I am late to this party, already well underway, to criticize Robert J. Samuelson for yet again wildly misrepresenting the facts about Social Security in his Sunday piece in WaPo. Dean Baker started the critique and makes most of the useful points in http://www.cepr.net/index.php/blogs/beat-the-press/robert-samuelson-shows-that-the-post-has-no-fact-checkers-on-its-opinion-pages . He was followed by Jared Bernstein and Paul Krugman piling on as well, both linked to by Mark Thoma at http://economistsview.typepad.com/economistsview/2012/04/links-for-04-10.html .
Samuelson's new claim is that FDR would not like the current Social Security system, presumably because it is heading for being "broke" someday (eeeek!), as Samuelson periodically likes to moan and groan about. However, as he has often done in the past and is noted by all three of the above, he pulls a bait and switch, starting out with the usual grumbling over the gradually rising and well known rise of the worker-retiree ratio (likely to hit in 2025 or so the ratio Germany already has, eeeek!). Then he throws out some awful fiscal numbers, but it turns out that he has dragged in without making any serious comment on it Medicare and Medicaid expenses as well as those for Social Security, then concluding how something must be done about Social Security now! It is of course these latter two whose projected rising costs are really the problem.
It is true that the projections for SS do not look as rosy as they did some years ago prior to the Great Recession. But, even with the lower projections now, there is no clear problem until maybe in the late 2030s. Even then, assuming no fixes, the terrible thing that might happen, with Krugman picking up on something that I and Bruce Webb have been pointing out for years, is that the benefits might drop to a level that would be still well above current benefits in real terms (eeeeeek!). Krugman also makes the reasonable point we have that what Samuelson is suggesting is that future benefits should definitely be cut now, because if they are not, future benefits might get cut in the future. Yes, that is the ridiculous illogic of much of this discussion by "Serious People."
Let me add on to this two points, also floating around in the econoblogosphere. One is this matter of self-important centrism. So, people like Samuelson wish to present themselves as the late David Broder did as centrist Serious People who are between the right and the left. So, they have to find fault with programs supposedly of both sides. In many cases, particularly Samuelson's, although it has been a vice of many WaPo commentators for a long time as Dean Baker notes, they like to whomp on and on about Social Security and how we need to cut future benefits now.
The other matter that has me seriously concerned is that this renewed push by SS critics like RJS is that this coincides with the mangled and awful discussions going about the Ryan budget. Again, Krugman is right to point out that the loud centrists have seriously hung their hats on Ryan being reasonable, so that there is this unwillingness to confront the fact that his budget combines a lack of detail on just how tax loopholes are to be closed along with a lack of detail on how deep those non-defense cuts will be, although he has been declaring that they will not hurt the poor and will be no worse than welfare "reform," which has failed to help the poor at all during this Great Recession (and is also now apparently claiming that he is for all this thanks to his Catholic background, ignoring the Church's opposition to what his budget proposes). Given the need to fight all the obfuscations going on by so many to make Ryan look reasonable, it is easy for people like Samuelson to start peddling their baloney again about Social Security under the radar.
It is really frustrating how this garbage just does not seem to stop, but calling it out when it rears its ugly head is what we must continue to do.
You seem to imply, as did Stephen Goss, the chief actuary of Medicare, that the trust funds pose no problems until the date of exhaustion.
ReplyDeleteAllow me to point out that the financial dynamics in response to exhaustion is the same financial response Social Security has been experiencing since 2010: that the cash outgo exceeds the cash income.
The response was to redeem Treasury interest.
Unlike bonds in the private sector retirement plans, which are simply liquidated to pay benefits, the same simple liquidation is not true of the interest (and principal) of these special nonmarketable Treasuries, which were supposed to benefit exclusively SS beneficiaries.
Instead, the principal and interest was lent to the Treasury, spent on current expenses, and lowered the deficits.
What could have served as a store of wealth which could have been liquidated, morphed into a hollow artifact, an accounting mechanism which simply details how much can be taken from the Treasury's general revenues without an appropriation. The result of redeeming this "special" Treasury interes:; new general revenues have to be used, an immediate budget expense occurs, and an increase in the deficit.
Is that a result of what you would call a trust fund or reserves set aside to pay future benefits?
Don Levit
Hi Don:
ReplyDeleteYou present an excellent argument as to why taxes should be raised on those making >$500,000 higher than 35%, on capital gains higher than 15%, on government backed Wall Street Gambling, and corporate profits. At the least corporations like GE should not be getting refunds.
You are also right concerning the role of Payroll Taxes playing the leading role of repacing Income and Corporate taxes in garnering revenues for the Gov.: http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue.cfm
Are you also suggesting the US should default on Treasuries held by SS? I am sure such would go over big time in the Global Economy.
Levitt reguritating nonsense then lapping it up to reguritate it again doesn't make the nonsense palatable.
ReplyDeleteYou are drawing a distinction between "bonds in the private sector retirement plans" and "special non-marketable treasuries" that simply does not exist in practice or law.
There have been many, many years since the Trust Funds were established that more Special Treasuries were redeemed than issued. And if you take the DI Trust Fund in isolation from OAS, which it is indeed so isolated by law, you can see that those Special Treasuries have been steadily been redeemed since 2010 with interest paid in cash since 2006.
THOSE CHECKS CASHED. Making your whole argument about non-liquid assets simply ignorant blathering. Which since it has been repeated in this forum and others for months now fully justifies my vomit imagery.
