Most of the discussion about the recent budget deal has been about Obama caving on failing to push for returning the top marginal income tax rate from 35% to 39%. It is certainly poltically symbolic to point at the screaming hypocrisy of Senate Republicans to threaten to hold up all legislation on this, but it really does not matter much one way or the other. This difference in rates barely affects income distribution, and we have had such top rates vary from 28% to over 90% during the last 70 years, with little obvious effect of either on economic growth.
However, one part of the deal that has mostly received praise, although a few such as Mark Thoma have noticed that it might have some negative consequences, is the "temporary" cut in payroll taxes. Now, I grant that this is more stimulating than keeping the lower marginal rate on top income earners, but it constitutes a hidden dagger in our political-economic-social system.
First, if we did not know it before, we certainly should now that there is no such thing as a "temporary" tax cut. Anyone attempting to allow such a temporary cut to expire politically becomes a "tax raiser," ready to be excoriated by millions of dollars worth of negative TV ads.
Second, this was obviously slipped in by the enemies of Social Security, who know the first point. So, we have long been hearing hypochondriacal howling out of the bipartisan crowd that wants to gut Social Security benefits to fix our budget problems, because, eeeek, it is going bankrupt soon!!! Well, with lowered revenues from its dedicated revenue source, well, you won't have to wait for it too long, these screamers will be back in force with much scarier projections. The bankruptcy will be coming sooner!!!!! Cut benefits more and even sooner !!!!!!! Eeeeeeek!!!!!!!!!
53 comments:
My jaw literally fell open when I read about the social security tax cut proposal. It strikes me as so obviously a threat to the SS program that I can only assume the Obama Administration desires to undercut Social Security. They can't be stupid enough to fail to understand what might happen as a result of a "temporary" cut in the OASDI tax.
Barkley -
we have had such top rates vary from 28% to over 90% during the last 70 years, with little obvious effect of either on economic growth.
No, no, no! We had much more robust growth when the tax rates were HIGHER. Growth has declined pretty much in lock step with tax rates. The last decade - with the lowest taxes since the 20's - has been horrible.
In the midst of this, Clinton raised taxes and got higher GDP growth. The numbers are stark.
http://jazzbumpa.blogspot.com/2010/02/more-about-taxes-and-gdp.html
http://jazzbumpa.blogspot.com/2010/10/us-economy-is-dying.html
But you hit the SS nail on the head.
Cheers!
JzB
If the trust fund dollars continued to be loaned to the Treasury to pay for current expenses, what difference does it make if the trust fund balance is $4 or $2 trillion?
The trust fund is merely an accounting mechanism which stipulates the amount of the "draw" it has on the Treasury's general revenues.
This is not what Roosevelt designed, when he said that Social Security was to be self-supporting with no use of general revenues.
What could the money have been used for other than loaning it to the Treasury to pay for current expenses, Jack may ask?
Oh come on, there are many ways to "earn" interest on these funds other than intragovernmental loans.
And, if the law prohibits that, we need to change the law, or we'll keep digging the same hole.
Don Levit
Odd. I seem to recall something about Ronald Reagan raising OASDI taxes in order to "save" Social Security and then 25 years later the unfunded liability crowd was back with another set of horror stories. If a 2% cut in the rates actually helps reduce unemployment, then possibly the revenues will be higher even though the rate is lower. It's really an empirical question of what is the elasticity of the demand for labor and not some grand issue of "principle".
I'm not saying I'm for or against. I haven't done the math. But it seems to me a lot of people are making up their minds regardless and even in spite of whatever the math may suggest.
we have had such top rates vary from 28% to over 90% during the last 70 years, with little obvious effect of either on economic growth.
That is true because historically, nominal tax rates had little to do with effective or true rate of taxation. The real tax rate is created by a combination of the nominal tax rate, all the deductions, exception, shelters etc as well as the effectiveness of collection.
For example, during the 1970s, the top rate was notionally 70% but so many loopholes existed that absolutely no one actually paid that rate. Back then, Malcom Forbes, then the world's richest man, paid zero income tax for three years out of the entire decade.
The Reagan tax reforms actually raised revenues and made taxes more progressive by lowering rates while removing much of the complexity and special breaks that made taxes in the 60s and 70s such a nightmare. The effective tax rate actually went up a bit under Reagan. The economic benefit arguably wasn't a lowering of effective taxes but reducing the cost of paying taxes and making long term planning easier.
