Sayeth the Wall Street Journal:
MEANS-TESTING GAINS in both parties as long-term entitlement fix.Republican Sen. Ensign of Nevada pushes plan to charge affluent beneficiaries more for Medicare prescription-drug coverage. "It makes no sense for Bill Gates's father to have his prescription drugs paid for by a schoolteacher or a firefighter or a police officer," the senator says.
Though he hasn't yet attracted majority support -- much less the 60 votes needed to overcome a Senate filibuster -- his approach mirrors a presidential campaign push by Democrats Obama and Edwards on Social Security. They would bolster solvency by taxing the wealthiest more, while exempting those with incomes of between $97,000 and $200,000.
It is very uncommon to refer to increases in the income tax--which is essentially what Obama favors--as means testing.
Personally, I think means testing is long overdue, but by itself, it won't do that much to solve the problem. A super-agressive tax increase might put Social Security on an actuarially sound basis for years to come, but if you want to concentrate them on very wealthy families, as Democrats do, you're talking increases in the ugly area of the Laffer Curve just to fix one old-age program--leaving the bigger problem, Medicare, untouched.
Similarly, means-testing Medicare is a fine idea, but the proposals generally involve bouncing only a very small cost reduction. Medicare is even less amenable to means-testing than Social Security, because the benefits aren't tied to income. You don't consume twice as many drugs just because you're rich*, so bouncing the relatively small number of rich people out of the programme produces a correspondingly small decrease in the bill.
*Well, unless you happen to live in certain parts of Florida, but even there, unnecessary surgeries and tests are more the done thing
As a tax exile -- in Britain, no less! -- for three years now (and counting), I like the phrase "ugly area of the Laffer Curve". But it's not ugly at all, if you're on it.
Personally, I think means testing is long overdue, but by itself, it won't do that much to solve the problem.
Right, unless you talk about decreasing the rate of growth of benefits to a decent slice of upper middle class as "means testing." That could be fairly significant. However, that doesn't seem to be very popular (especially with Democrats, as Bush did propose it) as it hits too many people. The Democrats do overall seem to have become fairly protective of the people in the "top 10% but not top 1 or 2%" income brackets these days. (Note: I'm assuming that the Obama proposal is about individual incomes, not household, because of how Social Security taxes are typically collected, so top 10% is something like $84k, and $200k is around top 1.5%; the household numbers are quite different.) The only problem is that it does become somewhat difficult to fund everything you want out of only the top 1%; eventually you will actually get into Laffer Curve territory.
The big issue I have with "means-testing" is that it punishes the wrong people.
Take my parents, who are in their mid 50's and make about 150k a year. How much have they been able to put away - 0. They have always spent every nickel they have ever made on the most frivilous things.
Take another couple makeing 150k. They have always saved and invested... They will be denied full SS and Medicare for one simple reason; they took responsability for themselfes and put money away. The money my parents spent on cars and boats and trips they put in their 401k.
I just hate to see people who have been responsable forced to pay up, while the irresponsible are able to suckle at the gov't teat.
jmo strikes a very fundamental chord in public policy. Safety nets discourage personal responsibility. SS was never meant to be anybody's sole retirement income, but people began to see it that way, and some decided to save less as a result.
On another note, am I missing something? What does Bill Gates' father have to do with anything? Bill Gates I understand, but is Obama trying to assert that people that are related to rish people are also undeserving of government benefits? Also, it seems a bit dishonest intellectually to state that his benefits would be paid by schoolteachers, firefighters and cops when in fact the vast majority of income taxes are paid by those with incomes over $200K.
princess bride reference, nice
A super-agressive tax increase might put Social Security on an actuarially sound basis for years to come
Social Security is on an actuarially sound basis for decades to come. Revenues will exceed outlays until 2017. The Social Security Trust Fund is projected to last through 2041, at which point the Baby Boomer bulge will have largely played itself out. The "trust fund does not exist" argument amounts to a con game which would rook the Baby Boomer generation out of trillions of dollars of SS payroll taxes they paid into the trust fund. If you believe it, then you believe there is no difference between payroll taxes and general income taxes, and the appropriate remedy is to sharply raise income taxes, not Social Security taxes.
"Also, it seems a bit dishonest intellectually to state that his benefits would be paid by schoolteachers, firefighters and cops when in fact the vast majority of income taxes are paid by those with incomes over $200K."
Source of this data? Payroll taxes stop increasing after about 97K, which is what a lot Social Security comes from. The top 5% pay about 54% of taxes which equates to people making about 150K and more. The top 25% pay 83% of the income taxes which works out to 75K and more.
brooksfoe,
It all goes into the general fund and it all gets spent. Just because the federal gov't throws an IOU into the jar when it's done doesn't make it any different at the end of the day.
If you believe it, then you believe there is no difference between payroll taxes and general income taxes
Yep, that's more or less what I believe. It all adds up to transferring wealth from the productive to the unproductive. The whole SS debate is actually one about tax policy, and I'd be delighted to raise income taxes and junk payroll taxes altogether.
Also, I have no compunction about "rooking" boomers out of the taxes they paid. I've been paying taxes for years and yet somehow nobody thinks I'm entitled to a big tax refund merely for existing. My parents' income taxes were lower than the would have been in the absence of the payroll tax, so they haven't really lost anything.
PS to mike: Bill Gates' dad is an extremely well-off Seattle lawyer. I have no idea if the senator is aware of this or not. But surely it isn't asking too much of Bill to pay his dad's drug bills so the rest of us don't have to.
Fraggle Rock wrote: It all goes into the general fund and it all gets spent. Just because the federal gov't throws an IOU into the jar when it's done doesn't make it any different at the end of the day.
Actually, brooksfoe has enough of a numbers background to know this. In his case, the SS-induced cognitive dissonance is apparently willful, and presumably maintained for the sheer joy of chucking firecrackers into discussions like this one. Some other well-meaning persons actually believe the trust fund cock-and-bull story, though, so it's good to repeat the facts of the matter early and often.
No kidding. Try the FAFSA guidelines for an extreme example of this - the more you saved, the more you should pay!
Well, the sharp rise in income tax or external debt will start in 2017, not 2041. This is when the notes due to SSA will gradually have to be refinanced externally or paid pack. Because...for the 1000th time... the trust fund really does not exist, unless you believe that the SSA* is independent from the US government. Basically, the government has the assets now and will start losing it in 2017. I don't know how else to put this to emphasize that it is not a "con" but basic truth. Someone will get rooked, it is just a question of who.
The link between payroll taxes and SSA payments is already pretty broken. Every reform has made it look more like an income tax as the benefits formula becomes more progressive. The demographic bulge will only accelerate that.
*The program that shall not be criticized™ brought to you by the party whose ancient and noble schemes must not be questioned™
Mindles - in Brooksfoe's defense. As I understand it the National Debt is about 40% of US GDP while Japan's is 160% of GDP. In fact the US is in a much better position to borrow to support our boomers than Germany, France, the UK or Japan.
anony-mouse, you presumably have enough of a numbers background to know that when businesses allocate revenue of two different kinds to different purposes, if they then surreptitiously dip into one revenue stream to subsidize shortfalls in the other revenue stream, that might be considered improper accounting or even fraud. And when they have obligations on one set of investments, they can't get out of those obligations because the rest of their fiscal picture doesn't look good.
If, for example, I invest in a CD at a bank with a guaranteed return, and the bank then uses that money to invest in the real-estate market and loses most of it, when my CD comes due, the bank is not allowed to say, "Well, that 'CD' thing was just an accounting fiction; ultimately our bank's money is all one big pile and we've lost most of it on bad real estate investments, so we can't pay you as much as we promised to."
