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Thursday, January 3, 2013

Note to Editorialists: Social Security Has Fuck All to Do With the Budget Deficit

Posted by on Thu, Jan 3, 2013 at 4:10 PM

They are welcome to their opinions and all, but Jesus Christ, if the Seattle Times is going to pontificate about Social Security and the budget the least they can do is figure out how the damn things work:

Congress did nothing to slow the budget’s biggest element: entitlement spending. The Republicans who raised this point are right. Slight changes can make a big difference.

A “chained” Consumer Price Index in Social Security, for example, would make future raises slightly lower. At one point, President Obama put that on the table, then took it off.

Another reform is to raise the retirement age, starting several decades out. It wasn’t done.

Uh-huh. Except, Social Security has absolutely nothing to do with the federal budget. Nada. Zip. Bupkes. (Unless, of course, your goal is to rob the Social Security trust fund in order to balance future deficits.)

Let's be clear: Social Security is entirely off-budget, solely paid for through a dedicated payroll tax. For decades Social Security has been accumulating a surplus in order to better accommodate future demographic shifts, specifically the aging of the Boomer generation, and these surpluses have been invested in US treasury bonds. Yes, the federal government will eventually have to shell out $2.6 trillion as these bonds are redeemed. But that's true of all treasury bonds. If the federal government hadn't borrowed the money from the Social Security trust fund, it would have borrowed the money from somebody else. There is no shortage of buyers for US treasury bonds. That's why the interest rates are so low.

When bonds mature the treasury redeems them, usually selling new bonds to cover the cost. Whether the bondholder is China or a corporation or Social Security has absolutely zero impact on the federal budget.

Furthermore, this notion the editorial perpetuates—that Social Security is headed toward insolvency—is total bullshit. Social Security has never been a pension fund from which retirees draw on their investments. Rather, it was always intended to be pay as you go—a direct transfer from today's workers to today's retirees. Even if we did absolutely nothing, Social Security would be able to pay 100 percent of its scheduled benefits through 2036, at which time the trust fund will be exhausted. But even then, incoming payroll taxes at current rates would still be sufficient to pay about 80 percent of the benefits currently promised. But since the average scheduled benefit in 2036 is projected to be 25 percent higher in real dollars than it is today, 80 percent of the 2036 benefit would still be more than the inflation-adjusted benefit retirees are receiving now!

So despite what you might be led to believe by the Seattle Times, raising the retirement age and/or linking benefits to a chained CPI would have no impact whatsoever on the federal budget deficit, and neither is necessary to maintain the long term solvency of Social Security. The editors simply have no idea what the fuck they are talking about.

Speaking of which:

Congress did agree to let the 2 percentage-point cut in Social Security taxes expire, raising the withholding tax on American workers. This will be painful, but the cut was never meant to be permanent. Social Security needs the money.

No, no it doesn't! The payroll tax "holiday" did not cost Social Security a penny. The $100 billion or so a year the tax cut cost was fully credited to Social Security out of general revenues, and workers were credited for the full contribution for the purpose of calculating future benefits. If you want to make the argument that letting the tax cut expire helps address the deficit, fine, but to justify it by saying that "Social Security needs the money" is just plain stupid.

It's like they're not even trying.

In defense of the Seattle Times editorial board, they're not the only ones misrepresenting the way Social Security and the budget work. Danny Westneat made a similar erroneous assertion—that Social Security is the "real issue"—in yesterday's paper, and he's no idiot. What these opinion writers are, is lazy. They've read these assertions so many times—often in their own newspapers—that they've simply accepted them as fact. Once again demonstrating the wisdom of Mark Twain's quip: "If you don't read the newspaper, you're uninformed. If you read the newspaper, you're mis-informed."

 

Comments (34) RSS

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Will in Seattle 1
Heck, we could just cease exempting carried interest and other earnings from the calculations and return the maximum SS earnings taxed to the original inflation-adjusted amount (about twice what it is today) and it would be funded for another hundred years.

