Tuesday, October 16, 2007

Social Security: U.S. Treasury Declares Trust Fund Reserves Not To Exist

Mark Thoma reads the latest from the Treasury Department so we don’t have to:

To the extent, however, that Social Security surpluses result in higher deficits in the non-Social Security portion of the budget, then government saving is not increased by higher Social Security surpluses. In that case, future Social Security benefits that would have been financed with higher issuance of publicly held debt will instead have to be financed with reductions in non-Social Security spending or increases in non-Social Security taxes.

Is it that easy for the Republican thieves in the White House? This line was put in context by Kent Smetters as I discussed here.

Check this out:

Today's deficit estimate release by the Congressional Budget Office is good news for American taxpayers. Like the estimates put forward by the Office of Management and Budget, it shows that our government is on a path to meeting the goal I set forth of putting the budget into surplus by 2012.

James Hamilton (exuse me: Jim's capable sidekick - Menzie Chinn) challenges this happy talk and Mark Thoma has more. Both note that the surge in tax revenues may be over so the deficit might not continue to fall. But notice that President Bush is talking about the unified deficit. As noted here, the general fund deficit remains quite large.

Yet George W. Bush and those in the GOP who wish to replace him as President have no intention to either scale down our defense spending (after all, our stupid invasion of Iraq is their priority) or reverse that tax “cuts”. Translation –they wish to squander those Trust Fund surpluses on the Iraq War and income tax cuts for the rich. And now his Treasury Department admits he has looted the Lock Box. Besides ending our stupid invasion of Iraq, the issue during the 2008 campaign should be whether the Lock Box will be honored.


Unknown said...

There is also the Andrew Samwick dodge to the Trust Fund. Since taxes were cut on the rich there is a deficit that deficit has to be paid back. It should come from the people who were alive during the deficits. So we should reduce Social Security benefits. Yep, Samwick fully endorses a huge tax shift under other names.

Anonymous said...

Is this Samwick person always in the habit of groveling at the feet of wealth and influence? I've got about four years left before I can start "dipping" into this Trust Fund so that I might get back some of the "contributions" I've made over my entire working life. Where does Samwick live? I'd like to pay him a personal call.

Unfortunately I've not heard any candidate making any clear statement that he/she would do every thing possible to make certain that Social Security payroll taxes that go into the so-called Trust Fund will be paid back by our errant government via general revenue side of collected revenue. God forbid that the tax system should be put back to some semblance of balance between payers.

ProGrowthLiberal said...

Fellows! Andrew Samwick is the one of the few on the right who I have referenced quite favorably. What he advocates is a FAR cry from the usual raid the Lock Box we get from Greg Mankiw and that (cough, cough) President he used to work for. No - if Andrew and Peter Diamond got to design the Soc. Sec. reform, it seems Brad DeLong would likely endorse it. On this one, I agree with Brad.

J.Goodwin said...

I'll see jack and raise him Hillary Rodham Clinton.

She won't increase taxes, won't stop the war, and will probably expand other general fund programs.

It's the triple threat.

It's hard to tell who your enemies are with friends like that.

Martin Langeland said...

OT Just to say that who ever is tweaking the site design is doing a superp job. Thanks.

Bruce Webb said...

Samwick seems to be personally a nice guy and has a blog that allows comments (though oddly not mine) so we really don't need to resort to Malkin tactics here.

On the other hand the plan he is pushing is grossly unfair to workers. A nine page version is available at this link LMS: Liebman-Macguineas-Samwick Non-partisan Social Security Reform Plan
In reading through it it is abundently clear that the authors understand the size of the problem, at the time it was drafted the payroll gap was 1.92%, which fact is admitted freely. So how do they proposed to finance their plan? In payroll tax equivalents like this:
1.5% increase in payroll tax for all
1.0% lifting the cap in phases to $167 k
2.08% reducing benefits
.62% increasing retirement age
You read those numbers correctly, LMS is proposing a 5.2% fix for a 1.92% (now 1.95%)problem. Table 2, p 7
Do they promise better results than just taking a 1.95% tax increase? Well no, in Table 1 you see that for the nine categories of people in the matrix four come out behind, one is at par at 101.6%, and the other four come out from 7 to 27 points ahead. And in each category who gets the best result? You got it: 'High Earner'.

Does the plan have merits. Well some. It eliminates both the actual cash borrowing of the SS surplus and the accounting dodge represented by using the Unified Deficit, and it might even meet its goal of putting some pressure on Congress. But it literally does nothing for me, my category is projected to come out at 86%. So I could pay 1.95% and get 100% or pay 1.5% now and accept benefit cuts equalling another 2.7% and get an 86% result. Thanks Andrew! You're a prince and hero to the working class! Not.