All the gnashing of teeth over moving the nominal rate a few points means very little unless you know the details of what the effective tax rate will be. Neither can you compare the economic effects at different times without comparing the effective tax rates.
In the end however, the details of the tax code don't seem to affect revenues very much. Since the end of WWII, federal tax revenues have been stuck between 18% and 19% of GNP. No amount of fiddling with tax rates notional or actual seems to change that ceiling at all.
I doubt the cutting of Social Security taxes will threaten Social Security long term. Right now SS is running a "surplus" which means that the government is stealing money from SS and replacing it with IOU the government writes to itself. Lowering the Social Security taxes to the rate necessary to pay for current benefits will return SS to its original form. Right now it is a stealth form of unprogressive taxation on the bottom 3/4s of the income distributions.
Don give it up. Your history is wrong. Again. The following link is to the 1942 Report of the Trustees
http://www.ssa.gov/history/reports/trust/1942/1942.pdf
On page 1 para four we have the following:
"Funds not required to meet current disbursements in accordance with the Social Security Act, as amended, are invested by the managing trustee. Securities eligible as investments for the fund are interest-bearing obligations of the United States and obligations guaranteed as to both principal and interest by the United States"
Meaning in practice Treasuries. And in 1942 as now the proceeds from such investments were used for general purposes. You can if you wish revisit every jog and twist of the policy discussion as it evolved from the appointment of the Economic Security Commission in 1934 onwards but the fact is that by the time the first checks were issued under Title 2 in 1941 the current system was in place. And BTW Roosevelt was still President. Your claim that any of this in opposition to Roosevelt's design is absurd, the Trustees of 1942 were also the designers of 1934-35.
Now there were some changes in how Social Security contributions and payments were handled between passage of the 1935 Act and the major amendments of 1939, but for the entirety of the time from the beginnings of monthly benefits in 1941 to today surplus funds were handled in precisely the same way.
Yes the law could have been different, but it was and is what it is and is the reason why Social Security has been perhaps the most successful and popular government program of the last 75 years. And you are seeing changes in the program and its vision that never actually happened.
Near as I can tell this whole "FDR designed it differently" narrative derives from a deep confusion between Social Security Title 1, which was a welfare program paid out of General Funds, and its transitional successor Title 2 which was an insurance plan funded out of worker contributions. That is the design would have the DIRECT USE of Federal Funds phase out, but at no point did that mean that there was any wall that would, could or should have prevented Social Security from investing in Treasuries that were REDEEMED using those funds.
You have made a fatal conceptual error and not just here and now, you have made essentially identical (and equally unfounded) claims multiple times over multiple websites over multiple months. And despite much (originally) patient instruction you never seem to learn anything. To the extent that some of us are pretty convinced that you have a fixed agenda. But hey its the holiday season, maybe you are just stubborn as a Missouri mule. But no one else should buy in.
Shannon while I agree with most of your post the following is just conceptually flawed;
"Right now SS is running a "surplus" which means that the government is stealing money from SS and replacing it with IOU the government writes to itself."
Let's tweak it a little bit by substituting another actor;
'Right now the Chinese are running a "trade surplus" and taking Treasuries in exchange. Meaning the US government is stealing money from China and replacing it with IOUs'
I don't think that is how the CCB views its bond portfolio, or for that matter how the managers of all of the other Federal retirement programs (whose assets are also in large part in Special Treasuries) view it either.
The whole 'Phony IOU' narrative relies on a set of legalisms (because they don't meet the bar for 'legal arguments') that subordinate Special Treasuries to regular Treasuries. There is nothing in the law or in the historical operations of the Trust Funds that would support this. In fact the Trust Funds were cash flow negative more years than not between 1957 and 1982, meaning that those 'phony IOUs' were honored both as to interest and principal. And more to the point the DI Trust Fund has been cash flow negative since 2006 and will draw something like $32 billion this year from the Treasury. The reality of those IOUs is proved every time a disability monthly 'check' hits a beneficiary's bank account.