But that would be intelligent.
Posted by Will in Seattle http://www.facebook.com/WillSeattle on January 3, 2013 at 4:23 PM · Report this
Will in Seattle 2
(dang forgot something)

Also, if today's Millenials made what Boomers did during their equivalent earning years (median wages) instead of LESS due to outrageous CEO pay multiple (who are mostly exempt from SS taxes, it wouldn't be a problem anyway. But with a 90/10 capital/labor profit split instead of a 50/50 capital/labor profit split as we had back then, it's hard to make the numbers work for the lower-earning modern young person.
Posted by Will in Seattle http://www.facebook.com/WillSeattle on January 3, 2013 at 4:26 PM · Report this
Westlake, son! 3
> There is no shortage of buyers for US treasury bonds. That's why the interest rates are so low.

I wonder what will happen to demand for bonds when Uncle Sam gets around to selling them?
Posted by Westlake, son! on January 3, 2013 at 4:28 PM · Report this
Posted by wisepunk on January 3, 2013 at 4:31 PM · Report this
Goldy 5
@3 I think you miss the point. Those bonds would be bought and sold regardless of whether Social Security was buying them. The supply of bonds is predicated on our need to borrow money, and the demand has always far exceeded the supply. Those $2.6 trillion worth of treasury bonds would be maturing regardless of who held them.
Posted by Goldy on January 3, 2013 at 4:33 PM · Report this
Cascadian 6
Thank you, Goldy. The amount of disinformation on this subject is truly staggering. Orwellian, even. The media speak about this subject in language that makes it hard to see the truth that's right there in front of everybody.

I would quibble slightly on the politics of the payroll tax cut, though you're right that it was financed by a transfer from the general fund. The political problem with a sustained payroll tax cut is that it was at odds with the self-financing nature of Social Security. Anything that makes the program look like social welfare is a bad idea, including means testing and a complete removal of the payroll tax cap. Once it's welfare, people might turn against it. So I'm glad that the payroll tax cut ended. I just wish that it had been traded for stimulus spending for the middle class.
Posted by Cascadian on January 3, 2013 at 4:45 PM · Report this
7
gosh Goldy, you are so smart!

so help us out here;

when SS started how many workers were paying to support each retiree?

In 1970 how many?

How many today?

How many in 2035?

And what about the percentage of "workers" on disability now, compared to, say, four years ago? doubled?

And you think this "pay as you go" program is fine?

are you stupid?

no?

Then you must really hate your daughter, you thieving mooching asshole....
Posted by you are so full of shit on January 3, 2013 at 4:57 PM · Report this
Goldy 8
@6 I didn't love the payroll tax holiday either. It replaced a more targeted tax credit as a stimulus measure. But either way the Seattle Times didn't understand how it worked.
Posted by Goldy on January 3, 2013 at 4:59 PM · Report this
Goldy 9
@7 I don't normally reply to unregistered commenters, but since you clearly don't no what the fuck you are talking about, I suggest you click through this link.
Posted by Goldy on January 3, 2013 at 5:03 PM · Report this
10
Well said, Goldy. I've never met an actuary that thought that Social Security was in trouble (and I've met a lot of outstanding actuaries). On the other hand, I've met plenty of people who have thought Social Security was in trouble for the last forty years. It is obvious that some people (like #7 here) just don't understand this stuff. That is fine when it is some bozo on the street, but a major newspaper (like the Seattle Times) should do better. It would be nice if an actuary (or a group of them) set the Seattle Times straight. Hmmm, maybe I should get on the phone...
Posted by Ross on January 3, 2013 at 5:08 PM · Report this
11
Perhaps the primary reason newspaper editorialists keep bringing up Social Security is because Obama keeps trying to cut benefits from the program. If he came out and said that Social Security was off limits, the repubs would fume but they'd have no leverage (for the reasons cited by Goldy). But it is Obama who keeps cuts to Social Security in play and has been working towards cutting the program since Day 1 of his administration. Here is a good summary:

http://fdlaction.firedoglake.com/2012/12…

But for some reason too many progressives give Obama a pass and keep pretending that he's not an active participant in the movement to gut Social Security. So go ahead, criticize the Seattle Times for mis-informing its readers. Lord knows they deserve it. But realize the only reason they're even talking about Social Security is because of Obama.
Posted by screed on January 3, 2013 at 5:09 PM · Report this
12
9

so.

