« Nature or Nurture? | Main | Hersh on Covert Ops »

Rangel Blows It

When I read this article's lede, I was ready to condemn the reporter, but then three paragraphs in I see this:

"If Democrats were in charge, benefits would have to be altered," said Rep. Charles Rangel of New York, the top Democrat on the powerful House Ways and Means Committee. "You cannot fix the system without pain, no matter how much money you borrow."
You can hardly blame the reporter, then, for accurated reproducing Rangel's sentiments. But this is not only a terrible political tactic, it simply isn't true. There's a very good chance that the SSA's projections are too pessimistic and, therefore, a decent chance that nothing needs to be changed whatsoever. Even if the SSA is on the mark, we easily have the capacity to make up the rather small gap with a rather small increase in taxes. As it happens, I do think some reductions in benefit growth for above-median-income retirees are something we should consider (as are enhancements in benefits to a few classes of people), but it's not necessary in any strict sense. More to the point, why muddy the waters like this? Bush wants to privatize the system and implement drastic benefit cuts and has made it clear that he's not too particular about the details. Democrats ought to engage that debate and that debate alone. If we were to have a conversation on the subject "what changes to Social Security would you implement consistent with maintaining the basic form and function of the current system?" reasonable left-of-center people are bound to disagree about this or that. But we're not faced with that dispute right now.

January 18, 2005 | Permalink

TrackBack

TrackBack URL for this entry:
https://www.typepad.com/services/trackback/6a00d8345160fd69e200d834396c2f53ef

Listed below are links to weblogs that reference Rangel Blows It:

Comments

Why did Al Gore champion a virtual lockbox in 1999 to protect SS from congressional raids- a practice which converts SS into a regressive tax? I commented in depth on my blog, but I find the rather sudden news that the fund is in good shape to be curious- it was perceived to be a real problem in 1999, have things improved in the last 5 years? Was Gore demagoging the issue back then? There is more to the story!

Posted by: CaptainMainline | Jan 18, 2005 11:39:35 AM

The economy has gotten tremendously better since 1999 as the deficit has shrunk Captain.

"As it happens, I do think some reductions in benefit growth for above-median-income retirees are something we should consider (as are enhancements in benefits to a few classes of people), but it's not necessary in any strict sense."

Social Security is not necessary in any strict sense. It is desireable, just like reforming Social Security so it doesn't waste tens of billions of dollars a year on rich and upper-middle class retirees who don't need it. There are two ways to deal with looming change. The conservative way--dig in your heels and resist it with all your might, and the liberal way--find ways to make it better.

Posted by: Sebastian Holsclaw | Jan 18, 2005 11:50:22 AM

Captain - I think the real liberal fear is that Republicans will find some way to default on their debt to the social security administration. The fact that you hear all kinds of conservatives saying things like "it's just IOUs" strongly suggests that they do intend to default. I get the impression that Gore was seeking a mechanism to make it harder for them to default. Personally, I we should never have invested the SS funds in T-bills. We should have invested it in foreign notes. That would have made it harder for them to run up the national debt, too.

Posted by: Josh Yelon | Jan 18, 2005 11:58:01 AM

I didn't realize that our first poster was indeed called 'CaptainMainline' and that the following two posters were, for some unexplained reason, calling him 'Captain.' And that was very funny.

So call me Captain Oblivious then ...

My bigger question is the same one that's alluded to in Matthew's post ... why isn't there a more coherent game plan when it comes to defending Social Security? Why are there so many Democrats - I don't want to say breaking ranks - but offering differing versions of the system, when it's clear to me that a unified front is what's needed to defeat Bush's proposal?

Posted by: Jmac | Jan 18, 2005 12:17:40 PM

I think there is a need to have something written into the law that says what the default method to balance the system. There should be something that says "okay, projections didn't turn out very good or projections turned out better, that means benefits are going to need to change a little." If this was in place, the system wouldn't have a projected deficit and the impetus for changing the system would be greatly reduced. If the only way to get benefit cuts is to privatize at the same time, well, we're going to privatize.

"We should have invested it in foreign notes."
This is a silly idea.

Posted by: Chad | Jan 18, 2005 12:18:02 PM

"I think the real liberal fear is that Republicans will find some way to default on their debt to the social security administration."

Why we would default when we can just cut benefits or raise taxes enough to make it where we pay back the money more slowly than otherwise.