The health of the social security system is just fine. If the government is going to get into trouble, it'll be because it's been booking those social security taxes as if they were part of its revenue stream and trying to spend them twice -- which means we never should have cut taxes in 2001 and 2003. This is why Paul Krugman and everyone else with any honesty who looked at those tax cuts immediately called them fraudulent. If you're worried that 10 or 20 or 30 years from now, the size of the debt will render the government unable to meet its obligations on government bonds, including Social Security trust fund bonds, then right now would be the time to support raising income taxes. The people who got the biggest tax cuts in 2001 and 2003 should be the ones who see the biggest tax increases now. And I believe we all know who they are. Let's hike the top marginal income tax rate back up to 39%, and then we can see if we still have a problem making good on T-bills 20 years from now.
Or, if you're really a supply-sider, then your preferred solution should be to cut the top tax rate further, which will stimulate economic growth and raise total revenue within 20 years, magically making the Social Security "crisis" go away. Right?
when businesses allocate revenue of two different kinds to different purposes, if they then surreptitiously dip into one revenue stream to subsidize shortfalls in the other revenue stream, that might be considered improper accounting or even fraud.
Hmm...that's a fine description of what they've been doing with Social Security taxes since the inception of the system: subsidizing shortfalls in the general budget with SS revenues. It hasn't been truly surreptitious, but then again Enron disclosed the existence of all those SPEs in the notes, didn't they?
The SSA is essentially an SPE designed to disguise the true debt by making some of it internal. How is this better than the financial scandals of a few years ago?
One more thing:
when my CD comes due, the bank is not allowed to say, "Well, that 'CD' thing was just an accounting fiction; ultimately our bank's money is all one big pile and we've lost most of it on bad real estate investments, so we can't pay you as much as we promised to."
It doesn't take a lawyer to know that's called "declaring bankruptcy." And, as it turns out, the bank is allowed to say that, although most of them try to avoid it.
The "health" of Social Security can only be considered "fine" if you consider it a completely separate entity from the US gov't.
And you can only believe that if you think Paul Krugman is "honest".
brooksfoe: If you have $20, budget $10 for food and $10 for entertainment, then spend $20 for entertainment while leaving yourself a $10 IOU note...the only question outstanding is, will the wood pulp in that paper contain enough fiber and glucose to provide $10 worth of nutritional sustenance?
I like how you tried to couch the obvious in a long dissertation of economic-sounding lingo, even throwing in a Krugman cherry bomb for good measure (whose campaign do you work for, incidentally?), but the simple fact is, based on present demographics there are really only three options (or some combination of them) after 2017: either taxes go up by an amount far exceeding any tax cut Bush ever dreamed of, OR the SS benefits get scaled waaaaayy back, OR the government goes waaaaayy deeper into debt.
"Do not try to withdraw money from this trust fund; that is impossible. Instead, only try to realize the truth: There is no trust fund."
Spain and Italy are the low water marks. I've commented on this before. The source document, from Goldman Sachs + various NGOs, is here. Look particularly at the graph on page 14 (in the document, 16 in the PDF count).
And finally, my favorite quote from Woody Brock:
"Better a future career as a Sicilian bisexual gigolo than as a continental European Prime Minister trying to please the voters"
brooksfoe wrote:
Can you explain how raising taxes now will enable the government to meet its debt obligations in 30 years? Is your theory that increased revenues now would go towards reducing the amount of debt being carried? What in history leads you to believe that's a realizable scenario?
Doesn't it seem far more likely that any increase in current revenues would just be spent? And wouldn't the increased spending make the size of the future government cuts all the greater, thereby increasing the pain when the bill finally comes due?
The most realistic outcome of your plan would be an immediate reduction of economic growth combined with even greater pain 10, 20, or 30 years from now when compared to doing nothing. Why shouldn't we stick with status quo?
What in history leads you to believe that's a realizable scenario?
US budget surplus, 1998: $68 billion
US budget surplus, 1999: $124 billion
US budget surplus, 2000: $236 billion
After that, they threw it away on tax cuts, most of it for the top 10% of taxpayers. If not for the Bush tax cuts of 2001 and 2003, US debt would be so much lower by now that the prospect of paying back T-bills from 2017 through 2041 would be simply no big deal whatsoever.
See if your adding machine can handle this concept: the higher Social Security taxes paid from the early '80s through now, under the 1980s Greenspan plan to rescue SS through higher receipts, have made the federal debt much lower than it would otherwise have been. In this fashion, the Baby Boomers have been subsidizing shrinking the national debt so that it would be small enough that paying their SS benefits would not raise the debt unmanageably. That is the bargain: they shrank the debt from the mid-80s through 2016, by keeping SS receipts in surplus, so that we could afford to let the debt rise again starting in 2017.
If you now say, oh, forget all those surpluses you paid into the system -- we don't want to let the debt rise, then you have taken their money for 25 years under false pretenses. That is a con job.
If you now feel that the level to which the national debt would have to rise in order to repay your obligations is unmanageable, then you have a clear option: raise taxes to reduce the national debt, just as we were doing under President Clinton, before President George "Spend Like A Drunkard" Bush got a hold of the combination to the safe.
Or, as Rob Lyman suggests, you could try the "bankruptcy" option -- i.e., have the government default on its debt. Somehow that seems to me to be a slightly more drastic step, with graver economic repercussions, than raising taxes. No?
brooksfoe:
Why do you (like so many others) get so worked up over tax cuts when, as you clearly acknowledge, the problem has been spending? Would President George "Spend Like A Drunkard" Bush have been fine if not for the tax cuts? The tax cuts weren't that big in the grand scheme of things; government revenues as a percentage of GDP have remained well within historical norms.
That brief period of late 90's surpluses were not the result of President Clinton. They were the result of President Clinton and a Republican Congress (i.e., divided government) and an economic bubble. Well, now we've got divided government again (Hurrah! Long may she reign) and spending's going down. Also note that the dreaded tax cuts are going to sunset, so you'll receive your wished for tax increase if deadlock persists.
But to get a tax increase sooner in a divided government will require some serious log-rolling or a strong Democratic majority in both houses plus the presidency. I strongly challenge any model that says that either condition will not result in spending increases above and beyond any increase in tax revenue.
BTW, I feel no moral compulsion to uphold an intergenerational compact that was made without my consent and was predestined to screw me over. There is no way to meaningfully distinguish SS from a chain letter. I don't find "Save Social Security" to be any kind of rallying cry.
I support Social Security's underlying goal (keeping the elderly from abject poverty), but as a generalized retirement savings program SS is exceptionally poor. The sooner we can break those two pieces apart (social "insurance" vs retirement), the sooner we can begin to realistically address the structural problems that Social Security in its current incarnation necessarily entails.
And be clear, the SS problem is not just from 2017 to 2041 or whatever. It projects indefinitely into the future. SS is on an exponential growth curve with a higher exponent than the GDP (see the CBO's projections). Tweaking the tax rates only changes the day of reckoning, it doesn't (and can't) cancel it.
Look at the history of SS "reforms". Like any chain letter, when the number of people receiving money exceeds the number of new participants, the program goes into crisis. Each reform has systematically increased the number of people compelled into the system. Greenspan's reform grabbed the last bunch, there's no significant population outside the system. There's no way left to meaningfully increase the contributor base. (Unless we get comprehensive immigration reform. Hmm...)
US National Debt, 1998: $5,478,189,000,000
US National Debt, 1999: $5,605,523,000,000
US National Debt, 2000: $5,628,700,000,000
brooksfoe, you claim Clinton was raising taxes to lower the national debt, yet under his presidency, the national debt continued to rise, even in years of budget surplus.
To repeat SG's question, "Is your theory that increased revenues now would go towards reducing the amount of debt being carried? What in history leads you to believe that's a realizable scenario?"
"A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business."
The government knew these were bad by at least 1920, yet decided to implement their own. You'd think even Paul Krugman could recognize the flaw in their design.
Fraggle Rock, that is just dumb as a...rock. Social Security is no more a "Ponzi scheme" than you promising to take care of your grandmother when she gets old is a "Ponzi scheme". You'd have to be mathematically illiterate to think these things belong in the same class. What kind of Ponzi scheme never makees anyone rich?
