause those on the left who don’t seem too enamoured with him in any event to abandon him with a sense of finality. I guess that’s the price of being the only adult in the room; that’s why I supported and still support the man but the kids are nonetheless bringing him down.
Are you serious? If only the left had the power you seem to claim it has!
The kids have been bringing him down practically since his first day in office when he didn’t wave his magic wand and fix everything for them. I’m sure there’s a lot of caterwauling going on at dKos right now as I write this. Even if Obama didn’t make any proposals affecting social security there’s always something else the perpetually petulant puristas of the left will bitch him out over, so he might as well be in for a penny, in for a pound and do what he thinks best rather than worry about their reaction.
What a wonderful post.
Republicans don’t want to solve the obligation to Social Security, they want to continue to threaten people with the loss of benefits. That’s why getting the income cap removed will be very hard.
The Obama budget seems to be beating the Republicans at their own game. There are cuts and freezes so that the Repubs can’t say he’s a tax and spend Dem. (Sigh)
I do hope the government doesn’t shut down. THat costs money.
The selfishness is alive and well.
In truth, neither side can do what they want to do. The left would like to tax the affluent to pay for our government without doing any significant entitlement reform, and the right would like to balance the budget by doing away with discretionary spending and scaling back our social safety net.
Reform entitlement spending how? Social Security is not a problem. And re: spending. Are you trying to replay FDR of the late 1930’s?
This is the kind of response that is irritating me.
You say Social Security is not a problem. I just got done explaining why such an assertion is deeply misleading. Do I have to tell you again why it is misleading? Read the story again.
As for spending cuts, the House of Representatives is run by John Fucking Boehner and about 90 freshmen teabaggers. You think they are going to keep government spending at current levels? Obama has to prioritize, which is what his budget proposal does.
Agreed. What we have with Obama’s budget proposal is a classic sandbagging of his opponents. The GOP’s been painting him as a tax and spend liberal. What does he do? He crafts an impressive 1.1 trillion dollar spending cuts proposal and says “Here. How’s THIS for a tax and spend liberal?”. How are the Republicans SUPPOSED to respond to this? He just stole their thunder … again, just as he did with their precious Bush tax cuts for the wealthy. Now they’re stuck trying to sell the idea to the American public (aka TAP) that he’s not cutting ENOUGH. Good luck with that. They haven’t even finished putting together a proposal yet. Where are all the great suggestions they were developing for dealing with the budget? STILL not there. They ceded the offense to Obama and he ran the ball back to a great field position. The least he gets out of this is a field goal. The Republicans? They seem best at fumbling the ball.
BooMan, I really enjoy when you’re on point like this.
My question is why have we been overpaying into Social Security for the last 30 years? All of the surplus is simply being used to reduce the deficit in the General Fund. It seems obvious to me that this was designed from the start to use the Social Security tax, which is the most regressive tax, to lower the General Fund deficit, which is funded by the most progressive tax. The argument that the Trust Fund is just a bunch of IOU’s is a blatant effort by the wealthy to avoid responsibility for paying back the IOU’s. The income tax rates have been kept artificially low, partly because of the distortion of the deficit because of the Social Security surplus.
Likely in the 1980s, this was not noticed just as deficits were thought to be a bad thing. Then, the Republicans might have noticed this effect about the same time they noticed that running up deficits in Republican administrations was a great way to kill government in Democratic administrations.
The continuing trend away from progressivity is what drives grassroots anger about taxes. On average, they are taxed less. But because of the change in progressivity, folks with lower incomes might be taxed more financial and much more in loss of needed services. (I never saw a rich neighborhood that lacked effective police.)
Looking at the politics in the absence of the larger economic context is not helpful at all. Nor is personalizing the problem with Obama, treating it as if he had a magic wand that could get him out of the position of compromise.