But you do end up with a plan that has the all important private account component and Social Security in a form unrecognizable to FDR. Which of course is the point.

Why would any worker accept this deal? And how did Samwick et al expect to sell it? Well Samwick is fond of using 'Infinite Future Horizon' numbers and so can and will tell you that the 'real' payroll gap is 3.5% and so at least blurs the theft. (It may or not be a coincidence that the Trustees introduced Infinite Future with the 2003 Report, at which time Samwick was Chief Economist with the WH CEA "where his responsibilities included Social

So I have to endorse Robert's point. LMS is just another attempt to have wage workers finance goals whose benefits largely flow to Capital, and Samwick is using snake oil salesmenship to put the deal over.

Brad DeLong might be okay with a plan that throws a collective 5.2% at a 1.95% problem, all of whose burdens fall on Boomers and whose benefits, such as they are don't become visible until after 2050, well not me. Samwick may be a nice guy and a fine economist but he is no friend of mine. I don't have to guess at the design of his plan, I already read it and it frankly sucks.

Anonymous said...

goodwin's point is only too well taken. There can be no debate on the isue of Social Security funds and their relationship to the general budget deficit. Negotiation with those who represent right-wing ideology is along the lines of heads I win, tails you lose. They give no room for genuine debate because they start at some extreme and refuse to agree that that is the case.

This entire issue was supposed to have been put to rest in the mid-80s when the higher payroll tax was instituted for the purpose of building up a Trust Fund which would supplement later FICA payments. It was recognised then that payroll taxes would be insufficient to cover the social security payments of retirees because of the relative imbalance between the number of employed and the number of retirees. To say now that the Trust Fund is just so many IOUs with no value is to agree that the increased payroll taxes were a scam. To agree that the IOUs do exist, but that they will be repaid by general taxation in the future is still to have scammed the middle-inome tax payers in favor of thos who benefited most from the tax reductions instituted during the Bush term in office.

The Democrats are equally responsible for the scam. No surprise there. What Democrat is less beholding to the major sources of political funding? This kind of bull won't change unless the entire Congress does a major change of ideology. Any professional economist that even joins in to these comples explanations of what monies went to which budgets and what deficits are the result of this or that spending is simply abetting a curropt process. The issue only becomes complicated by choice of the participants in the debate. There should be no debate on the issue of Social Security funding and the Trust Fund. The law and its intent were debated more than 20 years ago, and the current situation is a result of efforts to obscure the results of that debate.

If Bush and his ilk want to squander the Treasury let them tax thjose who will benefit the most from their draconian behavior. it is truly amazing that the one percenters have suh a difficult time understanding the needs of the rest of the society that has allowed them the wealth that they enjoy. I'd like to read an economist's post that makes no bones about these imbalances. The equivocation is going to result in our financial destruction.

Bruce Webb said...

Where is the snake oil? People linking to LMS and examining Table 2 will only see a 3.7% combination of tax increase and benefit cuts, which is right in line with Infinite Futures 3.5% gap, and the authors do have all kinds of fancy talk about "Good for future generation" and so make their best shot at guilt tripping Boomers into thinking we just need to step up and fill the gap. But the fact is that there is another 1.5% tax increase in the plan. It is not included in Table 2 because it never actually enters the Trust Fund, but it is there in the text of the plan.

However you slice it LMS throws a combined 5.2% solution at a problem that is either 1.95% (through the standard 75 year window or 3.5% (to heat death of the sun). Sorry no sale. You can peddle that hokum down the road.

Anonymous said...

I love your tone. Unfortunately it's yours and not any of our esteemed candidates or any of their economic advisers. As noted above, too many economists have bought into the fawning at the hands of power approach to their "science." But you and those who have the balls to stand to the challenge need to keep hitting this nail on its head so as to drive in the point.

Anonymous said...


is of course right about this. pgl needs to spend some quiet time thinking it through.

it fills me with despair that otherwise decent and intelligent people so utterly fail to understand social security... it's design, it's purpose, or it's present finances... that they embrace any snake oil that comes along that tickles their sense of elegance.

sadly, Bruce, and I, can keep hitting that nail on the head and it won't make a damn bit of difference as long as the snake oil salesmen can fool not only the people but the liberal economists.

i am very very tired, and i have written about this much too thoroughly elsewhere, to want to try to explain everything in a blog comment. but don't you think this is important enough to actually think through? and explain to influential people.

Bruce Webb said...

Coberly I think you substantially underestimate the understanding of this issue amongst the economists that post here. It really is more complicated than just the cost of the fix.

Let me leave you with this. There is a solid case to be made that the correct course on Social Security is to cut FICA and not increase it. Before you dismiss that out of hand, try to figure out how I could possibly suggest that. Here is a hint: "outside the box".