Friday, February 13, 2009

Looting Social Security with the Old Bait & Switch Fraud

William Greider is a saint:

These players are promoting a tricky way to whack Social Security benefits, but to do it behind closed doors so the public cannot see what's happening or figure out which politicians to blame. The essential transaction would amount to misappropriating the trillions in Social Security taxes that workers have paid to finance their retirement benefits. This swindle is portrayed as "fiscal reform." In fact, it's the political equivalent of bait-and-switch fraud ... Will Obama take the bait? Surely not. The new president has been clear and consistent about Social Security, as a candidate and since his election. The program's financing is basically sound, he has explained, and can be assured far into the future by making only modest adjustments. But Obama is also playing footsie with the conservative advocates of "entitlement reform" (their euphemism for cutting benefits). The president wants the corporate establishment's support on many other important matters, and he recently promised to hold a "fiscal responsibility summit" to examine the long-term costs of entitlements. That forum could set the trap for a "bipartisan compromise" that may become difficult for Obama to resist, given the burgeoning deficit ... The Social Security fight could become a defining test for "new politics" in the Obama era. Will Americans at large step up and make themselves heard, not to attack Obama but to protect his presidency from the political forces aligned with Wall Street interests? This fight can be won if people everywhere raise a mighty din--hands off our Social Security money!--and do it now, before the deal gains momentum.

Yes, let’s insist that the President echo the call to keep those grubby hands off of our Social Security Trust Fund reserves. Greider reminds us of the 1983 payroll tax increases and the double role they have played in American politics ever since:

To understand the mechanics of this attempted swindle, you have to roll back twenty-five years, to the time the game of bait and switch began, under Ronald Reagan. The Gipper's great legislative victory in 1981--enacting massive tax cuts for corporations and upper-income ranks--launched the era of swollen federal budget deficits. But their economic impact was offset by the huge tax increase that Congress imposed on working people in 1983: the payroll tax rate supporting Social Security--the weekly FICA deduction--was raised substantially, supposedly to create a nest egg for when the baby boom generation reached retirement age. A blue-ribbon commission chaired by Alan Greenspan worked out the terms, then both parties signed on. Since there was no partisan fight, the press portrayed the massive tax increase as a noncontroversial "good government" reform. Ever since, working Americans have paid higher taxes on their labor wages--12.4 percent, split between employees and employers. As a result, the Social Security system has accumulated a vast surplus--now around $2.5 trillion and growing. This is the money pot the establishment wants to grab, claiming the government can no longer afford to keep the promise it made to workers twenty-five years ago. Actually, the government has already spent their money. Every year the Treasury has borrowed the surplus revenue collected by Social Security and spent the money on other purposes--whatever presidents and Congress decide, including more tax cuts for monied interests. The Social Security surplus thus makes the federal deficits seem smaller than they are--around $200 billion a year smaller. Each time the government dipped into the Social Security trust fund this way, it issued a legal obligation to pay back the money with interest whenever Social Security needed it to pay benefits.

Ah – the old fight about whether to talk about the “unified” deficit versus the “general fund” deficit. Just call me a general fund deficit type who thinks that this run-up in the total Federal debt to GDP ratio should later be reduced on tax increases on very high income groups and not backdoor employment tax increases disguised as reductions in Social Security benefits that exceed any promised reductions in payroll taxes in present value terms. Didn’t we already go through this nonsense four years ago?

15 comments: said...

Obama was excellent on social security during the campaign. Since then I fear he has fallen under the spell of Larry Summers, who was pushing "social security reform" during the Clinton administration. Talk about a bait and switch, one of the reasons I preferred him over Hillary was his better position compared to the Clintonistas, but those darned rascals snuck in the back door anyway!

The other problem is that Obama feels he needs to play to the blue dog Dems, some of them being serious deficit hawks upset about the stimulus package, despite its watering down, especially Senate Finance Chairman, Kent Conrad. Conrad has long wanted a social security "deal," a tax increase combined with a benefit cut.

Of course a number of prominent conservatives have come out for payroll (read, fica) tax cuts. I would not necessarily be against this, except that if such were passed, these jackals would be at it loud and clear about how much worse shape social security is in and how we must, must, must cut those darned benefits!

Bruce Webb said...

Barkley I have to disagree about the relative merits of the Obama and Clinton stances during the campaign.

Obama invoked the word 'crisis' and called for immediate cap increase. Which was the wrong solution to a non-problem and would only make it politically harder to repeal Bush tax cuts because the combination of even a 2-4% increase on people making over the cap (or alternately over $250,000) plus letting Bush tax cuts go would return higher income wage workers to Reagan era rates while giving returns from capital a free pass. On the other hand Hillary's proposal to study Social Security in the context of the wider budget picture in the short term added up to a stance of 'there is no crisis' and a policy of 'nothing'. Which I believe are the right lenses to approach this over the short to medium term.