A good part of the high deficit is because revenues are not at historical levels proportional to the population. And this is because we are in the greatest recession since the Great Depression and just dodged being in a Great Depression by having Obama spending the TARP funds instead of Bush. To get revenues up the number of good paying jobs must increase, not decrease. And it is in the jobs area where the Congress has been working against the people. The rich got their tax cuts. OK, where are the investments to create jobs. They aren’t there. “Investments” are going into speculation on commodities and commercial paper of various types–and into the national debt. The people who have (1) not been creating jobs, (2) complaining about taxes, (3) arguing for spending cuts that will perpetuate unemployment are the same ones who will benefit from an increase in the national debt. All of the politics avoids seeing this economic gridlock. It will not go away.
The second issue is holding the military harmless or even increasing their budgets. This is the absolutely looniest thing in this entire budget debate. I understand the political logic for the “manly” Republicans, but it is the classic reason for the collapse of civilizations. Diverting funds from infrastructure to the military (which is what it is) is eating an economy’s seed corn.
We are in political loony land, Democrats and Republicans. Only a force from outside normal politics now can possibly break the Randian trance. Bad information results in bad decisions. Period.
The fact is that Social Security does not need payback from the general fund until the 2020s. Doing what seems very unlikely – actually getting the economy operating near full employment (real full employment) again would deal with most of the angst about the deficit (well off middle class people aren’t as picky about taxes – see the 1950s and 1960s). A sound foreign policy could deliver a peace dividend–which this time must be put into reductions in military spending, not searching for a new enemy.
All of which is to say. The budget this year is the budget this year, and it is likely to change the tone of American politics if the GOP gets most of what it wants. Obama is fighting as smart a rearguard action as he can, given the state of the Democrats in Congress (especially the Senate). Might as well not spill any more ink (or bandwidth) on it. It is what it is.
In 2013, the decisions facing the Congress likely will be dramatically different. It’s time to start changing process and players, and let policy to its sorry state (which is, insulated from any consideration of actual public opinion). The real issues are Citizens United (which will not be undone in this Congress), the influence of K Street, and the fact that the US has the stupidest and most short-sighted business executive class in the world.
And note that the Social Security issue is not some abstract thing for me. Except for my wife’s part-time job, it is our sole income–and we are still paying off a mortgage.
Playing on Booman’s title to this piece, would anyone buy a bumper sticker that simply said “Patriots Pay Their Taxes” or perhaps “Patriots Pay Their ###**!!%%#! Taxes” ?
Booman, do you really think a budget is actually going to be passed? I’m betting on continuing resolutions for the next two years. This budget jockeying all seems like Kabuki theatre to me.
government that supports and protects a corrupt banking system.
Yet, at the same time I think building a high speed rail is a wonderful idea. Put people to work. Government programs.
Maybe what we need is a little debt free money. Start over.
What does “start over” mean? I don’t remember a Reset button on financial affairs.
I’d like to know more about how Iceland is doing.
Let’s take the budget discussion out of the abstractions.
Here is the Terminations, Reductions, Savings document from the budget presentation today. It’s very interesting what Obama has chosen to cut. And there are some substantial military program cuts in the list, like the C-17.
Total is $6 billion in terminations, $11 billion in reductions, and $24 billion in administrative savings. Or $41 billion on this schedule. Remember that these are cuts from previous years’ levels, not reductions in projected costs.
Here are the bullet-points tied to the categories of the State of the Union address. Budget Overview
On the Introduction Page is a very interesting chart of where the money goes in the proposed budget. Begging for an honest discussion, he is.
Let me see,
Social Security has been receiving money, three quarters of which immediately gets distributed out, one third of which is saved (in one of the [presumably] most financially secure ways in history … US bonds) for when it can later be distributed.
But now the authorized issuer of the bond does not want to pay the money (even though he has the means to do so) to the holder when the bond becomes due. He wants the holder of the bond to reform his method of distribution.
Then it’s called ‘misleading’ to state that the above might be ……. hmmmm ….. immoral? wrong? not a proper way for a state to behave?
And the people who are the main recipients of the distribution are told to just STFU (and stop being ‘misleading’) and accept their medicine because the media, congress, the POTUS, and apparently bloggers, say that is the ‘reality’.
