Social Security’s Possible Fate: Done in By Its Friends - The Washington Post

By Charles Blahous

Young people often ask me whether Social Security will be there for them. My answer has traditionally been: Yes, it will be there. It will probably pay less than it is currently promising you. You should not expect a generous return on your contributions. You may have to pay more in payroll taxes. But the basic structure of the program is likely to remain intact.

Recent events require a reassessment of this answer. Chances are now markedly increasing that Social Security will eventually cease to operate as the self-financed, earned-benefit system that Americans have long known it to be.

Many recent statements by public officials express a mind-set in which fiscal repairs to Social Security might be deferred for years. Administration officials play down the urgency of action by pointing to still-growing balances in the program’s trust fund. A recent Senate bill would erect steep procedural barriers against many measures to improve system finances. Even the Senate majority leader recently asserted that Social Security could be safely left alone until “two decades from now.”

If these statements are indicative of near-term policies, Social Security is in very deep trouble.
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It's Friday and Charles Krauthammer Is Confused On Social Security Again

Image via WikipediaDean Baker, CEPR in Business Insider Politix

Charles Krauthammer still does not understand the concept of government bonds. He badly wants the government to default on the bonds held by the Social Security trust fund. It seems that the main reason is that these bonds are effectively wealth to ordinary workers, not rich people or banks.

Krauthammer complains that the government bonds held by the trust fund are "special issue" bonds. He must know of a meaning for "special issue" that the rest of us don't. These are non-marketable bonds. That doesn't mean that the government can just default on them as Krauthammer wants to do. The implication -- actually the assertion -- of Krauthammer's piece is that because he doesn't like the people to whom these bonds are owed, the government can default and there would be no consequence.

That obviously is what Krauthammer wants, but that does not make it true. If the government were to default on its debt to Social Security then workers would justifiably be outraged.
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It’s Still an Empty Lockbox - The Washington Post

By Charles Krauthammer

Last week, President Obama’s budget chief, Jack Lew, took to his White House blog to repeat his claim that the Social Security trust fund is solvent through 2037. And to chide me for suggesting otherwise. I had argued in my last column that the trust fund is empty, indeed fictional.

If Lew’s claim were just wrong, that would be one thing. But it provides the intellectual justification for precisely the kind of debt denial and entitlement complacency that his boss is now engaged in. Therefore, once more unto the breach.
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TIME GOES BY | Social Security Part 2: The Trust Fund

by Ronni Bennett

With a few fine exceptions, you would not know from most of the news media – print, television and online – or from Republican politicians that Social Security does not contribute to the deficit and is generally in good shape. It is not, as they claim, “broke.”

With $2.6 trillion in Trust Fund assets that will guarantee payment of full benefits until 2037, their argument is hard to make, but they tortuously and unrelentingly bang away at it. So today, we are going to lay out the facts of the Trust Fund and how it works.

(Actually, there are two trust funds: the old-age and survivors insurance (OASI) trust fund and the disability insurance (DI) trust fund. Although legally distinct, we will not be in error, for our purposes today, to refer to them as the Trust Fund.)

I know this is kind of wonky, but the enemies of Social Security are determined and it's going to be a tough battle to preserve the program. Those of you who care and write about the program – and everyone else, too - need to have the facts so we know when they're blowing smoke our way.

A couple of weeks ago, I spent nearly an hour on the telephone with Webster Phillips, a senior legal representative and Social Security analyst for the National Committee to Preserve Social Security and Medicare (NCPSSM). Today's post is based on that conversation and various documents that Webster pointed me to. (Any errors are mine.)

Before drilling down into details, my overall question was: Why do Social Security opponents keep saying there is nothing in the Trust Fund except worthless IOUs? The simple answer is that they are wrong. Here's how the Trust Fund works:

• All Social Security revenue - which consists of payroll taxes (FICA), taxation of benefits and interest on Trust Fund holdings – is deposited in the Trust Fund.

• All Social Security benefits – old age, survivors insurance, disability - and administrative expenses are paid from the Trust Fund.

• When revenue exceeds payouts, the surplus is invested – by law – in interest-bearing U.S. Treasury securities. These can be redeemed when needed to pay benefits.

This is the point where anti-Social Security zealots argue that the system is broke. One argument is that the federal government has “raided” the Trust Fund - a “misuse” of funds, they say - and it is empty.

As the Center on Budget and Policy Priorities (CBPP) explains, using Trust Fund assets is not a “raid,” it is how government finances are managed – something Social Security detractors misunderstand – willfully or otherwise:

“...a Social Security cash surplus allows the government to borrow less from the public [i.e. U.S. individuals and institutions, the Federal Reserve, foreign investors] to finance the deficit...