As you ought to know, the dollar value of the national debt is meaningless for comparison over time, due to inflation and economic growth. The meaningful statistic on the national debt is as a percentage of GDP. During the 8 years of the Clinton administration, the debt shrank from about 70% to about 60% of GDP. In the first 7 years of the Bush Administration, the national debt has climbed back up to about 67% of GDP.
Nice dodge, brooksfoe. You claim the Clinton was trying to pay down the national debt with higher taxes, yet when there was a budget surplus appeared, not one penny actually went to lowering the debt. If you simply want us to grow the economy to the point where the debt is a lower portion of GDP, then the Clinton surpluses are meaningless. Why are you so opposed to TAKING less of the "rich's" money, then, since they and those who want to BECOME rich are the engine that drives the economic growth that would lower our effective debt?
And to use your pathetic grandmother analogy, it would be more like my grandmother and 41 other people supported one grandmother in the past, therefore I and 2 other people should support her now. All the while, she left nothing but IOU's to help cover the expenses in her savings.
The same retirees who are screaming "Don't touch my social security!" are the very people who elected the politicians who spent the "trust fund" in the first place.
"Having your cake and eating it too" doesn't BEGIN to describe the chutzpah involved.
brooksfoe:
Ponzi scheme's don't necessarily have to make someone rich. The key points are that the money isn't invested, it's paid back out immediately. Just like Social Security. Because of this, early participants get more than they put in because they're taking the contributions of a larger number of later entrants to the program. Just like Social Security. As the number of new contributors level off, the later participants get lower and lower returns. Just like Social Security. Oh, and the organizing entity skims off the early excess funds. Just like Social Security.
Hmm...How does Social Security differ from a Ponzi Scheme?
Singular Genius,
Social Security differs from a Ponzi scheme in that the payouts promised grow only as fast as the economy does -- in fact, slower, to make up for the gradual increase in the proportion of beneficiaries to the proportion of workers as life expectancy increases.
The adjectives we use to describe this are "affordable" and "sustainable".
The fact that the return on investment in SS is lower than on securities or the stock market is precisely what makes it different from a Ponzi scheme. Dig this, krazy kat: if you set up a Ponzi scheme that paid LESS than a Money Market account, NO ONE WOULD INVEST IN IT.
Fraggle, come ON. What you wrote is meaningless. From 1945 to today, the dollar amount of the national debt has ALWAYS gone up. But the ratio of the debt to GDP has always gone down, except under Reagan/Bush and under Bush II. See, the thing about the debt is, it has INTEREST. So even when you run a government surplus, you have to pay off the interest before you can start paying down the principal.
That said, you used dishonest numbers in your earlier post. The surplus figures I provided were for FY 1998, 99, and 2000. Those surpluses contributed to paying down the debt at the END of those three years; you used the debt figures at the BEGINNING of the year. In fact, even in straight dollar amount, the national debt shrank over 2000:
Dec. 31 1999: $5,776,091,314,225
Dec. 31 2000: $5,662,216,013,697
Let me get this straight, your defense of Social Security is that it can't be a scam because its return is so poor? Is that because scams never screw over their participants?
First of all, the returns where not poor at all to early participants. They got out much more than they put in. Secondly, growth in benefits is not tied to growth in GDP, it's tied to wage growth and not adjusted for increases in life expectancy. Look at the CBO link I posted early, benefits clearly rise relative to GDP over time. And thirdly, while adjectives like "affordable" and "sustainable" are used, they're typically used with a "not" in front of them. That's why we're having this discussion, because every reasonable projection shows that the current system is "not" affordable and "not" sustainable.
But don't just take my word for it. Go read the latest SSA Trustee Report. They say things like "we believe their currently projected long run growth rates are not sustainable under current financing arrangements" and "The annual cost of Social Security benefits represented 4.2 percent of Gross Domestic Product (GDP) in 2006, is projected to increase to 6.2 percent of GDP in 2030, and then rise slowly to 6.3 percent of GDP in 2081".
I like to believe people are arguing in good faith, but I'm hard pressed to believe it in this case. Your sarcasm-laden assertions are simply wrong on matters of fact, and your overall defense of SS is that it gives such a poor return that it can't be a scam. If that's the best defense of the program, why defend it at all? Eh, krazy kat?
"The annual cost of Social Security benefits represented 4.2 percent of Gross Domestic Product (GDP) in 2006, is projected to increase to 6.2 percent of GDP in 2030, and then rise slowly to 6.3 percent of GDP in 2081".
Whoa! It's scheduled to rise 0.1% of GDP over the 50 years from 2030 to 2080? Emergency!
The rise to 2030 is a result of the Baby Boomers retiring. That's why the Baby Boomers have been paying vastly more into the system than their parents have been taking out for the last 25 years. Now they are scheduled to start drawing their returns. If you don't give them the benefits they were promised, you've been stealing their money for 25 years.
The SS surpluses paid by the Baby Boomers have kept the US's national debt much lower than it otherwise would have been. Now the debt will have to rise in order to pay them back. Anyone who was actually concerned about that prospect should have been spending the last seven years railing against the idea of cutting income taxes, because the disparity between what the government takes in income tax and what it spends (to service the debt, fund the military, and all that other piddling stuff that makes up the other quarter of the budget) is what has caused the debt to rise. Indeed, there were many people who spent the last 7 years railing against the idea of cutting income taxes. Yet strangely, none of them were people who are now advocating cutting Social Security benefits. Instead, the people who advocated cutting income taxes are the ones who are now suddenly worried about the prospect that the national debt will grow as we start to pay Social Security benefits to the Baby Boomers.
This is what we call "bait and switch". First they talked the Boomers into paying extra on the regressive Social Security payroll tax, to fund their benefits when they retire. Then they started counting those surpluses as if they counted towards reducing the government's overall deficit. Then, after Clinton raised income taxes and the economy boomed, they started running overall surpluses, especially if you counted Social Security surpluses as part of the mix. So then along comes the Party of the Rich and says: let's cut income taxes! Which, obviously, are more progressive than SS taxes -- nobody ever advocated cutting SS payroll taxes. (I wonder why that is? If it's "all part of the same budget?") The left says, we can't afford it -- we need to keep paying down the debt for those liabilities -- but the GOP says, pshaw, it's the people's money, not the government's! So they cut the progressive tax, but keep the regressive tax. Who benefits? The rich. Then they suddenly notice: hey, we're running big deficits again. Guess we better cut the benefits on Social Security! Follow the shell with the peanut under it: first raise the regressive tax. Then cut the progressive tax. Then cut the (progressive) benefits from the regressive tax. Viva the rich, screw the poor.
Did someone have this all planned out ahead of time? It's not necessary to believe anyone did. It all follows logically in a system where each decision is taken with great consideration for the interests of the wealthy and little consideration for the interests of the non-wealthy, especially if the non-wealthy vote for the other party. But I wouldn't rule out the possibility that a few people were quite clear on what was going on all along.
brooksfoe,
see: http://research.stlouisfed.org/fred2/series/M3?&cid=28
v.
"Then, after Clinton raised income taxes and the economy boomed.."
if you care to see another, nominal, boom, just increase the money supply by (another) ~70%...like '93-'001.
btw, that, coupled with the continued fiscal mismanagement, is what's giving the U$D the 40%, and growing, haircut that it's recieved...
Well, at least brooksfoe finally owned up to his real views. "I hate the rich", "you want to starve your grandmother," and the money we earn belongs to government first, the people who actually earned it second.
So, the Clinton admin had 3-4 years of surpluses, and paid down $110 billion on a $5.7 TRILLION dollar debt in ONE of those years with it continuing to rise during the rest. And you expect us to pay down our debt long term with those methods?
