The Plutocratic Party and Social Security

The latest Republican budget plan has a section on Social Security. Ordinarily, I wouldn’t have read it, but Michael Hiltzik, a business columnist for the Los Angeles Times, wrote an article called “Paul Ryan Rehashes An Old Social Security Lie”. 

The lie in question appears in the second paragraph below. I think it’s worth reading the surrounding paragraphs too (all of which appear on page 66 of the Republican’s budget document):

An all-too-common reaction to the fiscal problem in Social Security has been denial that a problem exists. It is claimed that the Social Security Trust Fund will remain solvent for at least a decade, at which point the government could theoretically cover any shortfall by raising taxes. Others downplay the necessity for change, contending that sustained economic growth could take care of the problem all by itself.

Neither is correct. First, any value in the balances in the Social Security Trust Fund is derived from dubious government accounting. The trust fund is not a real savings account. From 1983 to 2010, it collected more Social Security taxes than it paid out in Social Security benefits. But the government borrowed all of these surpluses and spent them on other government programs unrelated to Social Security. The Trust Fund holds Treasury securities, but the ability to redeem these securities is completely dependent on the Treasury’s ability to raise money through taxes or borrowing.

Social Security is currently paying out more in benefits than it collected in taxes–in other words, running cash deficits–a trend that will worsen as the baby boomers continue to retire. To pay full benefits, the government must pay back the money it owes Social Security. In testimony before the House Budget Committee, CBO Director Doug Elmendorf stated that:

“Well, again, Congressman, on a unified budget basis, taking account of just the tax revenues, the dedicated tax revenues, and the benefits, [Social Security] is contributing [to] the deficit now. If one instead looks at just the balance in the Social Security Trust Fund, that balance is, the annual balance is positive now, but will be negative within about a half dozen years.”

Given how difficult it is to predict the future, it isn’t clear exactly when Social Security would have trouble paying 100% of everybody’s promised benefits. As Ryan’s document says, however, the government could “theoretically” raise Social Security taxes at some point to make up the difference. The “theory” in this case is arithmetic.

Not everyone knows this, but as of 2014, Social Security taxes are only applied to the first $117,000 of a person’s income. Here’s what the Center for Economic Policy and Research says about raising that threshold and thereby putting more money into Social Security:

There have recently been several pieces of proposed legislation to raise or do away with the payroll tax cap. Sen. Bernie Sanders and Rep. Peter DeFazio have sponsored legislation that would raise the cap to income above $250,000 while Sen. Mark Begich and Rep. Ted Deutch’s proposal  would fully eliminate the cap, with a small portion of earnings above the current cap going toward benefits. If enacted, proposals like these could almost entirely close Social Security’s projected long-term funding gap without reducing benefits nor increasing taxes on the vast majority of American workers.

Of course, applying the Social Security tax to the highest incomes would also partly address the problem of economic inequality in America, a worthy goal in itself.

The statement in the second paragraph that “any value” in the Social Security Trust fund is “dubious” is the one that Michael Hitzlik called a lie (it’s good that reputable journalists are finally getting around to using that word). I’ve heard this claim before – that somehow the Social Security Trust Fund doesn’t have real money in it – but never understood how such a thing could be true. As Hitzlik explains, the Trust Fund holds almost $3 trillion (not billion, but trillion) worth of government bonds. In fact, as of December 31, 2013, the Department of the Treasury said these bonds were paying an interest rate of 3.626% and were worth 2,765,212,571 dollars (give or take a penny).

So why aren’t these bonds worth anything, according to the Republicans? Their idea seems to be that since the Trust Fund paid cash for those government bonds, and the government used that cash for various non-Social Security purposes like watering the White House lawn and paying Paul Ryan’s salary, the government has already spent the money in the Trust Fund. So it’s gone!

However, in the real world, when someone purchases a bond, whether the buyer is the Trust Fund or an individual investor, the bond pays interest (for example, 3.6%) and can eventually be redeemed (converted back into cash). That’s how investing in bonds works. Whatever the government did with the cash it got from the Trust Fund is irrelevant, so long as the government keeps paying interest and redeems its bonds when they mature.

The second “reason” they offer for saying all those bonds are worthless is that the government could stop paying interest on them and not redeem them when they mature. That’s what’s known as the U.S. government “defaulting” on its financial obligations.

