Matt Taibbi makes a point that I made 5 or 6 years ago. (And I’m sure it wasn’t original to me.) Social Security isn’t the problem. Thanks to an increase in the regressive payroll taxes back in the 80s, Social Security has been solvent. The problem has been the raiding of that regressive tax money to pay for things like tax cuts for millionaires and ill-advised wars.
Let’s be clear about what’s going on here. Social Security was never the cause of the nation’s debt problems. This issue dates all the way back to the Eighties, when Ronald Reagan hired Alan Greenspan to chair the National Commission on Social Security Reform, ostensibly to deal with a looming shortfall in the fund. Greenspan’s solution was to hike Social Security tax rates (they went from 9.35% in 1981 to 15.3% in 1990) and build up a “surplus” that could be used to pay Baby Boomers their social security checks 30 years down the road.
They raised the SS taxes all right, but they didn’t save the money for any old Baby Boomers in the 2000s. Instead, Reagan blew that money paying for eight years of deficit spending and tax cuts. Three presidents after him used the same trick. They used about $1.69 trillion in extra Social Security revenue (from the Greenspan hikes) to pay for current-day goodies, with the still-being-debated Bush tax cuts being a great example. This led to the infamous moment during Bush’s presidency when Paul O’Neill announced that the Social Security Trust Fund had no assets.
Well, duh! That is what happens to a fund, when you spend 30 years robbing it to pay for tax cuts for Jamie Dimon and Lloyd Blankfein. It will tend to get empty. But of course this wasn’t presented to the public as being the consequence of too many handouts to wealthy campaign contributors: this was presented as a problem of those needy goddamned old people wanting to retire too early and being just far too greedy when it came to actually wanting their Social Security benefits paid out.
It’s a kind of tortured logic that figures a tax cut to somebody is a cost to government.
The way I see it, the money in the Social Security Trust Fund wasn’t stolen but rather it was borrowed.
The U.S. government borrowed it from the Trust Fund and now has an obligation to make sure those debts are paid. Just like the government borrowing from China. Same thing.
You’re right. The Social Security system had nothing at all to do with the national debt (deficit).
Social Security is in darned good shape and with just a minor adjustment or two will be good for all of our children.
Not in this case, I don’t think Mike. The expenditures are being made, the money is coming from somewhere. It used to come from the receipts from a progressive income tax structure. More and more, it’s been coming from the receipts from the much more regressive payroll taxes. The regressiveness of the payroll taxes have some justification based on what they are supposed to fund – Social Security. However, these payroll taxes are now subsidizing the reduction in general income taxes. I think it’s appropriate, therefore, to characterize the tax cuts to the wealthy as costs to the government. . . . or at the very least, a cost borne unfairly by those making $110,000 or less (or whatever the current cut off is for payroll taxes.)
You know, just because the Social Security train wreck is a few boxcars shorter than the Medicare train wreck doesn’t mean that SS doesn’t need to be dealt with or won’t bankrupt the country just as surely as Medicare is going to.
SS is not “the” problem, but it is a fundamental part of the middle class entitlement problem, which IS the problem.
What raises red flags for me, Buzz, is that Social Security is much more adequately funded than other government initiatives – Medicare is one of them. The wars in Iraq and Afghanistan are others. But, for some reason, there seems to be a more ardent effort to go after the funding shortcomings of Social Security and, really, to blow those shortcomings out of proportion.
I don’t know the motives (and I’m sure they are mixed) of people who like to advance Social Security funding problems as a Serious Problem, but the relative silence on other expenditures makes me suspicious.
One ploy to inflate the problems with Social Security funding is to pretend that general fund obligations to Social Security for borrowed money are empty promises, not comparable to general fund obligations to other creditors.
The other day, I read speculation that Beltway pundits tend to see Social Security as something that can be cut into more than Medicare because, among the social circle of Beltway pundits, Medicare benefits are still kind of a Big Deal (or at least can be); whereas Social Security benefits are more or less chump change in that social circle. No idea if that theory is credible.
So what I gather from this is that Al Gore’s “lockbox” theory, though panned heavily by SNL and others, could have been a viable solution? Like you Doug, I don’t see why people are so eager to topple Social Security. Seems like a damn good program, if not at least a damn good idea. As a former libertarian, I know it’s fun to say, “We want everyone to be responsible for their own retirement,” but trust me, you don’t.
Social Security is only a smaller problem than Medicare because medical technology and third party payment don’t distort SS benefits the way they do Medicare benefits (essentially, because there are no copays, demand for Medicare services are essentially infinite, and because of medical technology being able to address more and more issues, again stoking demand).
Perhaps another reason to address SS now is that it can perhaps be addressed without cutting current beneficiaries. The same cannot be said with Medicare.
But the unfunded liabilities of Social Security are still quite large, and need to be addressed. Preferably, it would be done in a package addressing all the middle class entitlements, like the Deficit Commission proposed.
Social security is a target given the proposed solution by the republicants: put the money into the stock market–either through govt investment or through personal investment instead of turning it over to the govt. Of course, this is great for traders and wall street types, but in the end, given the ups and downs of the stock market which are easily manipulated by said traders, the employee/investor would lose and not have a retirement fund. Just look at how coporations and wall street have gutted the retirement accounts and funds of unions and individuals.
Akla: Your theory of personal finance destruction by creating personal savings accounts would be fine and dandy if there was any evidence of it. Unfortunately for you, the stock market in the United States has a pretty storied history of being a good investment.
There is a famous National Bureau of Economic Analysis paper by Martin Feldstein where he estimated that, if Social Security had been created as a fully funded 401(k) type system at its inception, the economy would have been 1/3 larger at the time the paper was written (about ’90 or so).
A generational transfer system does not increase economic growth. A forced savings system, one that invests in the private sector, does. Over time, even small increases in economic growth are magnified into huge increases in living standards, which was Feldstein’s point.
Tell that wall street story to those millions who have lost their savings and investments due to the recent wall street problems, all caused by manipulation of the stock market by traders and bankers on wall street. That is why they are sitting on 3 trillion in cash, paying huge bonuses and begging for more govt handouts. As of now, the us govt invests the social security fund as described above–so the money is being invested in the private markets. If we change the system, people will fail to set aside money for retirement, or invest and lose, so that we will have to come up with policies to take care of them when they cannot afford their retirement. Or just let them die–out of sight, out of mind. The free market does not address this issue as the full intent of the free market is to create winners and losers. For everyone who makes money on wall street, someone loses money. That is the market.
“If we change the system, people will fail to set aside money for retirement, or invest and lose, so that we will have to come up with policies to take care of them when they cannot afford their retirement.”
We currently have mandatory Social Security withholding. The switch to invested personal savings accounts does not require that such withholding become optional.
lso, the creation and explosion of ETF’s over the past 20 years has made it extremely easy to purchase an interest in the entire stock market. Over the course of a 40 year career, an investment in the whole stock market is virtually guaranteed to make money if left alone. I don’t know why a transition to personal savings accounts would have to include the option to change investments, and/or require any type of trading by the taxpayer.