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Wise Words

Gene Sperling, a while back, on why defaulting on the trust fund debt in order to preserve the Bush tax cuts is just wrong, damnit:

Now, let me ask you this. How could a member of Congress go home to a town meeting like this and say, “We have no choice but to cut your benefits. We just cannot fix Ss any other way than by changing it to price-indexing so that instead of getting 36 percent of your current earnings in retirement you’ll only get 20 percent. Imagine what that would be now, but we have no choice to do that.” What would you say to the first person in the audience who put up their hand and said, “Well, let me get this right. You just gave a tax cut to people making over $300,000 that would have been large enough to not have to cut any of our benefits at all, so it’s not that we have to do this. You’ve made a policy choice – a value choice. You would rather take a certain amount of funds and direct it to the top 1 percent and pay for that, essentially, by letting our benefits be cut. Or, to put it another way, leave no choice but for our now benefits to be cut.”

Nobody could possibly answer that person in a town-hall meeting. What could they say? Now, I think for that reason there are a lot of progressives who are saying we ought to fix Social Security entirely by repealing the tax cut for the top 1 percent. Why should we cut anyone’s benefits?
I mean obviously if the income tax rate were to return to where it was in the 1990s that would lead to the same sort of catastrophic economic collapse we saw after Bill Clinton raised the taxes up to that rate in the first place, so I guess this idea is a non-starter. Better start cutting my benefits!

February 4, 2005 | Permalink

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» A Values Choice from CommonSenseDesk
Matt Yglesias posts on the values choices made by our president and his Congress between cutting benefits for all or taxes for the top one percent of our fellow citizen earners. Another piece of the answer to the diversion question. [Read More]

Tracked on Feb 5, 2005 7:45:29 AM

Comments

This simply points us back to the core issue: discussing social security is a diversion from the general fund crisis, which is real and current.

The general fund crisis cannot be solved exclusively by spending cuts and must involve tax hikes back to Clinton-era levels at the upper 1-2% (and likely the restoration of the estate tax, but i digress). Bush has zero interest in talking about this, but this is where the discussion has to take place.

The linchpin, of course, was Bush's reference to "somehow" pay currently promised social security benefits somewhere several decades out. There should only be one Democratic position at all times: the president has created a general fund crisis by transferring payroll taxes to the upper 1%. When he has demonstrated that he will reverse this pattern, we can discuss anything else like adults. Until then, there is nothing to talk with him about.

Posted by: howard | Feb 4, 2005 8:58:08 PM

There's an issue here I haven't seen raised anywhere.

The trust fund bonds are already part of the national debt. When they come due, we'll have to pay them, just like all the bonds. Probably we'll have to borrow money to do it, just like with every other bond we ever pay off.

The national debt remains exactly the sameThere will be no new debt. Nothing really changes on that fateful day.

The Chicken Littles are doublecounting the debt. They're saying that, in addition to all the debt we already have, when we start dipping into the trust fund, we'll add even more debt. But we won't. We'll probably have to refinance, but the debt level stays the same.

Posted by: John Emerson | Feb 4, 2005 9:46:55 PM

Mathew, does your quoted text have to be in such a tiny font? I have practically given up reading your blog cause these old eyes just cannot read whatever it is you are quoting. Everyone else uses a larger font, can't you?

Posted by: ken | Feb 4, 2005 10:25:03 PM

When the bonds come due nowadays, they aren't cashed by the SSA.

Posted by: Sebastian Holsclaw | Feb 4, 2005 10:26:26 PM

Ken, "Control +" will enlarge the font on many browsers. It's a problem for me too.

Posted by: John Emerson | Feb 4, 2005 10:27:16 PM

Since Social Security debt has, in fact, already been folded into the general fund debt, isn't the overall debt level the real problem? This happens to be something that our fiscally-conservative Republican President (as well as the vast majority of his self-described "conservative" gutterpunks) seems entirely oblivious to.

If a bond due today isn't cashed by the SSA, but is folded back into the general fund as a new bond is issued, doesn't what I say still hold?

Posted by: John Emerson | Feb 4, 2005 10:58:39 PM

actually, john, i have no idea what sebastian's point is supposed to be, but yes, exactly, the problem is the general fund crisis. Once bush and delay deign to address it, we can talk about social security, but not until then.