As the Republicans say, the government’s ability to meet its obligations depends on raising revenue, either by taxing or borrowing (or selling stuff like national forests). But that’s what the government has been doing for more than 200 years. Is there any reason to think that the federal government will eventually become unable to pay its debts, including its debts to the Social Security Trust Fund? No, the United States is the richest country in the world. Investors all over the world, including foreign governments, believe our government’s bonds are very safe investments.

In fact, the only remotely likely scenario in which the government fails to pay its debts is if Republican extremists somehow manage to shut down the government again for an even longer period of time, which stops the government from levying taxes and selling more bonds! That’s what the Republicans recently threatened to do, many of them arguing that a government default wouldn’t be a very big deal. So on one hand, the Republicans claim to worry that the government won’t pay its debts to the Social Security Trust Fund, but on the other hand, they think it might be o.k. if the government didn’t pay its debts. (These people truly are amazing.)

The quotation above ends with the Republicans making the point that Social Security is running a deficit and the deficit is expected to get worse. That’s true, and that’s why raising the income cap would “theoretically” be a good idea. They then quote some testimony from the head of the Congressional Budget Office. I had to read that paragraph several times to see if it somehow supported the Republican contention that Social Security is in deep trouble. It doesn’t.

What the head of the CBO is saying is that Social Security is affecting the overall federal deficit now (since the government is paying what it owes to Social Security) and the Trust Fund itself will start running an annual deficit in about six years. What the Republicans don’t bother mentioning is that the Trust Fund is expected to have money in it until 2033 (and that’s if nothing is done in the meantime to put more money into the Trust Fund). Plus, even if the Trust Fund were to run out of money, Social Security would still pay about 75% of everyone’s promised benefit, since working people would still be paying Social Security taxes (reference here).

The Republicans go on to suggest limiting benefits for upper income Social Security beneficiaries (certainly a possibility) and hint that maybe the retirement age should be raised because people are living longer (which is a bad idea, because it wouldn’t save much money and lots of people – unlike politicians – can’t keep working or can’t find jobs by the time they reach 65 or so).

For all their fear-mongering, Ryan and his colleagues don’t offer a solution to this supposed crisis, except to suggest that the President go first by making some specific recommendations (which they can then use to attack him as an enemy of Social Security). The Republicans even suggest that benefits should be increased for low-income retirees (another good idea, but one more often made by us “tax and spend” Democrats). 

Michael Hiltzik thinks this budget document is evidence that Republicans don’t want the government to make good on its debt to Social Security:

When you hear people like Paul Ryan talk as though the country can’t afford to pay back the money by redeeming the bonds in the trust fund, what you’re hearing is the sound of the wealthy preparing to stiff the working class. If the income tax has to be raised to turn those T-bonds into cash for payment of benefits over the next couple of decades, that’s how the rich will be made to repay the people who lent them the money. Some people love to claim that the government has “stolen” the trust fund. The correct reply to that is: “Not yet.” But if Ryan has his way, yes, the money will be stolen. It’s up to you and me to make sure that doesn’t happen.

The idea would be, I guess, that if the Trust Fund doesn’t have any real money in it now, we won’t miss it when it’s gone. I’m not convinced that’s the Republican plan. But I’ve given up trying to understand whether people like Ryan are knaves (unscrupulous and dishonest) or fools or both. What’s clear is that their principal goal as politicians is to serve the needs of the wealthy. The surprising thing is that so many voters, in particular, the Tea Party types who don’t want the government messing with their Medicare or Social Security, continue to vote for the Plutocratic Party. 

For more on Social Security (if you can stand it), there was a recent article at Salon written by a so-called “Millennial”. He rejects what most of his generation believe: that Social Security will go bankrupt before the Millennials can collect any benefits. He also argues that it makes no sense to be a “social conservative and economic liberal”.

PS — Ryan Budget Gets 69 Percent of Its Cuts from Low-Income Programs

More Budget Baloney From a Leading Political Party

Republican Congressman Paul Ryan, chairman of the House Budget Committee, issued his proposed federal budget yesterday. The Republican majority on the Budget Committee is expected to approve it. Fortunately, even if the full House of Representatives approves it, the Senate won’t.

Nevertheless, Ryan’s budget is worth knowing about. It will influence the budget Congress eventually agrees on and it offers yet another clear statement of the Republican Party’s insane priorities. 