Posted by: Chad | Jan 18, 2005 12:19:47 PM

There's nothing inconsistent about the "lockbox" position. In short, Social Security is in good shape provided nobody tries to raid its trust fund to fix other problems; hence Gore's call for a lockbox.

It's an axiom of human nature that for every big pile of money, there is a group of people who take it as a personal affront that they can't get their grubby little hands on it. The fact that a profligate congress may have the means, motive, and opportunity to divert the social security money promised to me at retirement is not the same as saying the money "won't be there" as if by some immutable law of economics.

Posted by: Paul Callahan | Jan 18, 2005 12:22:39 PM

"I think there is a need to have something written into the law that says what the default method to balance the system."

There is. It's a benefit cut, starting at that moment when the trust fund runs out. According to the SS administration's pessimistic estimate, the effect of the default method would be to cut benefits by about 20%. This would leave benefits at a higher level than they're at today, but still not as much as we would have liked to pay.

Realistically, we shouldn't let that happen. A sudden dropoff in benefits would be a problem for retirees, even if the absolute level after the dropoff is higher than today's level. We need to take some steps to smooth out the curve.

Posted by: Josh Yelon | Jan 18, 2005 1:02:59 PM

I don't think this argument is quite correct. These projections take into account the money in the trust find. Although the government is legally obligated to pay this money (and in that sense the trust fund is a real asset), the only way the governent will be able to make good on this obligation is by issuing new debt.

The real economic issue here isn't solvency of SS, it's whether the issuing of new debt in order to redeem the trust fund will affect the solvency of the government as a whole. And that depends critically on how much debt the *rest of the government* has been running up. If our overall fiscal situation was what it was back in the late 90s when the government was actually paying down it's debts, then SS would be a relatively minor problem. But of course that isn't the situation anymore...

I think the best line for the Democrats to take (both in terms of accuracy and political effectiveness) is: SS was in pretty good shape, until Bush raided the SS lockbox in order to give tax cuts to the rich. Now he's using the crisis he created to try to force through a cut in benefits much more drastic than is necessary.


Posted by: RC | Jan 18, 2005 1:21:35 PM

"Why we would default when we can just cut benefits or raise taxes enough to make it where we pay back the money more slowly than otherwise."

As for "benefit cuts," that's what I expect you to do. But you can't just vote to cut benefits. That would be political suicide. You have to play games. One possible game would be that when the social security administration asks the government to repay its debts, you just don't pay.

Josh: "We should have invested it in foreign notes."
Chad: "This is a silly idea."

Actually, the whole idea of a trust fund was a stupid idea in the first place. Reagan asks to borrow from the working man so he can give a tax cut to the rich. And the Republican party swears, SWEARS, on a stack of bibles, that someday, SOMEDAY, the rich will pay the money back. RIIIGHT. So years later, the working man says "uh, it's about time to repay some of the money," and the Republican party screams "CRISIS! AAAGH! We can't pay off a debt when it's to the WORKING MAN! No! Why did we promise to give money to the working man!? AAAGH! It's .. uh.. it's not a real debt! CRISIS! It's uh... just IOUs, yeah, that's it! CRISIS!"


Posted by: Josh Yelon | Jan 18, 2005 1:44:30 PM

Didn't the trust fund raiding begin under a wholly Democratic Congress?

Posted by: Sebastian Holsclaw | Jan 18, 2005 1:52:59 PM

According to the SS administration's pessimistic estimate, the effect of the default method would be to cut benefits by about 20%. This would leave benefits at a higher level than they're at today, but still not as much as we would have liked to pay...Realistically, we shouldn't let that happen. A sudden dropoff in benefits would be a problem for retirees, even if the absolute level after the dropoff is higher than today's level. We need to take some steps to smooth out the curve.

Well, realistically, it would never happen, whether we want to let it occur or not. (at least I think it never would). Taxes would be raised, and plans made, well before 2042 (assuming the mid range SSA projection). Even if plans were not made, it's hard to imagine any Congress or White House telling seniors in the years 2041: better tighten your belt, grandpa, 'cause next year you're taking a 20% paycut.