Heh.
.
That’s not exactly it. Social Security has been receiving money from future retirees (they hope) and paying out current retirees and putting the amount leftover in government bonds. It’s the accounting entries for the state of the trust funds that have been making the budget look more in balance than it is. That would work except for the fact that all population cohorts are not equal in size. And folks are fixated on the size of the Baby Boom cohort. And think, not knowing the size of the cohorts currently being born (who will start work in 2020) that about that time the trust fund will not be in surplus (and can’t be used to fudge the overall budget figure).
And to make sure that happens, the Congress and the President lowered the payroll tax without removing the income cap, which means that the the current workers are paying in less than the workers who are currently retired, including the early Boomers.
Contrary to BooMan, it is not a problem until the 2020 timeframe and there is not the danger of the fund not being able to pay retirees until the 2040 timeframe. It is not a current problem, and it is a diversion from what the current problems are.
So the idea to fix what is not a problem is to say to the folks who will retire in the 2023 and later timeframes that they will have to wait until they are older (say 70) to collect their retirement benefits.
That’s where the debate is at the moment. But what can happen as the economy grows (if it grows again) is that payroll tax revenues (even at 4.2%) could cover the expected increases in the number of retirees. Without additional cuts.
Only Alan Simpson wants to renege on the government bonds held by Social Security. How he would propose to do that without reneging on all government bonds is a mystery to me. It is this dangerous possibility that has folks upset, because this Congress is stupid enough to do something like that (with Democratic caucus complicity, especially the Blue Dogs) and Obama can be easily maneuvered into a box in which he has to sign it or risk some greater catastrophe.
So far, the most wild-eyed Republicans in Congress have been very careful to say that only the folks under 50 will be affected.
What the GOP strategy really is, is for Obama to “cut Social Security” and create an elderly backlash that sweeps a Republican into the White House in 2012. And I suspect that you have corporations extorting this with hints that it will take this for them to start hiring again. In other words, “going Galt”.
See, this is the problem. I didn’t say any of that. I said that it is true that Social Security isn’t directly responsible for the deficit, but that it is misleading to say that it isn’t a problem.
Let’s say that you entrusted me to manage some money of yours so your daughter could go to college. Every month for years you give me a 100 bucks and I give you a receipt for that 100 bucks, plus interest.
But I go out and spend all you money on shit I care about more than your daugher’s education.
You’re not worried because you have those receipts and I’m trustworthy. I’ve never welshed on a debt, yet. But the problem is that I don’t have any source of money to pay you back.
Does your daughter have a problem or not? Do I have a problem or not?
Now it’s all very good to tell me that I shouldn’t have done what I did. You can tell me all day long about how I was irresponsible and broke my promises, and so on. But unless I can figure out a way to come up with your money, your daughter’s going to community college.
And if someone came along half way through this process and told you that I was blowing your daughter’s money and couldn’t pay it back, you’d be pretty annoyed if someone suggested that there wasn’t a problem with the whole arrangement.
What’s going on is that there is no political will to fix the problem. The government is supposed to be good for the money, but they’re not. Now, we can actually fix this but not in a way that makes you and your daughter whole.
Anyone who is saying that your daughter should get all her money and I should give up my gym membership, sell my luxury car, and so on, is completely correct. But I’m a bastard and it’s too late anyway.
Don’t try to get me endorse what has happened. I don’t endorse it. But don’t try to tell me that Social Security is just fine either. As long as it is holding trillions in IOU’s and has it’s safe-lock wide open, the program is totally screwed.
That’s not it at all. Social Security funds are invested in government bonds and notes, the same bonds and notes that other purchasers of government debt get.
It’s just that when the federal accounts put together, the net value of the trust fund (which contains government debt treated as an asset) get accounted for as any other government program. And because the self-dealing transaction is so large, it show up as an offset to the rest of the budget. The current year’s payments will not exceed the current year’s payroll tax revenue.