You think productivity will rise enough that two workers will be able to support each retiree?

really?

did the easter bunny tell you that?

have you noticed how much less the rising generation of workers make ?

when they finally leave mom's basement at 35?

but go ahead, wish away the effects of demographics.

ask Japan what happens when a society quits having enough babies.

and tell us again how sterile homosexual pairings are JUST AS GOOD as Traditional Heterosexual Marriage?

and while you are spinning bedtime fairy tales tell us again how single uneducated teens having babies are JUST AS GOOD as Traditional Heterosexual Marriage?

you deserve the future that looms ahead. asshole.

your daughter does not.

Posted by next time don't bother, maggot on January 3, 2013 at 5:19 PM · Report this
Will in Seattle 13
Good point @11.
Posted by Will in Seattle http://www.facebook.com/WillSeattle on January 3, 2013 at 5:21 PM · Report this
Original Andrew 14
Isn't it amazing how lifting the earnings cap on Social Security taxes is never even presented as a choice by the corporate supremacist media? After all, only every study ever done has shown that would make the system solvent into perpetuity.

Kinda like how we've never heard that dropping the age restriction on Medicare instantaneously solves the health "insurance" crisis.
Posted by Original Andrew on January 3, 2013 at 5:24 PM · Report this
15
and the same generation that can't afford to buy their own birth control pills are going to support a half of a retiree each?

really?
Posted by ...good one. on January 3, 2013 at 5:33 PM · Report this
dirac 16
@11 This is the ticket. IIRC, the admiistration has been floating the idea of needing to reform SS since it began. The frame accepts the Republican propaganda that the program is broken or really that the proles need to take their medicine. This accomplishes a double windfall for the casino industry since they're not going to pay an extra red cent for the underclass' retirement and they may even be able to gamble with it soon enough.
Posted by dirac on January 3, 2013 at 6:09 PM · Report this
17
I agree completely with this article including the fact that the Seattle Times frequently skews the "news" to their own misperceptions. However, the gratuitous profanity used in the header here reflects poorly on the Stranger and gives an otherwise excellent piece a needlessly negative affect.
Posted by Art Hill on January 3, 2013 at 6:20 PM · Report this
auntie jim 18
I wonder if they are really so goddamn ignorant or just lying, either way they are wrong wrong wrong. Thank you Goldy and keep telling it like it is.
Posted by auntie jim http://www.gaysnohomish.org on January 3, 2013 at 7:20 PM · Report this
19
And if you watch Fox News, you are malinformed.
Posted by bareboards on January 3, 2013 at 7:38 PM · Report this
20
By the way, the next time some conservative pundit or politician starts calling for privatizing Social Security on account of its paltry return, I'd like to see someone raise this argument:

Instead of dumping the responsibility to be savvy investors on individuals, along with all the inefficiencies that causes, why not just allow the SSA to hire portfolio managers, to invest the surplus for maximum return on behalf of future retirees, instead of forcing them to buy non-negotiable Treasury securities? (Of course, what would amount to a new sovereign wealth fund of that magnitude would be a monster that could move, or even own, markets.) Can you picture a $2.6 Trillion hedge fund? Now that could generate some serious returns for all future retirees! Everyone a winner!
Posted by Brooklyn Reader on January 3, 2013 at 8:11 PM · Report this
21
I seem to remember that it was Bush II who talked about cutting/gutting/privatizing/whatever Social Security, not Obama.
Posted by sarah70 on January 3, 2013 at 10:09 PM · Report this
22
@21 But Obama tends to use the same language and arguments about "fixing" Social Security with disturbing frequency. He also supports the chained CPI idea and is way too eager to place Social Security on the table when he gets on one of those Grand Bargain rolls. This is the sort of stuff that worries me most about Obama and is ample good reason for Goldy and others (and us) to keep talking about this. Our Congressional representatives should know that we really, really don't want them to touch Social Security. It should be a deal breaker.
Posted by floater on January 4, 2013 at 1:50 AM · Report this
Cato the Younger Younger 23
@14, I would shit a brick if Obama would suggest that. Instead he has supported chaining social security to the CPI
Posted by Cato the Younger Younger on January 4, 2013 at 7:30 AM · Report this
24
Thanks, Goldy, and this is such a nonsensical red herring, and useless topic constantly trotted out by the neocons, the super-rich and every financial fraudster out there.