When you think about it the only difference between 2041 (the last year under this projection when trust fund assets remain) and 2042 (when they're all gone) is that there's a law forcing us to inject money into Social Security from the general fund in the former year, but not in the latter. Old people vote; I see absolutely no possibility they'll no longer be voting in 2042. (when, come to think about it, I myself will be one of the graybeards clamoring for a tax increase to keep my own check undiminished. Belive me, I know how to bitch).

Posted by: P. B. Almeida | Jan 18, 2005 2:02:30 PM

Yes, the trust fund raiding began when the Democratic congress went along with Reagan's tax cut. But then they came to their senses, passed tax increases and limited spending under Bush 41 and Clinton, and stopped raiding the fund.

A Republican Congress came in, and Clinton stopped them going back to raiding the fund, partially by saying we should 'save social security first'. But once Bush 43 came in, it was back to the same game: raid the trust fund, give tax cuts to the rich

The next step is to use this 'crisis' to justify making Social Secrity benefits less progressive.

And to think that it's the Dems who are always accused of 'class warfare'...

Posted by: RC | Jan 18, 2005 2:04:29 PM


"Even if the SSA is on the mark, we easily have the capacity to make up the rather small gap with a rather small increase in taxes."


Hmmm. This seems to be the "solution" thats been tried a dozen times or so before and not resulted in a final fix. Raising taxes on those yet to be yet to be born is morally bonkers.

Lets see, you want a SS retirement check that offers a higher standard of living that what you were taxed to support. And you want the new Ponzi suckers to pay at a higher rate than you!!!

This must be greedy cold hearted liberalism at its worst.

Posted by: Abdul Abulbul Amir | Jan 18, 2005 2:47:01 PM

Democrats still don't get it. The Republican goal is to get two Social Security related bills passed, one in the House and one in the Senate. That means a conference commttee is needed to "reconcile" the two bills. At that time, the privatization scheme, in it's worst possible form, will be inserted into a 5000 page bill, and the Congress will have to vote on it before anyone gets the chance to read it. That's the real reason it is absolutely essential that Democrats stick to their message - Social Security is fine for now, no changes are needed or even desirable. But, we have no leader in our party.

Posted by: Vaughn Hopkins | Jan 18, 2005 2:48:34 PM

Abdul Abulbul Amir:

Lets see, you want a SS retirement check that offers a higher standard of living that what you were taxed to support.

But it gets worse -- there are some people who buy government bonds and then want more than they paid!

This shameless, greedy liberalism has been going on in the United States for too long. (229 years!)

We've already declared a War on Terror. It's long past time for America to seize the day and declare a War on Compound Interest.

Posted by: A Tiny | Jan 18, 2005 2:57:49 PM

"Raising taxes on those yet to be yet to be born is morally bonkers."

Only a conservative would think that repaying retired people for the support they all gave us when they were younger is morally bonkers. Only a conservative would begrudge them the pathetic 5% of GDP that they'll end up consuming, given that they'll be 20% of the population.

Posted by: Josh Yelon | Jan 18, 2005 3:04:36 PM

Josh Yelon,

SS is actually supposed to consume a little more than that in the future -- under the SSA intermediate assumptions, it rises from 4.33% today to 6.49% in 2054.

Then there are pensions and private savings, which would likely be another 6% of GDP. (Except these are virtuous points of GDP, unlike the evil points of GDP going to Social Security.) And then there's health care.

The interesting thing is that, according to my rough calculations, SSA projections show per capita GDP for everyone under 65 in 2055 being 68% higher than today... even if over-65s are consuming 27.7% of GDP by that point. See here.

In other words, the crushing burden we'll impose on our grandchildren -- under extremely gloomy assumptions (both mine and the SSA's) -- is that they'll be 68% richer than us. In other words, "greedy cold-hearted liberalism at its worst."

Posted by: A Tiny | Jan 18, 2005 3:22:22 PM

Lets see, you want a SS retirement check that offers a higher standard of living that what you were taxed to support.

I see nothing a priori absurd about a financial instrument by which I can purchase tomorrow's standard of living using today's dollars.

Do you think it's "morally bonkers" that I can purchase a 10% stake of a million dollar company today, and collect ten times as much later if it happens to become a ten million dollar company? Isn't that unfair to the people who bought the same stake at a higher price? Is it bonkers that I can use a finite amount of money purchase an annuity that theoretically keeps paying off indefinitely as long as I live--and that might be linked to some index whose value cannot be anticipated ahead of time? How about futures contracts?