BTW the current Trust Fund balances are not unique, not when measured in terms of Trust Fund Ratio. Currently the combined OASDI balance represents a TF Ratio of around 370 or three and a half years of projected 2011 costs. This is proportionally much smaller than the 2025 TF Ratio of 1944 and equal to the 371 Ratio of 1956.
http://www.ssa.gov/OACT/TR/2010/VI_cyoper_history.html#187535
While Social Security was designed to be Pay-Go ON AVERAGE, the only stretch where it really approached that was 1965 (TF Ratio 109) to 1970 (TF Ratio 101). But taking the whole range of years we see year end ratios as high as 2025 and as low as 14, partly as a result of design but also in reaction to unforeseen circumstances (for example SS does not fare well in a period of stagflation).
Bruce:
I understand that the law requires that excess funds be used to buy special Treasuries.
Since those funds have been loaned to the Treasury to pay current expenses, is it any easier, financially, for Social Security to pay $1,000,000 out of the trust fund than it is to spend $1,000,000 on battleships?
If your answer is yes, please provide a reputable link and excerpt supporting your answer.
I have already provided excerpts and links attesting to the fact that the process is the same. It is more "convenient" for the trust fund to pay the $1,000,000, for it does not need an authorization, while funding for battleships requires an authorization.
I will be happy to repost those excerpts and links if anyone is interested.
Until that time, it's Bruce's word against several reputable government agencies.
Don Levit
Don your question does not make sense. I have read those excerpts as you have posted them and the words simply don't mean what you think they do.
And what does "convenient" have to do with anything? Yes current law benefits don't have to be appropriated in the same way that a payment on a multi-year battleship contract which in a sense makes that payment more convenient. But since those current law benefits have no protection from changes (it was you that introduced Flemming v Nestor to the discussion) while that contract has certain legal protections, or at least penalties for changes, making it in that sense more certain to be paid. But it makes no difference to the Treasury , they will cut the check either way and "convenience" doesn't enter the equation anywhere.
Ultimately the security of payment for either SS benefits or contract payments is a political question and not a legal or economic one. You are over reading the texts of some government reports while under-reading the political reality that actually is controlling matters.
My "word" as you put it is backed by the fact that my arguments have been vetted over a period of years now by a lot of economists and other experts and they all seem pretty convinced I am getting a lot more right than wrong here. Your argument? Well not so much. Which would be odd if you were just following CBO, SSA, and OMB argumental lines here. But instead you are just parroting their words while interpreting them through a screen almost (but not entirely) unique to you.
And while Barkley proved a little too optimistic in the following post (at least so far), its title ought to give you a little pause here. This isn't my first trip to this particular rodeo.
http://econospeak.blogspot.com/2009/01/how-bruce-webb-and-i-helped-save-social.html
Bruce,
Well, there is a difference between campaign platforms and actual policies, and we certainly know that the anti-social security crowd is determined, dedicated, and very well entrenched in Washington, with all of the "serious, centrist" commentariat fully convinced that they are right after well over a decade of steady propaganda. But maybe we helped hold off the dogs of benefit cutting for awhile...
Bruce:
You conveniently sidestepped my question, which requirews either a yes or no answer, and supporting excerpts and links.
Since you did not answer, I will assume that you feel I am correct, that the trust fund makes it no easier to pay benefits than without the trust fund.
It's great to know that someone with all your experiemce and expertisr agress with me, by default.
I guess you're just not strong enough to say it in words.
Don Levit
Don your question as stated was nonsensical. Meaning it couldn't require a yes or no answer.
As restated here, the answer is clearly 'yes'. The fact that workers contributed to Social Security and Medicare all their working lives clearly has imparted a belief (however unsupported by Flemming v Nestor) that they have a right to Social Security and Medicare. Or else they wouldn't be chanting "Keep the Government's hands off my Medicare/Social Security"
The existence of the Trust Fund puts both legal and equitable (and hence political) force behind continuing payments. For example the Bush Administration took ZERO action when the DI Trust Fund went cash flow negative in 2006, just as the Obama Administration did not blink when that extended from just being partial interest payment to redemption of principal starting last year.
But the point remains that you DON'T have those federal agencies on your side. Because you have misread them, and in the case of that 1937 Report at Soc Sec News wttingly or not totally misrepresented them.
Bruce:
When the trust fund paid for the interest and principal in the situations you cited, was the process similar to paying for battleships, other than not having the need for an appropriation from Congress?
Yes or no?
If no,please provide a government excerpt and link to support your answer.
Don Levit
For Don:
The Social Security trust fund is an accounting of the money stolen by the Republicans to hide the adverse effects of their "tax cuts for the rich". As such, the fund tells us that income taxes need to be much more progressive in order to pay back what was stolen.
