Who’s Killing Social Security?

Last December the Republicans in Congress tried to insist that an extension of the payroll tax cuts be paid for. They got their heads handed to them. This week both chambers approved another extension. From The Hill:

In the House, the measure was approved in a 293-132 vote that split both parties. The vote was 146-91 among Republicans, and 147-41 among Democrats.

The Senate acted less than an hour later and approved the bill in a 60-36 vote. Senate Republican and Democratic leaders agreed the bill would not require a 60-vote supermajority for passage, a move intended to allow more Republicans to vote against the measure. In the end that procedural maneuver didn't matter.

The passage secures an early-year election victory for Obama, who has seen his poll numbers rise during the fight over the payroll tax cut, which began last year.

Notch one up for the President and Congressional Democrats. They won the battle of appearances and got what they wanted in substance. The only price they had to pay was inflicting yet another injury on the Social Security system. Here is one flaming right winger making that case, from the Huffington Post:

"This Congress will be making a grave mistake -- a grave mistake -- and reinforcing a dangerous precedent," Harkin said in a dramatic Senate floor speech late Thursday. "And I'm dismayed that Democrats, including a Democratic president and a Democratic vice president, have proposed this, and are willing to sign off on a deal that could begin the unraveling of Social Security."

Harkin argued that Social Security had always been strong and protected because it was funded by its own dedicated tax stream that ensured every American would be guaranteed a basic income in their retirements, and that the program added not "even one dime to the deficits or the national debt."

But he said now that Congress was going to pay for this cut with borrowed money from the general treasury funds, the best argument of the program's defenders was gone.

"With this bill, we can no longer say that. We can no longer say that Social Security doesn't contribute to the deficit," Harkin said.

He argued that a far better plan would have been to simply grant working Americans rebates on their income taxes, the way Presidents Obama and George W. Bush had done in recent years.

No, wait! That was Senator Tom Harkin, left wing firebrand from Iowa. Harkin's objection looks odd at first glance. He seems to be mostly worried about the precedent. Democrats have let the cat out of the bag: Social Security is one more expense that has to be paid for the way everything else is paid for.

In fact, Harkin knows exactly what the problem is but is more courageous than anyone else about saying so. Social Security is funded primarily through the payroll tax. Money flowing in from that source flows directly out to recipients. For decades the system ran a surplus. The extra cash went directly into the treasury in exchange for "special issue securities, which are in effect IOUs. Those securities constitute the trust fund. As long as the surplus lasted, there was a net flow of money from the Social Security system into the treasury.

Now that the system is no longer running a surplus the securities are automatically being paid back by the treasury, which means that the flow of money is reversed. Until the trust fund is exhausted, the treasury will continue to fund the Social Security deficit without Congress needing to bother about it. Contrary to Harkin's argument, Social Security no longer enjoys a sufficient "dedicated tax stream" and is now adding a great many dimes to the national debt.

What happens when the trust fund runs out? At that point Congress will have to authorize payments into the system to cover its liabilities. The trust fund will no longer disguise the fact that Social Security is one more burden on the national treasury and that its expense has to be balanced against every other thing that Congress wants to spend money on. That is what Harkin fears.

The Senator realizes that the payroll tax cuts reduce the dedicated revenue stream and thereby the trust is being exhausted all the faster. Who is killing Social Security? President Obama and his Party in Congress are doing so, with the help of accomplices on the other side of the aisle. Harkin might exhorted our President and the Democrats to stop being fiscally irresponsible. He has not the courage for that, apparently; nor is he stupid.

Comments

[Dave]

Help me out here Ken... I believe the Dems wanted to actually PAY for these cuts, but the GOPers obstructed this in order to protect their ultra rich constituents...

[Ken Blanchard]

I am glad to help you out, Dave. Dems wanted token tax cuts, Republicans wanted real spending cuts. That, however, is not the question. Focus. Cutting the payroll tax rather than some other tax benefit bleeds out social security faster. That was Harkin's point.

[D.E. Bishop]

The solution is not complicated. Lift the lid on income earned to $250,000, or remove all limits.

At any rate, we can stop taking it out of the hide of the ones who need it most. So backwards now.