Posted by: howard | Feb 4, 2005 11:47:07 PM

Thank you John Emerson!! Your point, as simple as it is, completely escaped me. The only thing that happens when the SS trust fund cashes in a T Bill, thus reducing the national debt, is that a new T Bill is sold to someone else, thus increasing the national debt by the same amount. It's a zero sum exercise. So, you are correct, in spades, that the true problem is the astounding rate of deficit spending the Bushies are doing, driving up the national debt almost exponentially. Stopping that process, let alone reversing it, means tax hikes for the wealthy - oh Hell, lets just call it repealing the tax cut for the wealthy.

Posted by: Vaughn Hopkins | Feb 5, 2005 12:24:39 AM

OK, so to wrap it all up,

The problem is not the SS Trust Fund, the trouble is the General Fund debt.

Most of the General Fund debt is owned by sophisticated foreign and some domestic investors protected by the 14th Amendment.

Some of the debt is owned by the US Government in the name of future Social Security Beneficiaries. The US government can "forgive" that debt without it even being a default.

George W. Bush sees a "problem" and the solution to that problem is to reduce the debt. By how much? By the amount that can legally be defaulted.

Private accounts is a smokescreen. The key issue is George Bush has a plan to take trillions of dollars away from Social Security beneficiaries.

We are back to the question of how to stop this.

Posted by: Saul Brown | Feb 5, 2005 1:04:14 AM

Perhaps we should hammer the point that the administration is looting the trust fund in order to reduce taxes on the wealthy, that our promised retirement income was used instead to eliminate taxes on inheritances, dividends and capital gains.

In other words, as a matter of policy, wages are the only income this country chooses to tax.

If this be class warfare, make the most of it!

Posted by: bad Jim | Feb 5, 2005 1:45:31 AM

It's an issue I am curious (afraid) to see play out. Make no mistake about -- we are not fixing our CURRENT budget mess by spending cuts, even very deep ones. We either raise taxes, or get pretty damn deep in debt. The kind of debt that would make even Reagan blush and raise taxes.

But not only has Bush completely ruled out ANY tax increase, he is doing all kinds of things that are adding HUGE sums to the debt. It's a major train wreck in the offing. I am genuinely curious to see if the "adult" Republicans will stand up in the next 4 years. Are there any adult Republicans? Can any Republicans seriously advocate for either a tax increase or the elimination of SS/Medicare? Doesn't seem like it. Have they shown any interest in quitting adding huge piles to the debt? No, they have crazy private accounts and wars that are seriously adding to the debt.

So what the hell happens over the next 4 years? What if they win the White House again in '08? I wish the American people (*ahem,* Republicans and their libertarian allies) would start to think about this, because on the current course, we are headed for the Brazilian option, which is going to hurt a lot.

Posted by: Timothy Klein | Feb 5, 2005 2:06:34 AM

First of all, I'd like to digress and say that the whole reason I'm interested in electing Democratic Presidents is to put people like Gene Sperling into powerful decision making positions.

---

Now I'd like to try to act as the Terminology Police, because I think some of the language on this thread has gotten confused enough to begin obscuring meaning.

Matt writes: "...on why defaulting on the trust fund debt in order to preserve the Bush tax cuts is just wrong..."

There is no "trust fund debt". The trust fund is massively in surplus, and will remain in the black until 2042, or until 2052, or until forever, depending on economic growth.

Bush's constant refrain that the SSA's trust fund of treasury bonds is worthless does not imply any "default". What Bush would like to see happen is not for the treasury to default on those bonds, but instead for the SSA to voluntarily decline to redeem those bonds.

The issue is not default. The political frame is this: much of Bush's wealth is held in treasury bonds. So why should Bush redeem his treasury bonds while he wants American workers to not redeem their treasury bonds?

---

John Emerson writes: "The trust fund bonds are already part of the national debt."

This is not true. It used to be true a long time ago, but beginning in the 60's, we went to a unified budget.

In other words, if next year the general fund runs a $200B deficit, and the SS trust fund runs a $200B surplus, the national debt does not move.

If in 2025, the general fund runs a $200B deficit, and the SS trust fund also runs a $200B deficit, the national debt will increase by $400B.

For purposes of the national debt, all that matters are total government outlays and revenues that happen in that year, in both the SS trust fund and the general fund combined.

---

Vaughn Hopkins writes: "The only thing that happens when the SS trust fund cashes in a T Bill, thus reducing the national debt, is that a new T Bill is sold to someone else, thus increasing the national debt by the same amount. It's a zero sum exercise."

While technically true that the cashing in of the bond doesn't increase the national debt because of the unified budget, it's also true that the bond is only being cashed in because the SS trust fund is running cash flow negative in that year, and that negative cash flow will increase the national debt.