Trucker:
I agree with you if your statement partially means that the Social Security "surpluses" lowered the deficits.
As far as the rich stealing from the poor, I can sympathize with your statement.
The top 10% of households control about 73% of all financial wealth.
Democracies, Republics, and even capitalism cannot be sustained with those figures, particularly if 70% of our GDP is consumption.
Do you remember when consumption used to be a disease?
Don Levit
Bruce answered Levit
it does no good because Levit cannot think. he keeps grinding out his same old wrong message. hard to tell but it looks like he thinks SS is paying out Trust Fund money... backwards of what happens.
As clearly as I can put it... The money SS took in and lent to the government will be paid back... just as if it was lent to a bank or a corporation, and a lot more certainly. The money the government borrowed and used to pay for, say battleships, it will have to pay back whether it borrowed it from SS or Chinese bond purchasers. Levit seems to fail to undrstand the concept of borrowing and paying back.
But one more time, when the government pays back the money it borrowed from Social Security the taxpayer will NOT be paying for Social Security twice, he will be paying for the first time for whatever he bought with the borrowed money.
Sandwichman
if the worker gets a 2% payroll tax holiday, then SS takes in 17% less money that it would otherwise.
if you think the worker spending an extra 16 dollars a week is going to boost the economy 17% you have a different understanding of reality than I have.
I wish that intelligent and decent people would learn something about Social Security before offering their opinions, or writing a book, about it.
doing the math a little more carefully... but not so carefully i can't be wrong... it looks like wages subject to the payroll tax would have to go up about 19% to make up for the 2% tax holiday. and since wages subject to the tax are about one third of GDP, it looks like GDP would have to grow more than 50% to make up the lost revenue to SS if it was to come from payroll taxes.
Of course it could come from general taxes, making SS welfare as we knew it... but how likely are we to get a growth in the economy from a tax cut, and then actually pay the tax. i'll leave that as an exercise for the reader.... might begin by calculating what the growth in the economy would have to be and what the tax rate would have to be to pay the amount lost to the Trust Fund.
No wonder S-man hasn't done the arithmetic.
Coberly:
You have proved to me that talk is cheap - Your supply exceeds the demand.
Is paying benefits out of the trust fund similar to paying for battleships, other than an appropriation is not needed.
Yes or no.
If no, please cite a reputable government link and excerpt.
Your opinions are more credible if you can back them up with objective sources, got it?
Otherwise, they're just words.
You're wasting our time and your breath.
Don Levit
oops
the 50% above is an error. the GDP would only have to grow 19% roughly for wages subject to the payroll tax to grow 19%.
comes from trying to think faster than your brain works.
i think i'll stand by the rest, though, for now.
Levit
yes.
please don't talk tough.
Levit
maybe no.
depends what you mean by similar.
Levit
feel free to have the last word. i find i cannot discuss this rationally with a person whose brain is scrambled, or stopped.
you make no sense, and trying to make sense out of no sense is a waste of time. bye now.
Coberly:
That's fine. You can have the last word.
I will not respond again until I get a yes or no answer, and a link to support it (if the answer is no).
How about true and false, would that be easier for you?
Your hesitation and inability to reply speaks volumes.
Don Levit
The rationale being employed here is off topic, I think. When a government loses its ability to tax as ours has, then government does not have the power to fulfill any of its commitments. The Republicans have, more or less, succeeded in destroying government by making it politically impossible to do away with the Bush tax cuts for the rich while keeping the tax cuts for the middle class.
The difference between taxing to build a battleship and taxing to pay for SS benefits is a political difference as opposed to a legal difference. For political purposes it might be appropriate to see payments to the SS trust fund is no different than servicing the national debt. But Republicans will simply claim that property rights hold true in our societal obligations to private individuals and groups and that no such property right exists regarding the joint ownership of T-Bills in the SS trust fund. The current lying pig Supreme Court will agree with this and there is no legal way to get rid of these people. BTW, the Supremes are now moving to outlaw class action suits. If you think that the recipients of SS have a class standing to sue the government for breach, you can forget that also,
In the current reality, T-bills are being sold to the private sector in order to supply the funds that redeem the T-Bills held in the SS trust fund. The debt is being slowly privatized.