Just prior to going after Social Security, the banksters founded a global exchange for the trading of US Treasuries (logical, given the number of Treasuries placed in the SS Fund to pay off the interest on the debt, and the double-whammy that Treasury Notes, Bonds and Bills are treated the same as currench, or hard cash, under capital reserve requirements with regard to the banking system: they can be used as collateral for pretty much everything, including speculation on various other exchanges.

[Sidebar: and when I hear some talking twat on CNN, or some Foxtard, etc., or some douchetard on CNBC, etc., make such an outrageous statement or bald-faced lie on Soc. Sec. as a cause of the debt or deficit, when clearing those financial fraudster billionaires today are responsible for the vast majority of American debt.

AIG, Magnetar Capital, Ambac, MBIA, etc., etc., etc .......

Articles of interest:

http://au.news.yahoo.com/world/a/-/world…

http://hongpong.com/archives/2012/12/31/…

http://www.globalresearch.ca/fraud-money…
Posted by sgt_doom on January 4, 2013 at 10:51 AM · Report this
25
Let's be clear: Social Security is entirely off-budget, solely paid for through a dedicated payroll tax.

Either you are a complete idiot, or a smarmy liar.
Posted by Mister G on January 4, 2013 at 11:29 AM · Report this
Goldy 26
@25 Wow. Can't come back against such a cogent refutation as that.
Posted by Goldy on January 4, 2013 at 1:36 PM · Report this
27
Goldy, either you know there's no trust fund in any authentic sense, i.e., segregated and independently managed, or you're a complete moron. As little regard as I have for most of what you write, I don't think you're a complete moron. That makes you a smarmy liar.

The so-called "trust fund" is artful political fiction intended to nail down bedrock political support by implying the existence of some bank account, or its equivalent, where "my Social Security conrtibutions" sit. This has never been true, and in fact it never could have been true because of the amounts of money involved.

It is impossible to set aside trillions of dollars in a separate account. It has to go somewhere, just as bank balances and mutual fund balances have to go somewhere. There is no vault where the money sits. In the case of the mythical Social Security "trust fund," it is "invested" in non-marketable Treasurys that can't even be held by any other person or entity.

The government "owes" that money to itself, which means that Social Security payments come from the same budget that everything else comes from. Same goes for the regressive payroll taxes. The fact that the government publishes FICA revenues and expenses means nothing. The same is true for the other so-called trust funds, like the highway trust fund. They are nothing but political devices, with no economic or fiscal meaning.

It's like the shadow entries I used to make in my checkbook to "save" money for Christmas. I'd "reduce" my checking account balances to "hide" my Christmas cash, which was a joke seeing as how I balanced it every month anyway, and would have to add back the "hidden" balance. That was a mental trick, or an attempt at one. The trust funds are mental tricks, more artfully constructed than my shadow balances were.

The FICA increases as part of the 1983 deal between Reagan and the Democrats had nothing at all to do with Social Security. That deal was all about filling the hole left by Reagan's tax cuts. The Republicans couldn't bring themselves to admit directly that "the Laffer Curve" was a joke, so they disguised it as "shoring up Social Security." The Democrats went along with the fiction because it was the only way they could get a tax increase out of Reagan.

I think you know all of this, Goldy, but are just polishing the old turd and putting it out there. By the way, so you or your brain-damaged "progressive" fans will know it, I am 1,000% in favor of keeping Social Security benefits as they are, untouched. What I won't do, though, is swallow the "trust fund" bullshit. Now is that articulate enough for you?

I'll welcome your reply, because this is one of those subjects that I had to know as part of my job at one point, along with a whole lot more about federal government finances. Everyone in politics tells whoppers, but I absolutely, positively assure you that the people who really run the show in Washington, D.C. know how it actually works, and wouldn't hesitate to put the ol' stamp of approval on what I just wrote, minus the invective.

More...
Posted by Mister G on January 4, 2013 at 3:00 PM · Report this
28
p.s.: And here's some more fiction, this time supporting the liberal argument. It amazes me that liberals never use the argument, but they don't.