Almost 10 years ago, Patrick Moynihan (D-NY) was advocating creating private accounts to make Social Security solvent in the long term, a policy generally supported on this blog. Your only "solution" is "raise taxes" then "raise taxes again" and then "raise taxes some more".
brooksfoe, first you say that the SS "trust fund" is separate from the general fund, now you say SS taxes kept the national debt lower than it would have been. Which is it?
Actually, Bush did propose a cut in the payroll tax. That's what private accounts were; by retaining a property interest, that money effectively wasn't taxed. But that proposal wasn't acceptable to the "Party of the People" (or whatever you like to call Democrats) who, apparently content with status quo, never bothered to put forth a proposal of their own and furthermore denied there was any problem at all.
I also like the way you glide over the almost 50% increase in SS payments projected over the next 20 years. Yes, it's caused by the baby boomers, but it's only a problem because the system is pay-as-you-go. If the baby boomers contributions were left in their name instead of being put into the "Trust Fund" there wouldn't be any problem. They might even have seen a positive return on that money. It's the Ponzi-like nature of the system that made this problem, and it's that nature that you alternately defend and ignore.
So instead of your pseudo-Marxian class struggle nonsense, how about answering some basic questions? How do we handle a 50% increase in SS payments over the next 20 years? Where does that money come from? The Bush tax cuts are set to expire in 2010, is it your claim that 8-ish years of 3% marginal cuts is the reason for the pending insolvency? Will the sunsetting of the tax cuts put us back on the path of righteousness? Or (as seems obvious to me) is the problem larger in scope than what Bush or Clinton or whoever the next president is and there's actually some hard decisions lying ahead? Please note that just bitching about your bete noire doesn't really address the issue.
BTW, did it ever occur to you that the system is working exactly as intended? That there's been no bait-and-switch and that, thanks to the SS surplus, the debt is lower now than it otherwise would have been? What spending do you think wouldn't have occurred if the SS surplus didn't exist? Why wouldn't that spending just have been deficit financed like so much else has been? I haven't seen any evidence of fiscal discipline from either party (in isolation). I seem to recall Kerry (for example) proposing to roll back the Bush tax cuts and to increase spending by more than the amount of revenue raised by the tax hike. You can complain about Bush and the GOP all you want (and with good reason), but there's precious little evidence to suggest that the alternative would have been any better on this issue.
BTW, did it ever occur to you that the system is working exactly as intended? That there's been no bait-and-switch and that, thanks to the SS surplus, the debt is lower now than it otherwise would have been?
Yes. That is, in fact, what I've been saying all along. The Boomers paid in and shrank the national debt. Now we have to pay out and put the debt back where it was before. In other words, there is no problem. If you think there's a problem, then the problem you think there is, is that the national debt is too large for us to now pay back the amount the Boomers paid in. So, if you think there is a problem, which I do not, then you should be advocating raising income taxes to pay down the national debt. The problem we are facing is not the "fault" of the Social Security system, which took in extra revenues for 25 years to meet its future obligations. The problem, if you think it exists, is the fault of the rest of the US government's budget. So it should be solved outside the Social Security system. If we have a problem, it is not a Social Security problem. It is an income tax problem.
Personally, I don't think we have a problem. The national debt will rise over the next 30 years, but the overwhelming source of that rise will be Medicare spending; so we should first be putting in place measures to hold that down.
As for my "Marxist" beliefs, Fraggle, you may be ignorant of the meaning of the term "Marxist". I do not believe in the labor theory of value, the inevitability or desirability of a proletarian revolution, or the workability of a command economy. I do believe that people act according to their interests, and that people with large amounts of money who direct powerful organizations generally use their influence to advance their legislative agendas. In general, people with wealth have more influence over government than people without wealth, and particularly over the Republican Party.
To quote from the 2007 SSA Trustee summary:
I suppose you could view this as no problem, but I disagree with that view.
If you don't give them the benefits they were promised, you've been stealing their money for 25 years.
Wow, I never took you for a "taxation is theft" libertarian, brooksfoe. Because of course nobody has been steaking anything. People have been paying taxes of various kinds, the government has been spending them. Nothing out of the ordinary about that, and no particular reason that I can see that the payment of taxes for 25 years confers a general right to get that money back at some later date.
If we have a problem, it is not a Social Security problem. It is an income tax problem.
No, it's a "government spending as a percentage of GDP problem," as SG points out. How you happen to squeeze the money out of the economy is a second-order effect at best; the fact that you are squeezing it out at all is the dominant issue. It is also, as I argued in another thread, a productivity and inflation problem. The reason that attacking the SS system is so attractive to me is that we can solve all three at once: cut government spending, and promote employment past 65 among the (healthy and long-lived) boomers at the same time. Thus, no problems.
SG,
Social Security is OASDI. HI and SMI are Medicare. We are talking about Social Security here, not Medicare. The vast majority of growth in the 18% figure you mention is HI and SMI -- i.e. Medicare, not Social Security. Social Security's share of GDP flatlines after 2030. I agree that we have a Medicare problem. We do not have a Social Security problem. The Trustees' Report says SS is funded through 2041. It says that if nothing is done, it will only have enough money to pay 75% of current benefits after the trust fund runs out in 2041. It says that assuring funding through 2081 could be done by raising payroll taxes right now in what I believe is an amount of 1%. Other economists argue the Trustees are using overly pessimistic assumptions about growth and that it would be wiser to wait a decade to see how things change before raising the tax. Social Security just isn't a big deal. Medicare is a big deal.
And again, to put things in perspective: if the problem is the size of the federal debt, then Social Security is a much smaller contributor to the problem than the Bush tax cuts. Social Security's unfunded liabilities through 2081 amount to 0.7% of GDP over that period. The cost of the 2001 and 2003 tax cuts over that period, if they are made permanent, amounts to 2% of GDP. The cost of the Bush tax cuts just for the top 1% of earners, those earning over $400,000 per year, are 0.6% of GDP over that period -- almost as much as the entirety of Social Security's unfunded liabilities.
brooksfoe - The "trust fund does not exist" argument isn't a con game its a recognition of reality. We have one federal government. When one part of it loans another part money its IOUs to itself are no real assets.
As for "no difference between payroll and income taxes", that's a rather irrelevant concept to the discussion about the trust fund. But if you want to examine it. Well of course their is a difference, the specifics of the taxes are different from each other. They are assessed and collected in different ways. But what is the same is that they are both involuntary tax payments from individuals and companies to the federal government. To put it another way there are a lot of specific differences, but the basic nature of both are the same.
brooksfoe - Re: "The health of the social security system is just fine."
The system is just fine for now, but it has to high of projected spending in the future. And it doesn't matter if we increase taxes (income, payroll or both), because the issue of too much money being sucked in to the system remains.
"If the government is going to get into trouble, it'll be because it's been booking those social security taxes as if they were part of its revenue stream and trying to spend them twice"
They are part of its revenue stream.
You could increase the stream of total revenue to try to account for the high current spending and projected even higher future spending, but it makes more sense to not spend like crazy and then impose ever higher taxes on people to cover it.
I am very late to this party. Interesting factoid: the yearly SS *surplus* contributes over 50% of the revenue to the general fund that the corporate income tax does.
Brooksfoe is correct, the rest of you are not. We either have a government that honors its obligations or we have pretty much nothing.
In 1983 the decision was made to raise the payroll taxes of working Americans, FICA and SECA, to prepare for their retirement.
At roughly the same time Reagan et al. were cutting taxes to the wealthy of America in the name of growth.
The net result of the ensuing Social Security surplus and the deficits of the operating budget are called the unified budget. It was mandated as part of the deal that the unified budget was the budget of record, and that all revenue was conceptually combined. Hmm, that was useful...
In 1983 one of these two things happened. Scenario number one is Greenspan and crew legitimately thought cutting taxes for the wealthy and subsidizing these cuts with a massive working class tax increase (over $2 trillion and counting so far) would stimulate the economy. Laffer curve stuff, you know. And in 2 generations the economy would grow enough to easily pay off the obligation to retirees.