[Bill Fleming]

The amount of tax collected for SS has been variable since the beginning of the program and subject to change as conditions change. There is currently a huge surplus, just as there was before the original Bush Tax cuts. The fuds are out to better use in the marketplace right now as opposed to lingering in limbo on an IOU somewhere, don't you think, KB? Seems to me, the long range committment to SS has always been to make it work. There have been lots of different ways that's been made to happen and there will doubless be many, many more.

[Bill Fleming]

...the funds are put to better use... sorry.

[A.I.]

While I share Harkin's concern at least to some extent, it did make more sense to do the cuts without offsets--the goal being to pump money into the economy. As for the long term stability of S.S., we've known for decades the treasury would eventually have to pay back the money borrowed from the trust fund and would likely have to borrow money to do so. That is why tax cuts during the relatively good economic times Bush inherited made no sense. Had we continued paying down the debt then, the borrowing we a doing now would be easier to accomodate. Of course if your ultimate goal was to destroy S.S., Medicare and more, what better way to do it than set the nation on a borrow and spend trajectory that would make the social safety net unsustainable.

[Bill Fleming]

Perhaps one of the reasons KB gets himself so flummoxed over these things is that he forgets our nation's economy isn't the same as balancing the family checkbook. We can, quite literally pull money out of thin air:

http://thehill.com/blogs/hillicon-valley/technology/211189-final-tax-deal-includes-spectrum-auctions-preserves-fcc-flexibility

[D.E. Bishop]

"The fuds are out to better use. . ."

Hilarious!!! Who are those "fuds" we're putting to use? Is that short for "fuddy-duddies?" Maybe we should "put those fuddy-duddies out to pasture?" Or are they homosexual "fuds" who better be outed?

I love those creative typos!

[Stan Gibilisco]

"The fuds are out to better use in the marketplace ..."

This fud (meaning yours truly) wishes that the marketplace would make more and better use of him.

In fact, this fud would love nothing better than to live to age 100 and never need a single penny of Social Security money.

Bill, Now that I've rubbed salt in your typo wound, please feel free to have at me the next time I make one, which will surely be soon.

[Ken Blanchard]

Bill: you say that "there is currently a huge surplus" in Social Security tax collections. If you mean by "a huge surplus," a $45 billion dollar deficit, then you are certainly right. The trust fund is paying out now and will continue to do so until it is exhausted. I understand your comment about drawing money out of thin air to be a joke. Do you understand it that way?

A.I.: The arguments for Bush's tax cut were exactly the same as your hero Krugman's arguments for massive increases in deficit spending now. I am on record as saying that we can't get out of this without raising taxes and on that score the Republicans are at fault.

But then you say this: "Of course if your ultimate goal was to destroy S.S., Medicare and more, what better way to do it than set the nation on a borrow and spend trajectory that would make the social safety net unsustainable." Yes! And that is precisely what the President's last two budgets do. His budget projects eight trillion dollars in deficit spending over the next ten years. That isn't what happens if his plan fails. That's his plan.

I am glad to see you coming around to what I have been arguing for over a year. On the basis of your testimony, I rest my case.

[Bill Fleming]

Yes, the trust fund is there because more has been paid into SS over time than has been paid out in benefits. I suppose if you condider the full faith of credit of the United States of America to be nil, then I guess you coud call that a joke, but the fact that our government can raise money by selling frequencies in the electromagnetic spectrum appears to be a fact. And yeah it's kind of funny, I suppose.

Not as funny as my typos though apparantly... okay, enough typing,,, I gotta go let the fuds out.

[Bill Fleming]

"consider" ...gawd... I should just give up...

[A.I.]

Your case rests on some pretty shaky ground KB. Note I made reference to paying down debt during good economic times--the part of Keynesian economics those of you on the right continually ignore and Bush failed to do. Thus, I was adamantly opposed to Bushes' tax cuts as implemented.

Yes, the tech bubble burst causing a dip in the economy shortly after Bush took office. That reduced demand which meant modest cuts for consumers--those of relatively modest means--may have been in order to stimulate demand. Instead, Bush instituted massive cuts primarily directed at the wealthy. That stimulated investment which increases supply rather than demand.