Meanwhile, the FED is redeeming privately owned T-Bills with vapor money (a good thing to do). The current taxes are insufficient and will remain so as long as Republicans are able to lie themselves into office.
Bruce, the correct answer to Don's question is tastes like chicken. It does no good trying to debate with a misprogrammed bot like Don.
I'm surprised no one countered Shannon Love's contentions about the Reagan tax cuts. Reagan's cuts did not raise revenues over what would be expected in the absence of the cuts. That is one of those zombies that is really hard to kill.
Don:
You are conflating income with wealth. Income pays SS Withholding, not wealth.
trucker
not sure whether i agree with you or not. the most important observation i could make is that the line between "political" and "legal" is often fuzzy. SS is an entity with legal rights... that may not be honored by a Congress with both the right to change the law and to moot the law.
So the argument about the status of the Trust Funds will ultimately be decided by what the people can persuade the Congress that it means.
Meanwhile it does make a difference that a battleship is paid for by Congress out of general taxes, while SS is paid for out of a tax specifically designated as Federal Insurance Contributions Act.
It would be strange if all the elaborate provisions about the Trust Fund and the Special Treasuries would have been made if the Social Security contributions were "fungible".
Coberly:
you stated that SS is an entity with legal rights.
Can you be more specific?
The only legal right I am aware of is the right to the current year's benefits.
I am open to enlighteted taxes, I agree that the current taxes themselves, FICA and SECA, pay for benefits. That is truly pay-as-you-go.
But the excess contributions which go to the trust fund, loaned to the Treasury,spent for current expenses, and keep the deficit lower, they end up to be general revenues redeeming the Treasuries are redeemed, just like battleships, without an appropriation. I can provide a link to back up my statements, if anyone is interested.
Can you back up your statements with objective sources, at least more objective than your opinion and my opinion.
Don Levit
Don:
Why do you continue to advance a moot point? The instruments held by the SS trust fund are no different than the instruments held by the Chinese government and your continued harping about how the money in the fund was loaned to the government is simply irritating. That hollow belching is true for every T-Bill held by the Chinese or any other T-Bill holder. Why you continue to obsess over it is not a mystery. You have a religious affliction concerning Social Insurance systems and SS in particular.
I am going to repeat this for you one more time, Don: The Social Security trust fund is an accounting of the money stolen from the working people of this country by the tax cutting, government gutting Republicans. And it is the amount owed by the lying rich bitches who invested _OUR_ money in China. Shut up and pay up.
Trucker;
You are entitled to your own opinions.
You are not entitled to your own facts.
Facts are supported, although not proved, by citing reputable sources, not by mouthing off your feelings.
For example, from the paper entitled "Social Security and the Federal Budget: The Necessity of Maintaining a Comprehensive Long-Range Perspective," published by the Congressional Budget Office:
"Although the trust funds may be viewed as assets for the individual programs, they are not assets for the government as a whole. What is in the trust funds is simply the government's promise to pay itself back at sometime in the future. When trust fund balances are drawn down, the government will not be using resources saved for a rainy day. It will be using resources generated either by running a surplus in the rest of the budget or by borrowing from the public."
Isn't that very similar to how we pay for battleships, since they are not paid by resources saved for a rainy day?
While you may be a smart fellow, are you smarter than the CBO?
And, even if you ARE smarter than the CBO,Trucker, I have many other governmental links and excerpts to support my statements.
What do you offer, Trucker, other than "trust me?"
http://cbo.gov/ftpdocs39xx/doc3948/10-25-LongRangeBrief4.pdf.
Don Levit
"What is in the trust funds is simply the government's promise to pay itself back at sometime in the future. When trust fund balances are drawn down, the government will not be using resources saved for a rainy day. It will be using resources generated either by running a surplus in the rest of the budget or by borrowing from the public."
Don, That description is also true for every other obligation of our government and every other government in the world and evey corporation and individual offering an IOU nnow which will be paid later. So what is your point, now that you've given us the CBO's definition of a bond? It's money borrowed to pay expenses now that will be paid back in the future with money earned at that time.
Jack:
My point is that the trust fund makes it no easier to pay beneficiaries than it is to pay for battleships.
What Roosevelt envisioned as a self-supporting entity, with no use of general revenues, did not come into being.
Don Levit
Again I ask why you continue to belabor a moot point and to lie about what Roosevelt envisioned.