---

Now that I'm done playing Terminology Police, I'll briefly return to Sperling's comments.

What's at issue here is purely one of economic class. The SS trust fund surplus has been accumulated by the taxing of poor and middle class Americans. This surplus has been lent to the general fund, which is paid for primarily by the rich. Bush wants poor and middle class Americans to voluntarily forfeit their SS trust fund surplus in order to protect future tax rates for the rich in the general fund. End of story.

Posted by: Petey | Feb 5, 2005 2:45:57 AM

Go ahead and turn social security into a welfare program by financing it out of income taxes rather than worker contributions. Works for me.:)

Anything that undermines it politically is a-okay with me. And so far, it looks like you have no choice but to do SOMETHING, and all of those somethings politically undermine the system. All the better if the left does it.

Posted by: Adam Herman | Feb 5, 2005 3:40:14 AM

"Go ahead and turn social security into a welfare program by financing it out of income taxes"

You have a basic misunderstanding of the issue.

SS has accumulated treasury bonds by deliberately setting payroll taxes too high. Redeeming those bonds is not "financing SS out of income taxes".

If you buy treasury bonds and redeem them years later, are you on welfare?

Posted by: Petey | Feb 5, 2005 4:27:04 AM

Why, isn't this exactly what I said here a couple days ago: tax the damn rich and raise the benefits.

Yeah, and while at it, cut the Department Of Bombing And Killing People Who Dared To Be Born In Countries With Large Oil Reserves by 90%. And then tax the fucking rich some more.

Posted by: abb1 | Feb 5, 2005 6:16:29 AM

abb1, can we also shoot citizens who don't get with the program, imprison homosexuals, have the state control media outlets, and get rid of those pesky elections, so as to more closely emulate your preferred example of political leadership?

Posted by: Will Allen | Feb 5, 2005 6:43:33 AM

Petey, if somebody else buys treasury bonds, or buys more treasury bonds than you do, and you live off the interest that those treasury bonds purchased by someone else provides, then, yes, you are on welfare. I have nothing against welfare, mind you, assuming that one is unable to provide for oneself.You seem to believe that living off the interest from treasury instruments purchased with the wages of other people is consistent with self-sufficiency. An odd belief, that.

It makes no difference whether someone is eighty or eighteen; if one cannot provide for oneself, one should receive support from the state, through identical means of access to tax revenues. If one can support themselves, then one should not access tax revenues. Social Security was set up in the manner it was not because it made economic sense, but because it was the best way to bribe voters into accepting some means of state support for those unable to provide for themselves, particualrly the elderly. It has evolved into a system by which some of the people with the lowest net worth transfer wealth to some of the people with the highest net worth, and the low net worth people are told, "don't worry, you'll get yours in five decades". Well, maybe they will, and maybe they won't, but that low net worth individual might very well have a better use for his wages now, rather than five decades from now.

Patrick Moynihan was on the right track in the 90s when he proposed cutting FICA taxes.

Posted by: Will Allen | Feb 5, 2005 7:02:36 AM

How about this? FICA taxes are eliminated, and benefits are paid through income taxes, and an estate tax without exemptions, with the amount of estate taxes collected pegged to how much the deceased received in Social Security benefits (in real dollars), and Medicare benefits received in the last 30 days of life. Any small business owner with a desire to pass the enterprise to his or her heirs can work out with the heirs how the business owner is to live after retirement, and thus refrain from exposing the business to the estate tax.

Posted by: Will Allen | Feb 5, 2005 7:13:33 AM

"Petey, if somebody else buys treasury bonds, or buys more treasury bonds than you do, and you live off the interest that those treasury bonds purchased by someone else provides, then, yes, you are on welfare. I have nothing against welfare, mind you, assuming that one is unable to provide for oneself.You seem to believe that living off the interest from treasury instruments purchased with the wages of other people is consistent with self-sufficiency. An odd belief, that."

But that's not an analogy for what's going on.

I've bought treasury bonds with my payroll taxes. When I retire, I'll receive benefits based on my contributions.

Just because the system is communal in it's management doesn't change the fact.

Just because the system is communal in it's management doesn't mean you can say my benefits are welfare.

It's important to realize that SS isn't fundamentally redistributionist. SS is not a welfare program. The trust fund was paid for by payroll taxes, and benefits are paid for out of the trust fund - according to contribution.