In brief, the Ryan budget calls for a big tax cut on high incomes, a lot more spending on the military, and a lot less spending on programs like Medicare and food stamps. In addition, Ryan would repeal the Affordable Care Act, even though there are now some 10 million people who have health insurance because of that law (via private insurance or Medicaid).

Ryan claims his budget will eliminate the federal deficit in ten years, despite the tax cuts and increased military spending, because he makes stuff up.

One part of the Republican budget document deals with Social Security. I plan to write more about that in a future post, but for now, consider this amazing sentence from page 66: 

Any value in the balances in the Social Security Trust Fund is derived from dubious government accounting. 

The Treasury Department says the government bonds in the Social Security Trust Fund were worth almost three trillion (not billion, but trillion) dollars at the end of December and were paying the Trust Fund an average interest rate of 3.6%. But, according to the authors of the Republican budget document, those bonds are basically worthless. They’re an accounting fiction. Such is the financial insight demonstrated by Congressman Ryan and his Republican colleagues as they go about planning our economic future. 

Periodic Update from Krugman the Indispensable

Paul Krugman was right about Bush’s tax cuts and the Iraq War. He was right about the 2009 stimulus. He’s been right about Europe’s austerity program. I’m sure he’s right about this too:

“The latest projections [from the Congressional Budget Office] show the combined cost of Social Security and Medicare rising by a bit more than 3 percent of G.D.P. between now and 2035, and that number could easily come down with more effort on the health care front. Now, 3 percent of G.D.P. is a big number, but it’s not an economy-crushing number. The United States could, for example, close that gap entirely through tax increases, with no reduction in benefits at all, and still have one of the lowest overall tax rates in the advanced world.

But haven’t all the great and the good been telling us that Social Security and Medicare as we know them are unsustainable, that they must be totally revamped — and made much less generous? Why yes, they have; they’ve also been telling us that we must slash spending right away or we’ll face a Greek-style fiscal crisis. They were wrong about that, and they’re wrong about the longer run, too.

The truth is that the long-term outlook for Social Security and Medicare, while not great, actually isn’t all that bad. It’s time to stop obsessing about how we’ll pay benefits to retirees in 2035 and focus instead on how we’re going to provide jobs to unemployed Americans in the here and now.”

http://www.nytimes.com/2013/06/03/opinion/krugman-the-geezers-are-all-right.html

The Social Security Administration Shoots to Kill

A right-wing website recently reported that the Social Security Administration is purchasing 174,000 hollow point bullets, an indication of troubled times ahead:

“It’s not outlandish to suggest that the Social Security Administration is purchasing the bullets as part of preparations for civil unrest. Social security welfare is estimated to keep around 40 per cent of senior citizens out of poverty. Should the tap run dry in the aftermath of an economic collapse, which the Federal Reserve has already told top banks to prepare for, domestic disorder could ensue if people are refused their benefits.”

http://www.infowars.com/social-security-administration-to-purchase-174-thousand-rounds-of-hollow-point-bullets/ (Visit this site at your own risk.)

Actually, it is outlandish. Would the clerks, accountants and actuaries who work for the SSA be expected to strap on firearms and man the barricades? Are the Social Security trust funds likely to evaporate? Probably not.

In response to the uproar that developed on the internet, the SSA explained that it employs 295 law enforcement officers (who knew?), most of whom investigate attempts to defraud the government:

“Our office has criminal investigators, or special agents, who are responsible for investigating violations of the laws that govern SSA’s programs. Currently, about 295 special agents and supervisory special agents work in 66 offices across the United States.  These investigators have full law enforcement authority, including executing search warrants and making arrests. Our investigators are similar to your State or local police officers. They use traditional investigative techniques, and they are armed when on official duty.”

http://oig.ssa.gov/newsroom/blog/2012/08/social-securitys-oig-responds-concerns-over-ammunition-procurement

Hollow point bullets are standard issue for law enforcement officers, because they tend to disable someone who is shot, without injuring innocent bystanders. 

But why are so many people on the right so terribly afraid? Why are many of our fellow citizens suffering from political paranoia? I think it’s a mass case of psychological projection:

“Projection is a form of defense in which unwanted feelings are displaced onto another person, where they then appear as a threat from the external world. A common form of projection occurs when an individual, threatened by his own angry feelings, accuses another of harbouring hostile thoughts.”

http://www.britannica.com/EBchecked/topic/478472/projection