You know that worker to retiree ratio? It's bullshit. It's not workers to retirees that matter. It's working incomes to retiree benefits that matter. If the wingnuts who are trying to scare everyone about Social Security were to look at the, they'd see a very different picture. Again, why the liberals never point any of this out is mysterious, unless of course you realize that the only people in America who are just as incompetent as the conservatives and the Republicans are the liberals and the Democrats.
Posted by Mister G on January 4, 2013 at 3:06 PM · Report this
29
@ 27, 28 There's no better vault, judging from investor confidence, than the United States Treasury. And that's where the Social Security Trust Fund sits. You can look it up, where it's listed under its original name, "Federal Old-Age and Survivors Insurance Trust Fund." You'll find it on the Treasury's monthly public debt report (the one with the catchy initials, MSPD), just above the trust fund for Medicare.

It's 2.6 Trillion dollars. It's accounted for. It's guaranteed. The non-marketable securities are redeemable as needed by the agency, at their current value. They don't fluctuate like marketable securities (which bounce around based on current yield vs. original yield to maturity). You wouldn't want to give an agency bonds that get sold into the market anyway because they'd depress the public market for the marketable securities when they sold them, and also because the agencies shouldn't have to accept the dealer spread. In fact, these work exactly like Savings Bonds. The value never goes down due to market conditions, only up. Principal plus interest, like a bank account.

The only bad thing that could happen to that trust fund is "Social Security Reform," which would be designed to steal a huge portion of it and put it back into the general treasury so Congress wouldn't have to pay it back to the Social Security Administration.
Posted by Brooklyn Reader on January 4, 2013 at 9:02 PM · Report this
30
#29, there's no "vault." There aren't even any Treasurys. There's an entry in a computer. It tells the left hand how much he owes the right hand. By the way, no bond ever changes its payment structure unless it's designed to do so. Therefore, anyone who buys a bond and holds it to maturity experiences no fluctuations in that bond's value. There is nothing special about Treasurys, marketable or otherwise.

But hey, you're a "progressive" who is no smarter or less likely to believe in faith-based mythology than Sarah Palin is. So yeah, there's a vault. The trust fund is there, right along with a whole family of aliens who landed at Roswell. And a unicorn!
Posted by Mister G on January 5, 2013 at 11:38 AM · Report this
31
Oh, and the meaningless "non-marketable securities," just to be technical about it, are not "redeemable as needed." They are bonds that "pay" on a set schedule. Of course, the Treasury uses Treasury funds to "pay" the principal and interest to the Treasury, effectively transferring funds from its left pocket to its right pocket, rendering the entire exercise meaningless.

Regardless of what categories are listed in the reports, the federal budget is and always has been a unified budget. It is quite literally impossible to run any other way, from a financial perspective. You can believe in trust funds, aliens, and unicorns if you want to, just like Sarah Palin, but that will not change the reality.
Posted by Mister G on January 5, 2013 at 12:10 PM · Report this
raisinghellforagoodcause 32
Other opinions-on-SS-masquerading-as-facts:

-"SS is an entitlement," as in "We're gonna have to rein in these entitlements,"
-"Everyone's gotta give some...we all have to have skin in the game,"
-"compromising" on SS is the "adult" thing to do...

It's time for all of us to push back on pundits and pols who prevaricate and propagandize: http://www.opednews.com/articles/Persona…
Posted by raisinghellforagoodcause http://www.lisaarnoldconsulting.com on January 5, 2013 at 3:50 PM · Report this
33
@30, 31 and anyone else still reading this probably-stale (yet still fascinatingly relevant) thread:

http://www.ssa.gov/history/BudgetTreatme…

I definitely learned something from this about the Unified Budget. Firstly, it was the Johnson Administration that cooked it up, not Reagan. My bad. And... Social Security and Medicare were supposedly taken off-budget in 1990, completely, which makes it even more irritating that conservative maroons/dragoons are trying to suck it back into the picture.
Posted by Brooklyn Reader on January 6, 2013 at 6:13 PM · Report this
34
#33, you still don't get it.

It doesn't matter whether SS is "on budget" or "off budget." It has never once made a bit of difference. SS is a geberal obligation of the federal government, just like anything else. For about 30 years after 1983, FICA tax receipts exceeded SS and Medicare spending, and very soon, the reverse will occur. This has no fiscal importance; it's entirely a matter of politics.

When Goldy claims there's a trust fund, he's leaning on a political fiction. He knows this, but would rather bullshit you and other gullible "progressive" readers. This is an I.Q. test, and you're flunking it.
Posted by Mister G on January 7, 2013 at 7:19 AM · Report this

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