Scenario number two is Greenspan and crew figured that they could just skip the payback if it came to that. Because the wealthy of America control the political process in America they would figure out a way to skip the payback.
(I can hear the shouts now, no, no it's the spending! No, the question is what was *Greenspan thinking*.)
Greespan said that Social Security was fine and dandy as the Bush tax cuts were being discussed, and he concurred with them. He thought everything was just peachy a few years ago (as they are indeed.) This despite 20 years of deficits. What?
I am firmly in the scenario #2 camp. I think Greenspan is a political hack more invested in the parties he and Andrea attend than the welfare of America.
Try examining the 75 year horizon of our Iraq expenditures, the Bush tax cuts and our general fund. Social Security is fine. The rest of our house is not in order. (And by the way, I agree with Rob: I think separate tax systems are inefficient. A rare agreement.)
And yeah, healthcare costs are the real trainwreck.
Means testing is beyond stupid. Bill Gates' dad worked for 10 years and paid in. It is part of the deal and should be honored. Means testing is just another bullshit bureaucracy that will have to lower the levels for everyone except the very poorest pro rata. Bill Gates and his dad would gladly forgo their social security checks in exchange for getting off the hook for their income taxes in 2017 and beyond. Means testing is a completely bogus argument.
And current taxes on anyone (eg. those with incomes over the current limit) is beyond stupid. It just is a tax now for someone who makes less money to enable a tax cut now for someone who makes more. It does not solve 2017 and really, really does not solve 2046.
Keep the deal as is: the working class subsidizes the wealthy for 2 generation in exchange for the reverse for 2 generations or the end of time, whichever comes first.
I still can't get over the fact that people defend Social Security.
A simple question for Nat and broooksfoe: If you were to create a system to keep the elderly from poverty would it look anything like the Social Security system? That is, would you take money in perhaps the most regressive way possible from a relatively poor group, and distribute it as a bulk wealth transfer to a relatively wealthy and politically powerful group without regard to the recipient's individual circumstances, all the while skimming excess money for unrelated purposes? In return, the "contributors" would receive a legally unenforceable promise to be repaid at exceptionally poor, often negative rates of return, completely subject to future economic and political conditions. This would be a system that you'd throw your support behind?
Now if you want to argue that it would be immoral and socially harmful to simply halt SS today, I'd agree with you. I recognize that there's a generation of people who are relying on it and another generation that has been planning for it. But the question any true liberal ought to be asking is how to we transition away from this horribly regressive system and into something better.
What is the basis for the near religious support for the current Social Security system? Sure, it's goals are admirable (as were the US goals in Iraq...), but the execution is overwhelming negative.
I'm always struck by how many "progressives" are fundamentally reactionary in nature...
Nat - Re: "Brooksfoe is correct, the rest of you are not. We either have a government that honors its obligations or we have pretty much nothing."
The problem here is that it obligates itself to spend other people's money. And too much of the money. Few would propose that we just abandon Social Security, but with people living longer the retirement age should increase, and we might have to slow down the future real growth in SS payouts as well.
Try examining the 75 year horizon of our Iraq expenditures, the Bush tax cuts and our general fund. Social Security is fine. The rest of our house is not in order.
The future increase in Social Security amount to far more than the spending in Iraq (esp. since spending at this level in Iraq is a temporary thing, but even if it the war stayed at this level of intensity or a higher one forever). Also its a bigger obligation than the money forgone by the tax cuts.
As for means testing its not at all bogus. A very good moral and practical argument can be made that future minimum wage earners shouldn't pay government subsidized retirement money to the wealthy. Of course means testing add additional complications, and argument can be made against it, but calling it a bogus idea is just silly.
What is in question is the resolution of the Social Security Trust Fund, currently at 1.8 trillion. Recent estimates of the Iraq/Afghanistan obligation have been in the 1.5 to 1.8 trillion dollar range and this is being financed also, not paid for now via a tax increase. Both are obligations for the future general fund and it is not clear to me that Iraq will not continue to outstrip social security in cost.
Social Security currently subsidizes the general fund and is therefore more than pay as you go for the next 10 years. There are several arguments at play here that the right conflate.
The first is the principle of the program itself. Sorry, you will lose that one. Most people like the idea. But argue away.
The second is the solvency of the trust fund out on the horizon, 2041 or 2046. This date has been drifting into the future since the estimates low ball our real growth. It is also a silly ass argument: in fact it is about the Warren Buffets of 2042 or 2047 getting a tax cut that year.
The last is the real issue: what to do in 2017? That is the year the social security surplus is estimated to roll to a deficit that must be covered by the general fund. That is the nature of the Greenspan deal in 1983.
Means testing Social Security is truly a bogus idea for resolving the 2017 issue. It has only the barest illusion of fairness. The gist of the idea is the billionaire will not be given social security for 20 years in exchange for hundreds of millions of tax breaks over his life time. Some exchange. Framing it as 'not fair for the minimum wage earner to subsidize the billionare' is the bogus part of the argument. Shame, shame on anyone using this argument. In fact the subsidy has been going that way for 20 years and the repayment of the trust fund is in fact repayment of this subsidy.
And funny how some people just love those bureaucracies when it suits their argument. Having worked in the means testing business for 30 years I find it ugly and inefficient.
FYI, via Bruce Webb, here is the 2007 report:
http://www.ssa.gov/OACT/TR/TR07/trTOC.html
Given the contributions of 2007 and interest, the trust fund is now over 2 trillion.
Nat - Your comparing total spending for Iraq and Afghanistan, including future money not yet spent on veterans costs and replacing equipment, plus interest costs, against a very small fraction of past and future money going through the social security system. The amount represented by the "trust fund" isn't very meaningful, other than a built in adjustment to SS payouts when the nominal trust fund runs out (an adjustment that could, and probably will be, changed by congressional action at any time), the amount in the so called trust fund is meaningless. The government, being both the "asset holder" and the "debtor" for these bonds, could easily double or eliminate the debt with no real economic or financial impact, and no default. If I lend my left pocket $10 from my right pocket and give the right pocket a $10 IOU, I could rip up the IOU, or change it to $20, either way I am no richer or poorer. The real issue is not the amount in the so called trust fund, the real issue is how expensive the promised pay outs to future retirees will be.
Framing means testing as 'not fair for the minimum wage earner to subsidize the billionaire' isn't bogus, its accurate. A billionaire retiree receives money from current SS taxes, including taxes paid from minimum wage employees. Saying "shame on anyone for using this argument", is not an effective counterargument, certainly not in the sense of logical argument, and probably not even as a matter of rhetoric.
If you were to create a system to keep the elderly from poverty would it look anything like the Social Security system? That is...
Yes, it would, with one exception. I would keep the "trust fund" system, but instead of using the money to purchase T-bills which are dedicated to repaying the Social Security system, I would use them to buy T-bills in the name of the individual Social Security taxpayers. Each dollar contributed into the system would buy a portion of a US government bond in a taxpayer's name. That way, in order for a Republican administration to scrap Social Security and renege on its promises to Social Security taxpayers, it would have to actually default on the national debt. In other words, the government's obligations to average US taxpayers would be on a par to its obligations to banks and financial institutions.
I imagine there would be complications involved in bringing how much the bonds would pay and when they would mature into line with the levels aimed at for SS benefits, but these seem like accounting issues that could be overcome. The main point is that I think the government's national pension system should have obligations to its citizens every bit as strong as the government's obligations to the Bank of China. They shouldn't get paid ahead of us.
instead of using the money to purchase T-bills which are dedicated to repaying the Social Security system, I would use them to buy T-bills in the name of the individual Social Security taxpayers.