The trust fund is a political force that, when truthfully described, insists that Republicans pay back what they have stolen. The wealthy have used the trust fund to diminish their income taxes. Had the Republicans taxed appropriately then the SS trust fund might contain debt instruments from other nations or even instruments of ownership in American capital. But the Republicans lied, and lied and stole money from the fund to make up for their thievery.
As to the claim about Roosevelt, you are simply a liar. The system has been more than self sustaining based on FICA taxes to the tune of more than two trillion dollars.
I do not need a "cite" to say that water is wet.
Don Levit: "Although the trust funds may be viewed as assets for the individual programs, they are not assets for the government as a whole. What is in the trust funds is simply the government's promise to pay itself back at sometime in the future. ...."
This is from a Government document, you say.
This is what I don't get. How can money from the effort of millions of individuals ultimately end up as a liability of the government who "promises to PAY ITSELF back"?? Pay 'itself' back?? Pay who back?
Brenda,
The "pay back" that occurs is no different than the accounting that may take place in any large financial organization. Think of the USofA as that, a large financial organization. Its receipts come from many sources most of which wold fall into the two categories of taxes and borrowing. The Treasury Dept takes care of the accounting. In the case we're discussing, the SS Trust Fund, the income is in the form of FICA taxes, often referred to as "payroll taxes," and interest from the Trust Fund assets. The Trust Fund is at one moment an asset to the Social Security program having been funded by every worker that has had FICA deducted from their pay along with their employers' contributions (of an equal amount). Aat the same time that Trust Fund is a debt holder to the general budget of the USofA government. The Trust Fund assets have been on loan to the general budget since the inception of the Trust Fund. Keep in mind that the purpose of the Fund has always been to put aside excess FICA collections in order to eventually supplement future FICA collections at such time that current workers' contributions were insufficient to cover same time retiree benefits. It is a standard pension fund practice of collecting enoough in the present in order to cover benefits that will be payable in the future. The accounting mechanism is described as Special Treasury notes that the Treasury Dept has issued to the Trust Fund as that Treasury Dept has made use of the actual FICA funds in current time to pay government expenses accounted in the general budget.
In that manner the Trust Fund notes become a debt to the general budget. They are seperate accounts, the general budget and the Social Security budget, and there is nothing mysterious about that relationship. When any Treasury note is issued it becomes a debt to the general budget and the interest paid becomes an expense to that budget. The Treasury Dept issues those notes in exchange for the funds which are needed to pay current government expenses. In that manner the USofA general budget owes funds to many financial organizations including other countries, banks and other financial institutions, pension funds, etc. Those entities purchase their Treasury notes as a form of super safe savings that earn interest. They are backed by the full faith and credit of the USofA. The Special Treasury notes held by the SS Trust Fund are not different in spite of what Don and his cohorts in the conservative Very Wealthy Americans Coalition (VWAC) want others to believe. That coalition has a vested interest in evaporating the Trust Fund assets because they are fearful that they may actujally have to pay income taxes in accord with their very wealth stature some time in the near future in order to pay all of that general budget debt. I wonder what the other bond holders think of that effort to renege on the debt may be. If one class of Treasury Notes are "just so many IOUs" than any class of Treasury Notes can so too be classified. In fact they are IOUs. It's the "just so many" calls into question the intentions of VWAC.
Brenda and Jack:
I will provide excerpts of Jack's response and indicate whether I believe it is a personal opinion unsupported by a reliable third party, or a correct observation (in my opinion, which can be supported by a reliable third party).
Jack wrote: (paraphrased and condensed) The trust fund is at one moment an asset to the Social Security program and a debt holder to the federal government.
Actually, the Treasury borrowed the trust fund assets, so the Treasury is the debt holder, and the trust fund is the asset holder.
In accounting parlance, this nets out to a "wash," which indicates the trust fund is not a store of wealth (I can support that with a third party governmental excerpt and link).
Jack wrote: The purpose of the fund has been to set aside excess FICA collections in order to eventually supplement future FICA collections when current workers' contributions were insufficient to cover retiree benefits.
I agree with you - that is the purpose of the excess FICA contributions. But these excess contributions were not set aside. Rather, they were loaned to the Treasury to pay for current government expenses and to keep the deficit lower, which you also verified.
So, the excess contributions are unavailable for use today, for indeed, they were not set aside.