I'm going to over simplify a bit, but here is a lot of what got us to where we were as Obama took office. Post Bush tax cuts, extra money in the hands of the wealthy had not increased demand very much as they already had the means to buy whatever they wanted. So, any extra cash they got from tax cuts either sat idle or was invested. In this instance, much of the investment was in foreign endeavors that exploited cheap labor and in domestic equity markets underpinned by mortgage-backed securities. So we had nearly a decade of anemic job growth as millions of manufacturing jobs were outsourced. Real income from American labor grew little but the economy grew because consumers were purchasing goods and services with "wealth" created by borrowing against rapidly-appreciating home values. When it became clear working people did not have enough real income to keep up with ever increasing home prices, the bubble burst and the economy nearly collapsed.

The point KB is that there is a big difference between current economic policy and what Bush did. Bush cut taxes on the wrong people at the wrong point in an economic cycle and over time the economy tanked. Obama's tax cuts have been directed at the middle class which has stimulated demand. His spending has been directed at domestic rather than foreign industry. The result is an economy that has been growing rather than shrinking as it was in 2008, increasing employment and a stock market that has nearly doubled since its low. As Biden so succinctly says: "Osama Bin Laden is dead and General Motors is alive". Considering the comparison between what he inherited and where we are today, maybe Obama deserves that B+ he once gave himself.

[duggersd]

AI, there is not a revenue problem. Even with the Bush tax cuts, revenues were about what they were in 2001 in constant 2005 dollars. The problem is the spending. During the Bush years, spending increased dramatically.

[duggersd]

Sorry, pushed the post button too soon. That dramatic spending really took off in 2008. The 2009 spending was over $3 trillion. Considering the Congress refused to finalize Bush's last budget, I am thinking that is Obama's budget. If you cut spending to 2005 constant dollars levels, the deficit would drop by a long way. The Bush tax cuts were not the problem, the spending was and is.

[Ken Blanchard]

Bill: your typos are one of the reasons I love you. I make plenty of them myself. As for "full faith and credit", I think that evades the issue. I have no doubt that the trust fund securities will be faithfully redeemed. That said, the words "full faith and credit" have no magical power to ward off fiscal calamities.

[Ken Blanchard]

A.I.: real estate bubbles like all bubbles are created by excessive demand. For all sorts of socially progressive reasons, a lot of people were encouraged to buy more real estate than they could afford.

Contrary to what you say, the largest share of the cost of Bush's tax cut benefited the middle class. The US tax system continues to be among the most progressive in the world, far more so than most European countries. No tax increase on the "wealthy" will net enough revenue to make a difference.

I return to the point that you yourself conceded, perhaps in a moment of unintentional clarity: if you want to destroy Medicare and Social Security, make sure that the budget as a whole is unsound. That is precisely what the President's budget does.

[DDCSD]

Let's all keep in mind what the "trust fund" really is. It would be like me saving for retirement by giving part of my paycheck to my wife. My wife then spends that money on our daily expenses and keeps track of what I gave her in the form of IOU's and never actually saves any of it.

In 35 years, when we're ready to retire and start living off of that money we're going to need to go to a bank and borrow it, since we didn't actually save any of it. The only problem is that we have already been spending nearly twice as much as we've earned and have racked up debt that is 3x what we even have the capacity to earn and are adding more at an exponential rate due to continued expenses and interest.

Who's going to be dumb enough to borrow us money to cash in our IOU's?

[lynn]

Perfectly and simply explained, DDCSD! And contrary to Ken's statement that, "I have no doubt that the trust fund securities will be faithfully redeemed," I have serious doubt that these will be faithfully redeemed, unless and until our fiscal insanity, i.e. spending, is reined in. And as long as politicians put their political futures and ideology ahead of the good of the people and the nation, I have serious doubt that this will be done. I think many of the people are awake, and active, and demanding change, but I don't think the politicians are listening. But, maybe they should...

[adt home security systems]

The first thing to note about the above statement is that you can't fix what you don't know is broken. That's what makes step one, Assess, so important. Once you have assessed your network and your firewalls specifically though, it's time to start remediating the problems that were found.