Hey, we agree! Your "one exception" changes the program from defined benefit to defined contribution. I'd love to see such a system. I'd go a little further in that I'd want to see more than just T-bills (for the same reason that I don't put all my 401k contributions in company stock - diversification lowers risk. And in this case it would improve return) and I'd want to see the system then supplemented with a moderate welfare program for people who outlived their contributions. But in broad strokes, giving people a true, enforceable property interest in their contributions would be a tremendous improvement.
With a true property interest, there's no need to trust that the "right" administration (and really, this is a Congressional more than Executive issue anyways) is in power. I don't share your opinion that things will be hunkey-dorey if Democrats are elected; the funding shortfall is going to put the squeeze on whomever is in power at the time. I'm reasonably sure we're going to see some combination of tax increases and benefit cuts irrespective of who's in charge, making an already lousy system (for my generation) even worse.
Brooksfoe, I concur.
The 'left pocket, right pocket' arguments are weak. Our government has contractual obligations, that is what government securities are. China, the Saudis and the SS Trust all buy them. The trust does it as my agent for the day when I retire, coincidently in 2017. I term them weak, not impossible, because, yes, the government can default on these with a political consensus. Just like it could default on the Chinese or Saudis. All these actions have both domestic and international consequences. That is why we are having these discussions.
What saves Boomer ass is 1) there are a lot of us, 2) we will vote in greater numbers than the cohorts behind us, 3) most everyone after us gets screwed too, and 4) the real beneficiaries are extremely small in number (although have a extremely large political influence.)
As long as the system is pay as you go, the billionaire argument holds no water at all. It is no skin off anyone's hide. If the billionaire pays in to the system for 10 years he qualifies and he gets paid when he retires. Any arguments at this level are vs. the legitimacy of the system itself. I am for it, as are the vast majority of Americans. You are obviously against it. Again, argue away.
The very nature of the deal in '83 was that the general fund would subsidize social security after social security subsidized the general fund in running the government. This is simply fact.
However, we can all quibble about whether this was a good idea or not. It is an object lesson that the Wimpy deal (repayment Tuesday for a hamburger today) is good for Wimpy and maybe not so good for you. The wealthy of America have been getting the hamburger since 1983. Tuesday arrives in 2017 and it appears that Wimpy does not want to pay.
The only rational billionaire argument starts in 2017. Actually, it starts when the SS yearly surplus starts to diminish, because that is actually the start of the additional obligations on Buffet and Gates. Poor babies!
In 2017 the general fund will have to kick in to supplement the SS pay as you go. This will continue perhaps until the end of time. The general fund will either have to raise taxes or borrow more from those who have it to pay for my retirement at the agreed upon level.
Now the billionaire gets involved because he has lots of skin in the game. His (progressive) taxes are going to go up gradually over the years to cover the pay as you go short fall. In this circumstance the billionaire argument is intentionally deceptive. Yes, he is going to contribute to the SS system via his FICA. Yes he is going to get retirement in the future. But the nature of '83 is that his very significant income tax burden will carry the load for the pay as you go short fall.
I do not quibble with the integrity of this argument: the billionaire should not have to subsidize the SS security pay as you go system because (insert reason here.) I think it is weak and most people rational people will not buy it, especially if they have skin in the game. But advocates do not use this argument because it is weak. This is advocating hundreds of millions of retirees take a cut in their retirement for the huge benefit of a very small number of very wealthy tax payers.
I find this argument duplicitous: the poor working stiff should not have to support the billionaire post 2017 with their hard earned FICA dollars. The retired working stiff actually gets a net financial benefit via this arrangement.
My long post needs this: I concur with Brooksfoe. Much of my thinking and understanding of this issue comes from Max Sawicky's late lamented site. Bruce Webb and Dean Baker are great.
SG and Tim Fowler: I disagree with you. I think SS is a fair system. It did our nation a great service in 1935 and it continues to. It is rock solid against everything except political duplicity, which is in great abundance these days.
Converting to a new system has gargantuan transition costs and would be a ripe for corrupton. The arguments for such a transition have already been debunked by the efforts of Dean Baker among others.
The arguments against SS itself are standard anti-New Deal. I try to avoid these.
The 2041/2046 arguments are essentially about a tax cut for the Warren Buffets of 2042/2047. Anyone who voluntarily raises their taxes today to benefit a billionaire in 2047 needs their head examined. But unfortunately that is the level of insight in our system today.
The 2017 issue (and the transition to that date) is really what is in play here. Simply put, the wealthy of America want a subsidy from FICA to continue and even increase. I think this is wrong on the merits.
Lastly, anyone, be they Obama or Bush, is either an idiot or a crook if they advocate increasing FICA and SECA today to 'fix' 2047. It merely gives Wimpy another hamburger today that he will not repay Tuesday.
Brooksfoe, I concur.
The 'left pocket, right pocket' arguments are weak. Our government has contractual obligations, that is what government securities are. China, the Saudis and the SS Trust all buy them. The trust does it as my agent for the day when I retire, coincidently in 2017. I term them weak, not impossible, because, yes, the government can default on these with a political consensus. Just like it could default on the Chinese or Saudis. All these actions have both domestic and international consequences. That is why we are having these discussions.
What saves Boomer ass is 1) there are a lot of us, 2) we will vote in greater numbers than the cohorts behind us, 3) most everyone after us gets screwed too, and 4) the real beneficiaries are extremely small in number (although have a extremely large political influence.)
As long as the system is pay as you go, the billionaire argument holds no water at all. It is no skin off anyone's hide. If the billionaire pays in to the system for 10 years he qualifies and he gets paid when he retires. Any arguments at this level are vs. the legitimacy of the system itself. I am for it, as are the vast majority of Americans. You are obviously against it. Again, argue away.
The very nature of the deal in '83 was that the general fund would subsidize social security after social security subsidized the general fund in running the government. This is simply fact.
However, we can all quibble about whether this was a good idea or not. It is an object lesson that the Wimpy deal (repayment Tuesday for a hamburger today) is good for Wimpy and maybe not so good for you. The wealthy of America have been getting the hamburger since 1983. Tuesday arrives in 2017 and it appears that Wimpy does not want to pay.
The only rational billionaire argument starts in 2017. Actually, it starts when the SS yearly surplus starts to diminish, because that is actually the start of the additional obligations on Buffet and Gates. Poor babies!
In 2017 the general fund will have to kick in to supplement the SS pay as you go. This will continue perhaps until the end of time. The general fund will either have to raise taxes or borrow more from those who have it to pay for my retirement at the agreed upon level.
Now the billionaire gets involved because he has lots of skin in the game. His (progressive) taxes are going to go up gradually over the years to cover the pay as you go short fall. In this circumstance the billionaire argument is intentionally deceptive. Yes, he is going to contribute to the SS system via his FICA. Yes he is going to get retirement in the future. But the nature of '83 is that his very significant income tax burden will carry the load for the pay as you go short fall.
I do not quibble with the integrity of this argument: the billionaire should not have to subsidize the SS security pay as you go system because (insert reason here.) I think it is weak and most people rational people will not buy it, especially if they have skin in the game. But advocates do not use this argument because it is weak. This is advocating hundreds of millions of retirees take a cut in their retirement for the huge benefit of a very small number of very wealthy tax payers.
I find this argument duplicitous: the poor working stiff should not have to support the billionaire post 2017 with their hard earned FICA dollars. The retired working stiff actually gets a net financial benefit via this arrangement.
Nat - You say "The 'left pocket, right pocket' arguments are weak.", but you really do nothing to address them. Yes our government has contractual obligations, but it doesn't have a contractual obligation to future or even current Social Security recipents. And, depending on exactly how you look at it, it either doesn't have a contractual obligation to pay back the SSA bonds, or it does have one but can cancel it at any time with no issue of default because it is a contractual obligation with itself. The Social Security Administration IS part of our government, not something foreign to it. When the Chinese, the Saudis or individual Americans, but government bonds they get a contractual obligation with someone other than themselves. A contractual obligation to yourself doesn't make a lot of sense. And if you want to insist that there is such an obligation, well than you can forgive it and it isn't a violation of the contract or any sort of default.