Jack wrote - they are separate accounts, the general budget and the Social Security budget.
This is true only in an accounting sense.
From the standpoint of dollars, which are used to actually pay the benefits, all Social Security dollars go into the Treasury. And, if these indeed were separate budgets, why do the excess contributions reduce the budget deficit? I can support that with a third party governmental source, can you, Jack, or anyone else out there?
Jack wrote: The interest paid on a Treasury note becomes an expense to the budget.
No, it does not, because the interest is paid by issuing additional Treasuries (debt). Interest on debt held by the public is a current budget expense. Again, I have cites to support this - do you guys out there have reliable third party cites? If not, they are just your opinions.
Jack wrote: The special Treasuriers of the trust fund are backed by the full faith and credit of the government.
That is correct, just like all other Treasuries, as you mentioned.
When those Treasuries are redeemed, they will be paid for like any other government expenditure - either by a budget surplus or borrowing from the public.
The same can be said of battleships.
They are paid by either a surplus or borrowing from the public.
So, financially speaking, the trust fund does not provide an easier way to pay Social Security beneficiaries, than if the trust fund didn't exist.
If the trust fund didn't exist, the Congress would need to appropriate the funds. But the appropriation would be paid in the same way as any other federal expenditure - by current surplus or borrowing from the public.
The trust fund, then, is not a store of wealth.
It is simply an accounting mechanism which stipulates the balance that can be withdrawn from the Treasury, in the form of surplus or debt held by the public.
Again, I can support that with third party governmental cites. Does anyone out there have evidence to refute this?
Don Levit
Don Levit: "So, the excess contributions are unavailable for use today, for indeed, they were not set aside."
The obvious solution that you're appear to be leading to is for the general public to simply refuse to pay social security contributions and taxes in general. After all, who knows where the money goes.
Just give up on the idea of good governance.
debtholder (plural debtholders)
(finance) An owner of a financial obligation of another party.
You start with an error and you simply go on from there, error to error. We're not here to provide you with an education. and you seem uneducable. Give it a rest. I suspect that you are, in fact, a troll whose only real goal is to waste time and band width in discussions like the one that wouold have taken place here. Hopefully anyone else browsing by will actually learn from your display of gross ignorance as a result of the many efforts to correct your silly positions. Now Brenda can use this comment as an "excerpt" provided by a reliable third party when making reference to Don's foolishness though Don's comment is itself all the citation one needs to establish that fact.
Wow, Brenda.
How did you extrapolate that idea?
I would appreciate if you would let me express my own thoughts.
Don Levit
There you go again , attacking me, when you are unable to either cite objective provisions to back your case, or cite provisions directly refuting my third party citations.
For the third time, does the trust fund make it easier to pay beneficiaries than it is to pay for battleships?
Does the trust fund make it easier to pay beneficiaries than if it did not exist?
If the answer is yes, please provide an objective site.
If you can't do that, should we just take you on your word?
This is not a case of Jack's word versus Don's word.
You're going up against the Treasury, The Congressional Budget Office, The General Accounting Office, etc.
I am not your adversary.
Don Levit
"This is not a case of Jack's word versus Don's word" Don Levit
Now you're on the right track. It's a case of Don's word versus the facts of the issue. As previously noted, when you start your comment with a gross misunderstanding of a simple concept there is no place to go for an otherwise intelligent discussion. Good bye Don. Yo're deminishing the quality of this blog which inn the past did not entertain troll-like behavior.
Jack:
Your answer speaks volumes about the questuons I posed in the last post.
Thank you,
Don Levit
Brenda,
It should be kept in mind that Australia and the US fund their public old age pension systems quite differently. OZ is one of the countries where there is no separate funding mechanism or dedicated taxes to those pensions. They are simply funded directly out of general funds.
As it is, there are some in the US who think that we should simply junk the trust fund and all of this separate apparatus and imitate Australia. Some of these people are in fact welcoming this move to cut payroll taxes as something that will move us in this direction, once it becomes clear that the reduced payroll tax income is not going to cover the social security payouts. Ezra Klein of the Washington Post is one such person. However, I am more inclined to think that rather than junking the separate mechanism, the response to the "funding shortage" will be increased pressure to cut benefits, and to cut them soon.