Obama was not 'excellent' on Social Security during the campaign, instead he was showing every signs of listening to Liebman, whose plan I should note is right in line with the Grand Compromise being pushed by Peterson.

Bruce Webb said...

Q: As we look at it today, some people rationalize the financing basis by saying that it's a way of partially having the baby boomers pay for their own retirement in advance. You're telling me now this was not the rationale. Nobody made that argument or adopted that rationale?

Myers: That's correct. The statement you made is widely quoted, it is widely used, but it just isn't true. It didn't happen that way, it was mostly happenstance that the Commission adopted this approach to financing Social Security. The way they thought about it was that in order to achieve long-range balance we have to have this high tax rate in 1990, instead of putting it in steps. We could have fixed it up with a series of steps, lower in 1990, about the same in 2010, higher in 2015, that could have fixed it up just as easily, but there wasn't time. It was not intentional. It has the effect of baby boomers paying for their own retirement, which in a sense is good, but it wasn't a controlling element and it was not talked about. The main thing that was talked about was how do we fix up the short-range problem. Are you sure we aren't going to have another crisis in 2 or 4 years? And can you say that we have looked at the long-range problem and have done something about it?

This is an excerpt from the Robert Myers oral history over at SSA.history. Myers was Executive Director of the 83 Commission. Greider may be a saint but he has his history wrong, something he shares with many strong supporters of Social Security. The 1983 compromise was a ten-year plan that happened to work better than expected over the 25 years since. But per Myers the Commission did not even have access to 25 year breakdowns, instead the OACT worked out of a black box scoring the plans over 10 year and 75 year windows without referencing the intervals in between.

Planned pre-funding may be an essential defense against the bastards who want to default on the Trust Fund and retroactively steal the money but it is essentially a myth. However useful. BW

Jack said...

"Since then I fear he has fallen under the spell of Larry Summers, who was pushing "social security reform" during the Clinton administration. Talk about a bait and switch,"

To say that Obama has fallen under any spell is being generous to a fault. Bait and switch is certainly more like what is being perpetrated. Here is a guy who is obviously bright enough to know the details of the issues. He's fast turning out to be a centrist in liberal cloak and rhetoric. Obama has been described as a concensus builder, a concilliator.
he seems to have forgatten that he won the election. He's supposed to be a leader. At this point to use the names Lincoln or FDR in the same breath would seem like heresy. Bill Clinton and the DLC have a new figure head. Very sad.
Very unfortunate that the voters cannot even trust this man to be good for his progressive words.

Bruce Webb said...

Jack you might be right.

But I see a guy who is relatively new to Washington and fell in love with his own vision. He came into office as a new Rodney King asking "Can't we all just get along?"

To which the Republicans answered 'No'. I think he learned a lesson from that.

I am plenty worried about this Entitlements Summit, particularly if Peterson manages to stack it. Which means that anyone of the Econospeak guys have Furman's or Bernstein's phone number maybe now is the time to do some leaning. Because if we can get Krugman, Baker or Rosser at the table there is a pretty good chance of pulling this out. said...


Well, I would agree that there is not much point in going over the nomination race, but Hillary always said that something needed to be done about social security and indicated that she favored a bipartisan commission approach. In the past, those have always put forth these packages combining some sort of tax increase with a some benefit cuts. At least in the campaign, Obama said, "no benefit cuts." That no longer seems to be holding, unfortunately.

Jack said...

"But I see a guy who is relatively new to Washington and fell in love with his own vision."
This guy came from Chicago where it seems you go along to get along. If he doesn't know, or didn't know, that you have to kick someone's teeth out in DC to make your point and show that you're in charge then he's little more than a dilettante, which I find hard to believe. So I don't know what he's up to? If he's not inviting Congressional leaders into his office and laying out ground rules by which he is willing to see that they and their consituents get a share in exchange for getting on board then he's going to be pushed aside by those very people. Looks like he needs Karl Rove as Ch of S rather than Rahm Emmanuel. In a word, he's being a wimp.

Anonymous said...

i agree with bruce about obama... i voted against him because he planned to "fix" social security.

but i don't agree about Myers. from what i read it is not clear that the folks at the 1983 fix knew what they were doing (sorry. it is often this way with commissions. even Roosevelts people only got it right more or less by accident and FDR's own close reading of their first draft.) but in any case its a lot easier to talk about the Trust Fund AS IF it was designed to prepay the Baby Boomers, because it is working out that way, and most people believe that was the purpose. So why confuse them with a dubious fact based on someone's memory who may not have really known what the others were thinking. It's kind of like guessing what were the "founding fathers real intentions."


Anonymous said...

but please

can't we all just get along.

and tell the people.