I.e., unless you think that most financial instruments (apart from, say, fixed interest bonds) are "morally bonkers" then there is nothing particularly bizarre about being taxed now in return for an entitlement to future payments linked to wage increases.

What I do find bonkers is a scenario in which retirees are expected to live at a substandard income level and told to be content based on the claim that their living conditions were standard at some period in the past. The fact that it was their work in part that resulted in the improved national standard of living makes this not only bonkers but also immoral.

Posted by: Paul Callahan | Jan 18, 2005 3:42:54 PM


>>I see nothing a priori absurd about a financial instrument by which I can purchase tomorrow's standard of living using today's dollars.

If you were doing that, it would not be an issue, but you are not. You are now paying X% of payroll so retirees enjoy Y standard of living. You want future retirees to pay more than you did so you can have a higher standard than you payed for. If you want to buy a financial instruments in the mix, support the President's plan.


>>What I do find bonkers is a scenario in which retirees are expected to live at a substandard income level and told to be content based on the claim that their living conditions were standard at some period in the past.


This is a silly strawman. The CPI reflects current products, not constant prices for obsolete stuff. For example, the CPI does not base food costs on a 1930's world here purchased food largely meant raw unprocessed food.

Posted by: Abdul Abulbul Amir | Jan 18, 2005 4:19:39 PM

Abdul Abulbul Amir:

>>I see nothing a priori absurd about a financial instrument by which I can purchase tomorrow's standard of living using today's dollars.

If you were doing that, it would not be an issue, but you are not. You are now paying X% of payroll so retirees enjoy Y standard of living. You want future retirees (sic -- he means "workers") to pay more than you did so you can have a higher standard than you payed for.

Or if the SSA's low cost projections are correct, you want future workers to pay the same as you did so you can have a higher standard than retirees now.

All the faux-outrage and gobbledygook aside, it's interesting to see conservatives' masks come off on this issue. They truly HATE the idea that anyone can share in higher productivity in some way other than investing privately. Their perspective is that only investors deserve the fruits of a better society -- low earning teachers, firemen, soldiers, nurses, etc. contribute nothing to America's future. Apparently they are just so much dead weight on our nation's hard working bond traders.

Posted by: A Tiny | Jan 18, 2005 4:55:38 PM


"They truly HATE the idea that anyone can share in higher productivity in some way other than investing privately."


But you want higher taxes on future workers not higher productivity to pay for your higher standard of retirement. Since when is 'pay up or else' sharing?

Posted by: abdul abulbul amir | Jan 18, 2005 9:20:29 PM

""If Democrats were in charge, benefits would have to be altered," said Rep. Charles Rangel of New York, the top Democrat on the powerful House Ways and Means Committee. "You cannot fix the system without pain, no matter how much money you borrow.""

Well Chuck, you know as well as I do that if America wasn't trying to play empire, and didn't spend 500 billion a year (not including the costs of invading and occupying Iraq) on the military we would be able to have low taxes without cutting entitlement spending. In fact we'd be able to have universal health care, great schools, public parks with green grass, and generous social security benefits to boot. And we'd still have enough nuclear missiles to blow up the entire world many times over. Empire or entitlements...it's your choice America.

Posted by: Green Dem | Jan 18, 2005 10:28:26 PM

abdul abulbul amir:

you want higher taxes on future workers not higher productivity to pay for your higher standard of retirement.

Actually... no. I want higher productivity to pay for my higher standard of retirement. And so do you. At least, unless you want much more of the GDP to go to profits in the future -- at the expense of wages, of course, thus making it the equivalent of higher payroll taxes. The fact that you'd prefer retirement income to be called "profits" or "capital gains" rather than "Social Security" does not change the fact you want higher productivity.

Now, if it requires somewhat higher payroll taxes, I will not weep bitter tears for this horrible injustice -- any more than people born in 1890 wept bitter tears for the crushing tax burden experienced by workers in 1960... since the workers were probably three times as rich (after taxes) as those born in 1890 had been at an equivalent age.

Posted by: A Tiny | Jan 19, 2005 6:49:44 PM

No more tax increases. Enough is enough. If you can't pay for the program with the current 12% or so, make do.

Posted by: Adam Herman | Jan 21, 2005 2:31:07 AM

The comments to this entry are closed.