I note that the debate in the House is focusing on the estate tax part, not this payroll tax cut. I am not in favor of the US becoming a feudal aristocracy, but I continue to think that the big issue in this deal is the payroll tax cut. Congressman Rush Holt was on Keith Olbermann last night proposing an alternative tax cut to it, but I am afraid he is not going to get anywhere with it. The anti-social security dogs will get their dagger sunk in.
BTW, by now it is time we had another post around here. This one is getting old...
Protecting social security represents, for me, a line in the sand. If the demos are willing to let this payroll tax cut pass then they've lost my vote as the least worse of two major parties.
My own theory is that Obama is actually a neocon Trojan horse: now that he's president we find conservative policies are being disgorged from the belly of the nominally progressive president.
Eric,
I think the real reason Obama went with this deal is that he wants the START passed. As I posted on this previously, he clearly stated that it was his top priority for this lame duck session, but hardly anybody seems to believe him and most people are simply ignorant of it and not paying attention. He simply had to cut some kind of deal with the GOPsters to get START, but I think it is people like Summers around him who snuck this nasty payroll tax cut into the package.
So after two years of a minority controlled Senate what is a democrat to think? Note the small d in democrat. How many citizens did it take to put Mitch McConnell in his seat? If the Senate rules allow for one man, elected by 954,000 voters, to control all legislative activity then the Senate rules should have been the first order of business. If no further legislative activity takes place in DC the country won't be any worse off than to allow what ever legislation does pass under these conditions. We are a long way off from democratic process as the Sentae rules now stand.
They might consider revising the seniority rules while they're at it. Given that every public and private employer seems to think that seniority rules are the ruination of our economy both houses of the Congress should take the lead in making such a change.
Barkley,
You might be right as to wanting to get START approved.
But it is inconceivable to me that during the discussions of the deal or after the deal the danger of the payroll cut to SS wasn't obvious. My conclusion, then, is that this payroll cut is not a bug but is a desired feature of the deal (for ALL who negotiated and/or approved it).
Eric,
How much does it hurt to be right about the biggest sell out in modern American politics. Unfortunately the turn coat turns out to be a man who we all supposed would be representative of the best progressive ideas. So much for suppositions. Turn coat, sell out, pick the description that you think best fits. We elected a black man with hope in our hearts and ended up with a Kentucky Colonel and a screaming hysteric (the best in melodramatic performance)who can shed a tear at a moments notice as defacto executives. The two of them together barely received one million votes, and they're in charge.
There is at least a minor chance that QE2 plus less taxation of the worker bees will stimulate the economy enough to get a good bit of the missing FICA revenue back (more jobs, more paychecks). In my own alleged mind I see QE as a huge deal and a possible way to dramatically improve the outcome of stimulus spending. If that is the case, the Republicans may have a tough time of it in 2012 and it may even turn out that the lower FICA taxes increase FICA revenue. The QE has two sides for sure. On the one side, inflation will erode the value of SS trust funds as it diminishes the total debt. On the other side that same inflation will force the hoarders of money to "invest" and hopefully create more jobs.
Well one disturbing possibility is that the payroll 'holiday' is just preparation for introducing a version of LMS (the 'L' being the Jeffrey Liebman who is currently no. 2 at OMB). In this scenario the 'holiday' is only allowed to lapse on condition that the 2% be diverted into new Personal Retirement Accounts which the political message being "it is not really a tax increase, it is still 'your' money" even though as a practical matter you would have just as little control over your PRA as you do your Social Security 'account'.
Those who would argue that the 'holiday' is stimulative need to explain how that stimulus was bigger than a deal to extend 'Making Work Pay' would have been. Basically we traded a tax credit limited to families making less than $70,000 for a new holiday that delivers a $2136 tax cut to everyone making $106,800 OR MORE in covered income while delivering $416 to every full time worker making $10/hour. The claim that this was somehow progressive is laughable, since every millionaire entertainer gets a tax break about 7X that of the minimum wage worker.
Bruce Webb is looking at the overall TAX deal without attention to the larger picture. And my own comments were even more sharply focused SOLELY on the 2% SS cut while relying on all the other features. The 2% FICA cut was a very bad deal looked at as a trade for keeping tax cuts for the rich. But when looked at as keeping tax rates the same as present for the middle class with both the FICA holiday and the unemployment extension, I am not so sure that it wasn't "the best sow in the pen". It would be nice to substitute more stimulus spending for tax cuts. But the loss of the House was the end of that option.
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