So you see the "left pocket, right pocket", argument isn't weak but rather precisely correct.
Re: "As long as the system is pay as you go, the billionaire argument holds no water at all. "
Nonsense. If you have a pay as you go system, you still have the money from minium wage workers going in to the pool that pays billionaires. The fact that the billionaire paid in to the system for years is little different than the fact that the billionaire paid income tax for years. He paid income tax, so does that mean we should send him welfare checks?
Re: "SG and Tim Fowler: I disagree with you. I think SS is a fair system. It did our nation a great service in 1935 and it continues to. It is rock solid against everything except political duplicity, which is in great abundance these days."
My complaint wasn't that it is unfair (I'd say in a sense that it is, but no more than a lot of other things the government does), but that its to pricey. Its the biggest part of government spending and its going to grow a lot in the future. The demographic bulge of the baby boomers, the fact that people are living longer, and the fact that the system is index for wages, not real cost of living, means it will get more and more expensive in the future. You will have fewer workers, supporting more retirees, and supporting each one with more money in real terms.
You might be able to afford to pay that much, but only at the expense of near confiscatory tax rates, and general harm to the economy.
Re: The retired working stiff actually gets a net financial benefit via this arrangement."
Maybe the current retiree does, at least some of them do, in particular those who have been retired a long time.
But most current working stiffs won't benefit from the program. They will have put in enough money, for a long enough time, that their net rate of return is pathetic, and sometimes negative.
As for advocating people take a cut in retirement for the benefit of the very wealthy, well calling for means testing is pretty much the opposite of that idea. Your either confusing two arguments or attacking a straw man.
First: sorry about the duplicate double post that brackets my other post. I have not a clue how that happened.
Tim:
FWIW, I am a small business owner (software) and have made payroll since 1990. Before that I worked for 13 years at the Texas Dept. of Human Services. I am familiar with government regs and have read big chunks of the law. I am as knowledgeable about means testing in this country as anyone drawing breath. I am sorry to say.
The Social Security Act of 1935 codifies most of entitlement system. It gets amended all the time. The entire thing can be repealed if an administration has the stones to do it and the guns to enforce it. They can blow off China too, given the same provision. What you are suggesting is faintly possible, hence I term the 'pocket' argument weak.
But the law is the law and it says that I pay in and that I can retire and that I will be repaid a certain amount. If you can convince enough people that this is a bad thing then the system will change. I think it would be a huge mistake.
However, I cannot argue with you if you are asserting (like my Ron Paul endorsing buddies) that the trust fund has no legal validity akin to their arguments that the IRS is unconstitutional and they do not have to pay income tax. This may have some validity in some alternative universe, but not this one. There is no common ground to discuss.
As for the mechanics of the 'pocket' analogy: the pockets are from very different revenue streams and that has very hard and fast legal implications at all levels of our government. If a state spends money dedicated to Medicaid on roads, somebody gets in trouble. Or should. I don't know what to think about some of our politicos these days.
I shouldn't have to point out that the SS trust is funded by FICA from for a dedicated purpose. The people who are obligated to pay back will do that via income tax (for the most part) in the future. They are not the same group who will be retired and receiving payment, although the Venn diagram will have an intersection of the two sets. Bill Gates will still be paying income tax from his investments and he will be drawing social security. It's good that he is drawing Social Security. He earned it like I did, by working.
As for actions now obligating someone in the future: sorry, but that happens every time we run a deficit. When Arnold said 'no new taxes' then sold bonds to fund the budget, he passed an obligation on to the future taxpayers of California.
This happens every single day this country sells a treasury to China or the SS Trust. Your distinction has no basis in law or logic as I see it. But feel free to advocate changing the law because that is what is going to have to happen to change the actions of our government.
That's how it works.
Nat,
I can't really make sense of what your argument is except that you don't like rich people or Republicans. Both fine positions, but neither really goes to the heart of the current SS problem.
You dismiss the "left pocket, right pocket" argument, yet you (correctly) acknowledge the problem is 2017 when SS revenues exceed payouts. That is the "left pocket, right pocket" argument: There is no independent assets that SS can use to fund operations, that's why 2017 is when the trouble happens.
Or your "Wimpy argument" that completely elides the fact that the group that ate the burger is not the same group that's being asked to pay for it.
Unlike Tim Fowler, I am concerned with fairness of SS. The hamburger went to Baby Boomers (you) who exchanged lower income tax rates for a regressive payroll tax during their peak earning years (Note: screwing the subsequent generation). The bill for the hamburger is to be paid by the subsequent generation (me) through a raise in income tax rates as we hit our peak earning years. (Note: again screwing the subsequent generation). Notice how this "plan" lowered income tax rates when your generation were making the most money, and raises income tax rates as your generation retires and income goes down and the subsequent generation is reaching their peak earning years?
And you'll get away with it too, because as you said, "1) there are a lot of us, 2) we will vote in greater numbers than the cohorts behind us". I agree that it's not worth debating the popularity of SS but, like 3 wolves and a sheep voting on what's for dinner, popularity doesn't always make the best measuring stick. I also notice that you have no interest in discussing the basic fairness of the system, perhaps because it works out fine for you. You're just looking out for number 1, the same as those rich Republicans you decry. Just don't fool yourself into thinking you're any better of a human being. You're not.
But as long as your SS payout is tied to what you've paid in, I haven't heard any good argument for not making it be your money (with interest) that gets paid back to you. Then you don't have to worry about political duplicity. If you're concerned about progressivity, give a matching contribution on a sliding scale. As a practical matter, I concede that transitioning would be difficult, but on a theoretical level I just don't see the downside. And it's not like the current system doesn't have difficulties of its own.
Nat,
You are aware that the bonds sold to the SS administration are of a fundamentally different nature than those sold to the public, are you not? They are explicitly non-negotiable. They are not an asset in any sense, and certainly not equivalent to what you or I or China might purchase at a Treasury auction.
Nat - You might be an expert on means testing, but that is only very slightly relevant. Its somewhat important if you are making an argument about means testing being impractical, if that argument is at least in part an argument from authority with you as the authority, or based on facts with you as the authority for those facts. Its not particularly relevant to discussions about the fairness or morality of means testing, or to other arguments about social security that don't involve means testing.
Re : "The Social Security Act of 1935 codifies most of entitlement system. It gets amended all the time. The entire thing can be repealed if an administration has the stones to do it and the guns to enforce it. They can blow off China too, given the same provision. What you are suggesting is faintly possible, hence I term the 'pocket' argument weak.
But the law is the law and it says that I pay in and that I can retire and that I will be repaid a certain amount. If you can convince enough people that this is a bad thing then the system will change. I think it would be a huge mistake."
They can blow off all of the debt, but that is the action of the debtor refusing to pay. In other words its default.
But this debt is to the government, as the SSA is part of the government. So the creditor (the government) can cancel the debt, and it isn't default by the debtor (the government).
You aren't a creditor of the government by being part of the social security system. Its possible you are a creditor of the government for some other reason (they owe you money on a federal contract you performed, you bought T-Bills, whatever), but that's not relevant to Social Security.
The law says you are supposed to get money from the SSA by a certain formula, but that law is no more a debt, than promised payments by the government to the beneficiaries of any other program is a debt. Sure you paid taxes for the program, but you also paid taxes for the rest of the federal government, as did many of the recipients of funds from those programs. A farmer may have paid income tax, but that doesn't mean the government owes him money from federal farm support programs.
Re: "However, I cannot argue with you if you are asserting (like my Ron Paul endorsing buddies) that the trust fund has no legal validity akin to their arguments that the IRS is unconstitutional and they do not have to pay income tax."