That is a totally different issue than the actuarial issue of when (a) the trust fund spends out more than it takes in because of an influx of Boomers and (b) the longer term issue of whether at some point in the future the trust fund won’t be able to cover the promised benefits.
The analogy quoted above buys into the GOP narrative, which has been carefully constructed to obscure what is going on–so as to destroy Social Security without the GOP paying the political price. It’s a matter of “principle” with them. Government should not be doing what Social Security does at all. And it is driven by the employer’s portion of the payroll tax. Employers (corporations) according to the GOP should not be paying taxes at all.
If the government is not good for the money, it’s not good for the money for any government bondholder. It’s not some separate cookie-jar kind of problem in the government accounts. The obligation is the same as issued to private borrowers.
It’s fundamentally a phony issue that likely will right itself with some returned prosperity.
These analogies like the family’s budget and the analogy you provide here show the fallacy of reasoning by analogy.
You’re missing the point.
When you talk about this year’s books, we’ll take in more than we pay out and then we’ll burn the extra money. We’ll burn it and replace it with an IOU. So, we’ll take the whole surplus and turn immediately into debt that we have to pay back with interest. With that money, we’ll effectively subsidize low marginal income tax rates.
You are still pretending that we are accumulating a surplus to deal with future shortfalls. What we’re doing is blowing up our debt. When the Republicans say that we are never going to honor that debt, they are basically correct. So long as they refuse to honor it, we will not honor it. Instead, we will have to cut a deal with the assholes to get as good of a deal as we can. And we can’t put all the blame on them, either, because our side liked the low marginal tax rates, too. What legislator doesn’t like free money to pay for the government’s activities?
The politics are simple;
The republicans want to kill SS, because they are philosophically opposed to government services to the middle class.
The republicans cannot kill SS by themselves, it’s suicide. They need the democrats to ‘compromise’ with them on some version of ‘reform’. Once that happens, they will attack the democrats as ‘going after SS’. It will work, because the democrats WILL have ‘gone after’ SS. So the republicans transform what would be suicide into a successful political weapon.
There are two ways to defeat this plan. Obama immediately comes out loudly defending the program, describing why it was in acted, and why some want to destroy it. He might also want to describe what privatization means, and what the economic meltdown would have done (and did do) to peoples retirement funds. But we all know he does not have either the political fortitude or the political advise to do this. Plus, he has his retirement, WTF does he care?
Or you could do nothing. Why not? The program is not really in any danger. Then when the republicans eventually get all three sections of the government back (they eventually will, because Americans are stupid people), you let them ‘reform’ it. It’s political suicide.
Your posts are a classic example of accepting republican memes, and then compromising on non existing problems.
It’s why we are now a banana republic.
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You make a good point about turning the surplus into debt, but that debt pays back at the going interest rates for government debt. So under the normal duration of the bonds, incurring the debt brings back additional money to the trust fund, which gets compounded. So buying government bonds instead of letting the cash sit in surplus brings in revenue to the trust fund.
It’s not an IOU. It’s a government bond. It’s the most secure “IOU” you can have.
If Republicans will not honor that debt, they will not honor any debt of the US government. They essentially have broken the “good faith and credit of the US government”. It’s that simple.
Let them stare at blowing up the economy by playing chicken with the debt ceiling. That’s the only way that Republicans will not honor the debt.
The issue does not need to be solved this year, and my feeling is that once the public understands what the GOP means by cutting spending, the GOP is toast again. Media blitz or not. That is, the current political climate is temporary.
Democrats should not provide cover for this Republican maneuver; it will come back to bite them. If it is Republicans who will not honor that debt, then they are breaking the government in a fundamental way. My guess is that it finally is a bluff. And I say call them on it.
If the IOU is the a Treasury Bond it is still the LEAST secure Treasury Bond that there is. And it’s the government paying itself, so it’s actually a debt to the general coffers.