“The Treasury always uses whatever cash is on hand – from Social Security contributions or other earmarked or non-earmarked sources to meet its current obligations before engaging in additional borrowing from the public.”

As the writer of the CBPP report goes on to note,

“There is no sensible alternative to this practice. After all, why should the Treasury borrow funds when it has cash in the till?”

The other main argument for Social Security being broke is that the Treasury securities in the Trust Fund are worthless. That is true only if you believe the Chinese, Japan, the U.K. and dozens of other countries are idiots to hold U.S. Treasury securities and are expecting to lose their money.

Here is part of what the Social Security Act says about the Trust Fund securities assets:

”...the obligation shall be incontestable in the hands of the Trust Fund to which it is issued, that the obligation is supported by the full faith and credit of the United States, and that the United States is pledged to the payment of the obligation with respect to both the principal and interest.”

When Social Security revenue falls below outlay, those Treasuries must be redeemed. The CBPP report again:

“When Social Security needs to start cashing in its holdings of Treasury securities to meet its benefit obligations, the federal government will have to increase its borrowing from the public, or raise taxes or spend less.

“That will be a concern for the Treasury – but not for Social Security, as long as the solvency of the federal government itself is not called into question. Social Security will be able to sell its bonds just as any private investor might do.”

So here is what I think about the people trying to weaken or kill Social Security: they want to continue to cut corporate and high-earning individuals' taxes, fire or cut salaries for public employees, fund various wars (I'm getting nervous about Libya) and bail out banks.

Now that the time has arrived to begin using the Social Security Trust Fund (i.e., redeem some of the securities using general funds), they must demonize recipients - elders and the disabled - as greedy geezers to cut benefits and hand the savings over to the already rich.

The ones who understand how Social Security and government funding operate know exactly what they are doing and are making that choice deliberately. Put crudely: money for wealthy, good; money for elders, bad.

Those in Congress who do not understand how it works (it would be an interesting exercise to require the 87 new tea party representatives to take a test on this stuff), go along with their ideological brethren because - well, you know, all government is bad.

FYI: one-half of U.S. retirees receive at least 90 percent of their income from Social Security. The average Social Security benefit is $14,000 per year.

Next – soon – we will discuss rational proposals to secure Social Security far into the future.

TIME GOES BY | Social Security Part 2: The Trust Fund

Cockroach Ideas - NYTimes.com

Image via Wikipediaby Paul Krugman

Way back, when I spent a year in the government, an old hand told me that fighting bad ideas is like flushing cockroaches down the toilet; they just come right back. I’m having that feeling a lot lately, on at least two fronts.

One is the crowding out issue. I keep encountering both the same old misunderstanding of Ricardian equivalence, and people citing evidence from periods when the economy was nowhere near the zero lower bound. The latter was, perhaps, excusable when the idea of a liquidity trap was still new; but folks, we’ve been at the ZLB for two and a half years now:

The other is the whole “the Social Security trust fund doesn’t exist” thing. I’ll just repeat what I said back when Bush was trying to push through privatization:

Social Security is a government program supported by a dedicated tax, like highway maintenance. Now you can say that assigning a particular tax to a particular program is merely a fiction, but in fact such assignments have both legal and political force. If Ronald Reagan had said, back in the 1980s, “Let’s increase a regressive tax that falls mainly on the working class, while cutting taxes that fall mainly on much richer people,” he would have faced a political firestorm. But because the increase in the regressive payroll tax was recommended by the Greenspan Commission to support Social Security, it was politically in a different box – you might even call it a lockbox – from Reagan’s tax cuts.

The purpose of that tax increase was to maintain the dedicated tax system into the future, by having Social Security’s assigned tax take in more money than the system paid out while the baby boomers were still working, then use the trust fund built up by those surpluses to pay future bills. Viewed in its own terms, that strategy was highly successful.

The date at which the trust fund will run out, according to Social Security Administration projections, has receded steadily into the future: 10 years ago it was 2029, now it’s 2042. As Kevin Drum, Brad DeLong, and others have pointed out, the SSA estimates are very conservative, and quite moderate projections of economic growth push the exhaustion date into the indefinite future.

But the privatizers won’t take yes for an answer when it comes to the sustainability of Social Security. Their answer to the pretty good numbers is to say that the trust fund is meaningless, because it’s invested in U.S. government bonds. They aren’t really saying that government bonds are worthless; their point is that the whole notion of a separate budget for Social Security is a fiction. And if that’s true, the idea that one part of the government can have a positive trust fund while the government as a whole is in debt does become strange.

But there are two problems with their position.