Now your making an argument by false association. Even if I was making the argument that the Social Security fund was legally invalid, an argument by vague association would be at best weak, at worse a fallacy. But the more important point is that I make no such statement. My argument is not that the fund is legally invalid, but that its practically almost meaningless. An additional point is that as the creditor of the debt (as well as the debtor) the government could cancel it without their being any default or violation of a contractual obligation.
Re: "As for the mechanics of the 'pocket' analogy: the pockets are from very different revenue streams and that has very hard and fast legal implications at all levels of our government. If a state spends money dedicated to Medicaid on roads, somebody gets in trouble. Or should. I don't know what to think about some of our politicos these days."
The legal implications and requirements are under the control of the government. Congress decides what requirements and limitations are put on different types of spending. If some government official on his own initiative changes the spending around he is violating the law. If congress changes the law there is no legal violation. It is within congress' constitutional power to change the law to take all the Medicaid money and spend it on roads. The only way they might get in trouble for doing so is at the next election if their changes are politically unpopular.
RE: "I shouldn't have to point out that the SS trust is funded by FICA from for a dedicated purpose."
You shouldn't and don't have to point it out, and I shouldn't have to point out that that point is almost meaningless. Spending is spending, and taxes are taxes. Tying the two together with a "dedicated" tax is just a specific mechanism which could be changed at any time. It provides little or no moral or practical or constitutional argument for not changing the spending levels.
Lets say that a dedicated tax was created in order to fund a program to paint houses pink with purple stars and green stripes. This tax might cover all of the cost of this house painting but it doesn't provide any reason not to change or cancel the program. Social Security payments are more popular, and one could argue more reasonable and justified than this hypothetical house painting program, but that's irrelevant to the point. Even if we assume that SS is well justified based on its merits as a federal program, that doesn't mean that the tax justifies the program, or means it would be wrong, or violate a contract, or amount to a default to cancel it BECAUSE OF the existence of the tax.
Re: "Bill Gates will still be paying income tax from his investments and he will be drawing social security. It's good that he is drawing Social Security. He earned it like I did, by working."
No, he earned his income by working. He didn't earn someone else's money through the Social Security system. The government decided to give that money to retirees, who formerly worked but that doesn't mean they earned it any more than farmers earned price supports.
The money that Bill Gates has paid in to Social Security has mostly been spent (This is true even from the perspective of the SSA being separate from the government and the "trust fund" being a real asset, rather than considering the reality that its part of the government that has also spent those funds outside of the SSA, the money has still been mostly spent. The SSA surplus is, and has been over the period of time when Bill Gates has paid SS taxes, been smaller than Social Security Spending. The majority of SS tax money paid in during that period was paid out to retirees).
The money that Gates will recieve if and when he collects Social Security will be money from workers at that time, not money that he previously put in to the system.
Re: "As for actions now obligating someone in the future: sorry, but that happens every time we run a deficit."
True, but not at all relevant. Money to finance CA's or the US federal governments deficit is money that is actually borrowed from other parties. Its a real loan with a real contractual obligation to pay it back.
The SSA is part of the government. Any loans the government makes to itself are not real obligations between two parties. They are almost exactly much larger versions of me shifting money around between my pockets.
Tim- -
SS has been touted (and written into law) as a system that pays back to all who pay into it for a minimum period of time. Period. Gates met those requirements and at the minimum age set by law is entitled to his checks. Period.
Now if you wish to retitle it "Old ASge Welfare", fine, then you can consider SS deductions (employer and employee) as taxes and use means testing to determine eligibility. But that change would not apply to Gates ("No Bill of Attainder or ex post facto Law shall be passed."- -Article I, Section 5, US Constitution"). It could only apply to those who had not yet earned eligibility for benefits.
In any case, how many 50-billionaires in the US are there? If you refused to pay them or refused to pay any billionaire, would it fix the systeM
Tim- -
SS has been touted (and written into law) as a system that pays back to all who pay into it for a minimum period of time. Period. Gates met those requirements and at the minimum age set by law is entitled to his checks. Period.
Now if you wish to retitle it "Old ASge Welfare", fine, then you can consider SS deductions (employer and employee) as taxes and use means testing to determine eligibility. But that change would not apply to Gates ("No Bill of Attainder or ex post facto Law shall be passed."- -Article I, Section 5, US Constitution"). It could only apply to those who had not yet earned eligibility for benefits.
In any case, how many 50-billionaires in the US are there? If you refused to pay them or refused to pay any billionaire, would it fix the systeM
LazarusLong,
I'm afraid you're simply incorrect. As the SSA asserted, and the Supreme Court upheld, in a brief in Flemming v. Nestor:
Congress can and has changed the benefits granted to SS participants. No Bill of Attainder or ex post facto law provisions apply. See the Social Security's Website for more details. Here's the SSA's summary:
BTW, I'd think anyone who posted under the name LazarusLong would inherently grasp the inherent flaw in Social Security. TANSTAAFL and all that.
BTW LazarusLong, I'm highly sympathetic to your larger point. The government has taken 12.4% of our income with the justification that they would pay it back to us when we're older. But the fact is that's not what they've done; what they've actually done is take 12.4% of our income and spent it on a variety of things including (but not limited to) the elderly and given us a promise to pay us back when we retire. And they've been very clear and consistent in saying that their promise is not legally binding.
As a legal (and moral) matter, the only money that you have a strong claim on is that which you've earned. Everyything else is subject to political considerations. This is why I don't understand the resistance to privitization (especially by people who feel the other half the country is immoral). I readily concede the practical issues, but I can't understand the resistance to keeping your "contributions" in your name.
SS has been touted as a system that pays back all who pay in to it, but the law does not make the person who paid in the owner of the funds that it says he will later recieve (until he actually recieves them).
Gates is an example not the real issue, but continuing with that example it wouldn't be a bill of attainder or ex post facto law to deny people with an income or net worth over X future benefits. The system was sold as "you pay in and the benefits are yours", but really other than the fact that its an "entitlement" (which just means that if congress does nothing the spending continues, unlike regular spending which has to be reguarly reauthorized) its just like any other benefit. It can be canceled by a simple act of congress like other benefits can be canceled.
And that's not just going by the law itself, there are also two important relevant Supreme Court decisions -
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"..Many people believe that Social Security is an "earned right." That is, they think that because they have paid Social Security taxes, they are entitled to receive Social Security benefits. The government encourages that belief by referring to Social Security taxes as "contributions," as in the Federal Insurance Contribution Act. However, in the 1960 case of Fleming v. Nestor, the U.S. Supreme Court ruled that workers have no legally binding contractual rights to their Social Security benefits, and that those benefits can be cut or even eliminated at any time.
Ephram Nestor was a Bulgarian immigrant who came to the United States in 1918 and paid Social Security taxes from 1936, the year the system began operating, until he retired in 1955. A year after he retired, Nestor was deported for having been a member of the Communist Party in the 1930s. In 1954 Congress had passed a law saying that any person deported from the United States should lose his Social Security benefits. Accordingly, Nestor's $55.60 per month Social Security checks were stopped. Nestor sued, claiming that because he had paid Social Security taxes, he had a right to Social Security benefits.
The Supreme Court disagreed, saying "To engraft upon the Social Security system a concept of 'accrued property rights' would deprive it of the flexibility and boldness in adjustment to ever changing conditions which it demands." The Court went on to say, "It is apparent that the non-contractual interest of an employee covered by the [Social Security] Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed on his contractual premium payments."
The Court's decision was not surprising. In an earlier case, Helvering v. Davis (1937), the Court had ruled that Social Security was not a contributory insurance program, saying, "The proceeds of both the employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way."
In other words, Social Security is not an insurance program at all. It is simply a payroll tax on one side and a welfare program on the other. Your Social Security benefits are always subject to the whim of 535 politicians in Washington. Congress has cut Social Security benefits in the past and is likely to do so in the future..."
http://www.cato.org/pub_display.php?pub_id=5776