As someone who's paid into the trust fund, I've got retirement money sitting in treasury bonds. George Bush also has much of his wealth sitting in treasury bonds. Why is it welfare when mine are redeemed, and not welfare when George Bush's are redeemed?

Posted by: Petey | Feb 5, 2005 7:17:48 AM

Will, by 'shoot citizens who don't get with the program' - are you referring to Castro government imprisoning 75 treasonous terrorist Cuba-haters in 2003?

Have you, perhaps, heard about the Bush government earlier arresting, torturing and disappearing thousands of people for no other reason but their semtic ethnicity?

You don't have a problem with this kind of political leadership, do you? It's only those 75 you're concerned about, correct?

Also, rigged elections and elections where a contender with lesser number of votes wins are fine with you, it's just a matter of having elections - right?

And the media that switches from 'private' to 'personal' immediately after recieveing the fax from the presidential palace is not state-controlled. Lol.

As far as imprisoning homosexuals - are you talking about 1960s and 70s? How many have been imprisoned in, say, 2004?

Thanks.

Posted by: abb1 | Feb 5, 2005 7:21:14 AM

Petey, if you believe that Social Security benefits are directly and perfectly proportional to taxes paid, that there is not a redistributionist element to Social Secuity, you are in error.

If you receive benefits that exceed your contributions, as a good number of beneficiaries have, you are on welfare, and now some of those welfare payments are being paid from the wages of people with a low net worth, to people with a high net worth.

This is what is being done with your FICA taxes. They are being transferred to current beneficiaries, and the excess is being used to purchase the votes of people associated with growing corn, or to purchase the votes of people associated with military bases that are not needed for national defense, among other uses. You are then being told that taxpayers 30 plus years from now (assuming you are 35) will pay benefits to you. Maybe they will, maybe they won't, or maybe they will adjust the benefits paid. That will be up to them. A lot of those taxpayers, however, will not have agreed to the arrangement, and it will be perfectly reasonable for them to say that you should not have allowed your FICA taxes to be used in such a foolish manner.

Posted by: Will Allen | Feb 5, 2005 7:37:10 AM

Abb1, I merely wanted to know if your preferred political leader's methods were to be employed here. A simple yes or no would suffice, and perhaps you are simply mistaken as to how many people have been subject to those methods; 75 doesn't quite do it.

Also, it may have escaped you, but if you wish to change the foreign policy of this nation, all you need to do is to convince a sufficient number of people to follow your voting preferences (and no, you won't be arrested for attempting to do so, unlike some unfortunates in Cuba), and that foreign policy will change. If you are concerned with the electoral college, having your views prevail in Congress will suffice. Ya' ever notice that ol' Fidel doesn't have to hire a campaign manager?

I think I'll refrain from engaging in dialogue with you any further. The silliness meter is red-lining.

Posted by: Will Allen | Feb 5, 2005 7:49:16 AM

"This is what is being done with your FICA taxes. They are being transferred to current beneficiaries, and the excess is being used to purchase the votes of people associated with growing corn..."

No.

Excess FICA taxes are being used to purchase treasury bonds from the general fund.

What the general fund does with those proceeds is the general fund's business, not the SSA's business.

When it comes time for the SSA to redeem those bonds issued with the full faith and credit of the US Government, it's the general fund's business to figure out how to pay for them.

-----

"If you receive benefits that exceed your contributions, as a good number of beneficiaries have, you are on welfare..."

You have an idiosyncratic definition of the word "welfare".

If I buy a medical insurance policy for $1,000 dollars, get sick and have the insurance company pay $100,000 in benefits, am I on welfare?

By your definition, yes. By the rest of the world's definition, no.

Posted by: Petey | Feb 5, 2005 7:51:45 AM

Well, Petey, if people are being forced to interact with the insurance company, then it is a welfare program. And if taxpayers thirty years from now, who never agreed to the arrangement, decide that they would rather not redeem a bond that was issued in order to purchase votes, that is perfectly reasonable.

Posted by: Will Allen | Feb 5, 2005 7:57:10 AM

Will,
Abb1, I merely wanted to know if your preferred political leader's methods were to be employed here.

As I was trying to explain in the other thread, methods depend on circumstances; I don't believe you're too dense to understand this concept, so I have to conclude that you missed some of my comments there.

Now, you choose to respond in an adversary manner while simultaniously refusing to engage. Fine, what can I say? Take your silliness meter and shove it.

Posted by: abb1 | Feb 5, 2005 8:10:29 AM

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