Look at it this way. The way they are financing Social Security is causing a ginormous obligation that has to be paid for out of general funds. The size of that obligation is so large that we’d have to slash the hell out of discretionary funding to pay for it. Politicians will not raise taxes enough to avoid this, but they also won’t eliminate all discretionary funding. So, in the end, we’re going to default on the debt. We’re hopefully not going to do that by refusing to honor the bonds. But the alternative is not much better. The alternative is to renegotiate what is owed, much like a homeowner in the HAMP program.
I’ll agree that the solution to Social Security could be relatively straightforward and painless. But that would require the government to stop issuing interest-paying bonds to steal the surplus money. So long as the government is borrowing the surplus to fund the regular budget, the program is not sustainable and its obligations will grow too big to be realistically honored.
It is far better to just cut a deal now and take relatively small cuts for future beneficiaries.
To be more clear about this:
There are a bunch of people who are looking at the Social Security Trust Fund and saying that we’re bringing in enough money to pay for it and that the interest-bearing bonds are Treasury bonds and will therefore have to be honored, so what’s the problem.
What they’re missing is that there is a truck that is loading up all that money being brought in and taking it away. They promise that the IOU (bond) will be honored, but they aren’t saving any money to honor it. They have no plan for how to raise the money to honor it. No conceivable Congress would raise or allocate the money to honor it. So, at some point a decision will have to be made about what to do about the fact that the money isn’t there to honor it.
So, what’s the problem? At the simplest level, the problem is that Congress is looting the surplus and will never have the will to pay it back. In that context, it’s absurd to say that Social Security is working and doesn’t need to be reformed. We could fix it in theory, but not in practice.
If we pretend it isn’t a problem, what will happen is that the government will be drowned in a bathtub filled with SS bonds.
Here’s what you haven’t answered?
Where would you put the Social Security Trust Fund money? It either sits as an accounting entry in a bucket in the government accounts, it gets placed into a bond (and US government bonds are the most secure), or it gets put into some private bond that is even less secure than a US bond. Or into a diversity of private bonds, which can be hammered during a recession from failure to pay or can provide a hefty management fee for those managing those bonds.
What is clear is that the “good faith and credit of the US government” is now the “good faith and credit of the Republican Party”, which is nil.
Rather than making the trust fund available for general appropriations, they should keep it isolated so that the government has to raise revenue or borrow to pay for its operations,
They could set up a trust fund savings account that makes some kind of restricted investments in issues related to aging. I don’t know.
Something can be worked out.
The reason that we pay twice is that we raise revenue for the surplus which we convert to debt with interest and then we still have to meet that obligation. That requires us to borrow the money again and pay interest. If we ran an actual budget surplus we would only have to pay once. But we don’t. So, we must pay interest on two separate transactions to meet the same obligation. One of the interest payments is neutral, but the borrowing is doubled.
But that’s true of all government debt; it’s called compounding. But when the government borrows twice, sometimes it results in a reduction of the interest rate. That really is the main job of the Department of Treasury. Scheduling the refinancing of debt. Always has been.
If you want to see fear, just talk to Wall Street about having a plan to pay down all of the national debt in eight years. Al Gore did, and they creamed him.
Do you mean like public-financed elderly housing units at subsidized rents? Gerontological medicine healthcare centers operated by governments or non-profits?
That might make a lot of sense as long as the borrowers were as stable as the US government. Even well-endowed private universities are having budget problems these days.
Booman –
Thanks for daring to touch this particular 3rd rail. I’d love to think there is no problem with SS, but am unable to believe it for the reasons you give.
One alternative is to start doing what the Canadians did – set up an investment board to buy a broad range of equities – see http://www.cppib.ca/.
No guarantees of course that the $ will be well managed or that a crash won’t happen at an inconvenient time, but at least the pension contributions aren’t being vacuumed up for current spending.
The conversation is depressing. Social security didn’t create the debt. Start from there.
Still waiting for Obama to win the debate on raising taxes, which he promised to do. Not exactly encouraged right now. All this pompous talk about cutting, from both sides, is basically meaningless if tax increases are permanently off the table. In that case, we’re just fucked, period.