And you are simply wrong on the budget accounting issues. Redemption of Trust Fund assets does not count as a cash transaction and so does not add to the deficit. Moreover it results in a decrease in Public Debt as defined.
You know all this, or should, it has been patiently explained to you with multiple citations to the data and official reporting for months verging on years. Yet you persist----.
The Social Security Trust Funds were cash flow negative more years than not from 1956 to 1982. And none of the adverse effects you suggest actually occured, nor did those redemptions have the effects you suggest they must on reported deficits.
You literally don't know what you are talking about and yet maintain an assumed air of authority that simultaneously amuses and frustrates all attempted interlocutors. It is like arguing with a stump.
Let me try one more time. When you buy a bond the seller takes your money and spends it. In return you get a promise. In the case of the Special Treasuries in the Trust Funds that promise has always been fulfilled. AND ALL THOSE CHECKS CASHED. You simply have no response to this undoubted historical fact other than bluster and bullshit. Still.
Well, the whole business has been scrambled by the payroll tax cuts that Obama put in place and that were renewed at the end of this last year. All these projections assume that the payroll taxes will go back to what they were previously, and we had the goofy spectacle of this effort being led by a bunch of Republicans, showing that they only taxes they want to raise are regressive payroll ones. As it is, they got shamed for doing so, and now we may be stuck with them not being raised. This would then skew all this badly.
ReplyDeleteAs it is, while I used to give various people a hard time who argued about the unity of the budget, it is indeed unified. SS fica subsidized the rest of the budget for decades, and now it is not doing so longer. But it remains that the rise in benefits is not nearly as great as the rise in Medicare and Medicaid, and that the burden on younger workers will nowhere near equal what will be happening in nearly every other OECD country with worse demographics. On SS we are in far better shape than nearly all other countries.
Let us face it, the whole separate system for SS was a kind of political scam adopted from the original Bismarck system in order to cover over what was going on: that current taxpayers pay for current old people, whatever the balances. In many ways I would prefer the more honest system the Australians have, which is simply not to have a separate fund and just pay all these sorts of things out of general revenues. We should figure out what the benefits should be and pay for them however.
Bruce wrote:
ReplyDeleteRedemption of trust fund assets does not count as a cash transaction and so does not add to the deficit.
From a paper entitled "Revisions to Identifying and Reporting Earmarked Funds: Amending Statement of Federal Financial Accounting Standards 27,"published by the FASAB. The FASAB is the accounting advisor for the federal government:
Pages 35-36 "The dedicated cash receipts collected from the public into the fund are deposited in the U.S. Treasury, which uses the cash for general Government purposes. Treasury securities are issued to the (component entity) as evidence of its receipts. Treasury securities are an asset to the (component entity)and a liability to the U.S. Treasury. Because the (component entity)and the U.S. Treasury are both parts of the Government, these assets and liabilities offset each other, from the standpoint of the Government as a whole. For this reason, they do not represent an asset or a liability in the U.S. Government-wide financial statements. Treasury securities provide the (component entity) with authority to draw upon the U.S. Treasury to make future benefit payments or other expenditures. When the (component entity) requires redemption of these securities to make expenditures, the Government finances those expenditures out of accumulated cash balances, by raising taxes or other receipts, by borrowing from the public or repaying less debt, or by curtailing other expenditures. This is the same way that the Government finances all other expenditures."
http://www.fasab.gov/pdffiles/exposure_ef_2011.pdf.
Don Levit
With all this disinformation coming from the political right, one would think this is a Presidential election year. Oh wait!
ReplyDeleteI've read that people used to get Robert Samuelson mixed up with Paul Samuelson. What a tremendous insult to Paul!
ReplyDeleteYeah: that's like mixing up Plato with Pluto (the Disney character)!
ReplyDeleteAs for this ubiquitous trick of moving from SS to SS+Medicare, I'm always reminded of Voltaire's comment on the idea that sacred oaths can have real effects: he said it's true: you can kill a flock of sheep with Oaths - and Arsenic!
You're making a dangerous and disingenuous argument that Social Security is somehow A-OK and requires no fine-tuning to keep it going. This is in fact wrong.
ReplyDeleteYou seem to be absolutely fine with the notion that if we wait to fix SS, not only will we have to double the increase in payroll taxes than if we had adjusted it today, and at that point the people who desperately need SS the most risk having their benefits cut up to 25%.
I know you think you are cute with your dismissive little condescending "eeeeek!" comment, but this is not a funny matter, because 25% of benefits does mean a lot to the elderly who depend on that income. I don't see why you would want to be so irresponsible and play around with the income of these people.
With folks like you making what I can only describe as vapid comments like this, it is no wonder that so many people seriously doubt whether or not they will receive Social Security. What is most sad is you ought to know better, as should your readers.
We can take your... "advice," and wait to fix it. We could also give it a small and comparatively painless fine-tune now to keep it going for another 75 years, that would cost less than half what it would if we waited, plus it would not risk anyone's benefits.
Let's recap. You make condescending and nasty little barbed comments about people who insist we apply a tweak to SS soon. On the other hand, the SS board of trustees says, "Lawmakers should not delay addressing the long-run financial challenges facing Social Security..."
It's so hard for me to decide who is more credible. So. Absolutely. Difficult.
Sources:
http://www.ssa.gov/oact/TRSUM/index.html
http://www.economist.com/blogs/freeexchange/2012/05/pensions