Anonymous said...

"I'm plenty worried about this Entitlements Summit, particularly if Peterson manages to stack it."

That's the worst aspect of this entire situation, this so-called debate over "entitlements." The term is used, and abused, to give the impression that it is the opposite of what it really is. Yes, workers are entitled to the Social Security pension that they have been funding their entire working lives. Repeat, THEY HAVE BEEN FUNDING THEIR ENTIRE WORKING LIVES. Obama, and the entire Congress has to understand this emphasis.

The alternative use of the term, "entitlements", as used by dissmebler organizations like the Peterson Foundation attempt to creatre the impression that SS benefits are largess, a handout to the poor worker that the poor government can no longer afford. Just the opposite, as I said, of the concept of entitled to because of long term participation in an ongoing, virtually contractual, program which those workers have been funding. It is just as well that we continue to support the idea that the 1983 increases were enacted in order to provide the extra, think prepaid, funding for the generation that has been paying that increase ever since.

Peterson, and his hacks whom he pays well to support his distortions, would like to continue to support the myth that the money all comes from one pot in a unified budget which is no longer able to bear the load.
There is no truth to the concept of a unified budget except in the minds of the obfuscators who will distort any issue in order to create a fourth dimension reality. The only connection between the FICA funding stream and the general budget is the potential theft by default of the Trust Fund assets in order to continue to justify the opbscene tax advantage of the One Percenters.

TheTrucker said...

The increase in FICA tax rates by Reagan and Greenspan and the Republicans was simply a tax shift from the rich to the middle class. The money comes in and it is "internally borrowed" (meaningless -- it is a tax) to offset the tax cuts for the rich. The rich were supposed to "invest" these tax savings in America making the future better for all Americans. It was just the usual Republicans rip off of the middle class. Now that it is time to pay back the loan the Republicans have decided to simply steal the savings as opposed to restoring the tax code of 1978 or even 1993.

The people who got the tax cuts OWE US THE MONEY.

Anonymous said...

"I'm plenty worried about this Entitlements Summit, particularly if Peterson manages to stack it."

One other point. Who the devil elected Peter Peterson to any level of civil determination? He's got too much money from a too lacks taxation system. He provides the funding for deceit and deception. He, and others of his ilk, provide the best excuse for the modification of the First Amendment. if free speech doesn't protect screeming fire in a crowded theater, why does it protect propaganda that injures the citizen body?

Bruce Webb said...

The money comes in and it is "internally borrowed" (meaningless -- it is a tax) to offset the tax cuts for the rich

But it didn't. First of all the accumulated Social Security surplus under Reagan was just not that much money. Table VI.A4.—Historical Operations of the Combined OASI and DI Trust Funds, Calendar Years 1957-2007 [Amounts in billions] Reagan inherited a Trust Fund coming off of six straight years of deficits and headed towards zero. Instead of the mandated Trust Fund ratio of 100 (one year of reserves) year end 1980 had a ratio of 25. Both the dollar figure and the ratio continued to plunge until intrayear it took some borrowing between OAS, DI and HI to keep each in turn barely above water. Under Reagan the TF started at $26 billion ended up at $110 billion for a net surplus of $84 billion. But about $35 billion of that was just interest credited to the TF meaning the only actual borrowing he did was $49 billion.

I am a big Reagan critic. The policies he adopted were in themselves a fricking disaster for this country one that was hugely compounded when Bush II mirrored those policies and then some. But the idea that all of this was funded on the backs of FICA is just myth.

Because it cost a hell of a lot more to cut taxes on the wealthy and build out the military to meet a largely mythical Soviet threat than a measly $49 billion.

Barkley Rosser said...

The Trucker is right that the sum of the tax changes during Reagan's presidency amounted to shifting the tax burden more from upper level of the progressive income tax onto the regressive fica tax.

Yes, this focus on "entitlements" is a scam. The "entitlements crisis" is overwhelmingly a health care cost crisis. This is known by Obama and many others, but the eneemies of social security play this game.

The baby boomers were sold this bill of goods that they have been prefunding their social security retirement. Given the collapse of so many private accounts, I would hope that this perception will provide a serious base for Dems in Congress to oppose any benefits cuts proposed by any flapdoodle commission that gets appointed.

RevolutionaryClown said...

the nut of the "crisis" is that it represent the viewpoint of the elite establishment that will have to pay to redeem the bonds used to finance the general fund over these past 30 years. and guess what - they don't want to pay and happen to have enough control of the public dialogue to obscure that fact, and enough control of the system to push their agenda.

the bush plan was too brazen by far and created a backlash. the question is whether the bamboozle will be able to happen under obama's stewardship.

he seemed to understand that the problem is medicare and health care expense growth. now lets see whether that understanding will translate into a policy proposal that justice demands.