The lesser problem is that if you say that there is no link between the payroll tax and future Social Security benefits – which is what denying the reality of the trust fund amounts to – then Greenspan and company pulled a fast one back in the 1980s: they sold a regressive tax switch, raising taxes on workers while cutting them on the wealthy, on false pretenses. More broadly, we’re breaking a major promise if we now, after 20 years of high payroll taxes to pay for Social Security’s future, declare that it was all a little joke on the public.

The bigger problem for those who want to see a crisis in Social Security’s future is this: if Social Security is just part of the federal budget, with no budget or trust fund of its own, then, well, it’s just part of the federal budget: there can’t be a Social Security crisis. All you can have is a general budget crisis. Rising Social Security benefit payments might be one reason for that crisis, but it’s hard to make the case that it will be central.

But those who insist that we face a Social Security crisis want to have it both ways. Having invoked the concept of a unified budget to reject the existence of a trust fund, they refuse to accept the implications of that unified budget going forward. Instead, having changed the rules to make the trust fund meaningless, they want to change the rules back around 15 years from now: today, when the payroll tax takes in more revenue than SS benefits, they say that’s meaningless, but when – in 2018 or later – benefits start to exceed the payroll tax, why, that’s a crisis. Huh?
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Social Security Reform Splits White House Political, Economic Teams - TheHill.com

Image via WikipediaObama is being pulled in opposite directions by those whose priorities are fiscal and those whose No. 1 concern is electoral.

Treasury Secretary Timothy Geithner, National Economic Council Director Gene Sperling and Sperling’s deputy, Jason Furman — leading figures in the president’s economic team — are pressing Obama to cut Social Security benefits if necessary, say sources familiar with their positions.

But Obama’s political team, led by David Axelrod, David Plouffe and Jim Messina, are urging the president to understand that backing benefit cuts could prove disastrous to his 2012 reelection hopes, sources say.
The political team is winning the argument so far, but internal debate rages at the White House as Republicans in Congress insist sweeping efforts to restore government finances must include Social Security reform.

“Gene Sperling and Jason Furman and some of the Treasury people started with the posture that we’re the best people to reform Social Security — that was when the Democrats had a majority in both houses of Congress,” said a Democratic policy expert who has met Obama’s economic policy team over the past two years.

“The same people have continued to make that argument even as they’re now responding to conservatives who are stronger in the Congress,” the source, who strongly opposes benefits cuts, told The Hill.

“There are two camps,” the source added. “One camp wants to be able to throw a bone to Republicans and some [centrist] Democrats.

“The political people would prefer not to be accused of being the party that cuts Social Security in those ways. Some political people would like to see the president out there defending the program and making the case that it has nothing to do with the deficit.”

A second Democratic source, who has pushed to reform Social Security by increasing the flow of revenues to the trust fund and reducing benefits, said, “Geithner’s been the most forward-leaning.”
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Senator McCain on Social Security- NCPSSM Truth Squad

The Truth Is...

Social Security is not bankrupt.  The Social Security Trust Fund holds a $2.6 trillion surplus, contributed by American workers and invested, sensibly, in one of the world's safest investment vehicles - U.S. Treasury notes. However, fiscal conservatives don't want to honor that debt so they pretend it's worthless or non-existent.  That $2.6 trillion was real money when Americans paid it in payroll taxes and real money when the federal government borrowed it. It's also real money when Washington needs to pay it back.  Social Security is not a Ponzi scheme by any definition; it is a pay-as-you-go program which has been self-funded by American workers not the federal government . CBPP, Understanding the Trust Funds

OMB Director Says Social Security Will Be Fine - Washington Whispers (usnews.com)

By Paul Bedard

Jacob Lew, director of the Office of Management and Budget, has a bit of advice to those who say the Social Security sky is falling: Calm down. “People who sit around saying bad things are going to happen,” says the self-described optimist, “tend to contribute to self-fulfilling prophecies.” A budget pro who has studied Social Security for three decades, Lew is not worried about running out of cash. “At the moment, we look out and we see it solidly funded until 2037, and we think it is important to make the commitment to current retirees and workers, who are future retirees, that the system will be sound,” he says. “There is no need to deal with Social Security.”

OMB Director Says Social Security Will Be Fine - Washington Whispers (usnews.com)

Senate Democrats Eye the Lockbox for Social Security, in Al Gore Revival - TheHill.com

By Alexander Bolton

Senate Democrats want to put the Social Security trust fund in a lockbox and insulate it from a broader budget-cutting package designed to reduce the national deficit.

It’s a revival of the concept that former Vice President Al Gore (D) made famous when he sparred with George W. Bush over a proposal to invest a portion of Social Security funds in the private market.
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