[Speed Gibson,
Sunday February 13, 2005 at 9:36pm]
Maybe We're Winning on Social Security
I have posted earlier how well President Bush performed in Tampa at an admittedly staged town hall meeting explaining his views on Social Security. I have also posted on two recent Minneapolis Star Tribune (MST) editorials advocating the "do nothing" position, both laced with personal attacks.
They're back again this Sunday for a third attempt. The language is more restrained and coherent this time, but they still have it wrong. I wonder: maybe we're winning?
Why use all this ink and vitriol to repeat what you've said? Because it's not working. I wish I could remember where I saw it, but another blog had it right: DEMS TO YOUNG WORKERS: DROP DEAD. (This referred to the famous 1975 headline "Ford to City: Drop Dead" in The New York Daily News after President Gerald Ford refused to give bankrupt New York City any Federal aid.) Young workers, 401-K's in hand, quickly understand the Social Security situation when it's explained to them plainly.
The MST senses quite correctly that the whole concept of the Social Security Trust Fund is what drives this issue. If the general public, particularly the young, come to truly understand Social Security's finances, reform will pass quickly. Hence, we have a third installment of "What, Me Worry?" to try to put our minds at ease, despite the facts.
First of all, what the President said is absolutely true. Every dollar of payroll tax is spent, just as he said, on benefits and programs. Now perhaps "myth" isn't the best word choice, but let's also look up "trust" in the dictionary. The online Merriam-Webster dictionary says a trust is "a property interest held by one person for the benefit of another." (The other meanings clearly don't apply here.)
The Social Security Administration is not exactly known for truth-telling as Milton and Rose Friedman sharply noted in their 1979 book Free to Choose. But the quote above is correct as far as it goes. But the MST uses this to say that the Social Security surplus is not being spent on other government programs as Bush and so many economists claim.
President Bush implied no such thing as default; the MST conveniently inferred it. "Finding the funds" means raising taxes - dramatically if we continue to do nothing today. Short of that, cutting benefits would be far preferable, even politically to default, for the reasons the MST gives.
The MST would shriek in horror if W or any subsequent President truly did live up to the Constitution, vetoing all of the spending not specifically authorized as it requires. But this point is silly anyway, especially if you consider the historical context of this language. Indeed, the "do nothing" policy preferred by the MST is what truly would be damaging to the "validity" of the public debt.
Bill Clinton sought to run surpluses? Like Welfare Reform, he was dragged kicking and screaming to that party. And much as the 1994 Republican Congress would like to take credit, most of it was simply a windfall from the Y2K spending and dot-com bubble. And while its true that the Public debt, that owed to the outside world dropped, the total national debt continued to climb throughout, precisely because of the Intragovernmental borrowing we're talking about here.
I'll ignore the tax cut rhetoric. I'll ignore the fallacy of static analysis. I'll ignore the nonsense about tax cut money being "given out" by the government rather than simply kept by its true owners, the taxpayers. I'm confused by this statement that this current money was "duty-bound" (by what policy or law?) for repayment of the bonds held in the "trust" fund. But Social Security isn't selling; they're buying ever more of these non-Public bonds and will be for years. Then MST says its destined to pay benefits, presumably future benefits since current needs are covered. To fulfill that role, the money would have to be saved, not spent as it is today.
For the fact remains that there is no Trust Fund in the dictionary and financial sense. The actual cash comes in, the actual cash goes out, and entries are made in a ledger book showing ownership of Treasury bonds for the amount spent on other government programs. To pretend that issuing bonds to yourself somehow creates or stores wealth is absurd, obviously so to anyone with common sense.
We could all be happier with Bush's financial performance in his first term, despite the recession and the war. But to say that' s by design to dismantle Social Security, well, that I simply have to call a lie by the MST, a poor substitute for the reasoned argument they apparently could not produce.
The stakes are high, not just with Social Security, but with entitlements in general. We should be having serious, robust debate on these programs and their financing, not these continuing fact-starved diatribes.
They're back again this Sunday for a third attempt. The language is more restrained and coherent this time, but they still have it wrong. I wonder: maybe we're winning?
Why use all this ink and vitriol to repeat what you've said? Because it's not working. I wish I could remember where I saw it, but another blog had it right: DEMS TO YOUNG WORKERS: DROP DEAD. (This referred to the famous 1975 headline "Ford to City: Drop Dead" in The New York Daily News after President Gerald Ford refused to give bankrupt New York City any Federal aid.) Young workers, 401-K's in hand, quickly understand the Social Security situation when it's explained to them plainly.
The MST senses quite correctly that the whole concept of the Social Security Trust Fund is what drives this issue. If the general public, particularly the young, come to truly understand Social Security's finances, reform will pass quickly. Hence, we have a third installment of "What, Me Worry?" to try to put our minds at ease, despite the facts.
Last Wednesday, speaking at the Commerce Department, President Bush said of Social Security, "Some in our country think that Social Security is a trust fund -- in other words, there's a pile of money being accumulated. That's just simply not true. The money -- payroll taxes going into the Social Security -- are spent. They're spent on benefits and they're spent on government programs. There is no trust."
There's no easy way to say this: The president is wrong or is deliberately trying to mislead the American people. His careless use of language is especially damaging because, just when voters and Congress need to make careful decisions about Social Security, it feeds popular misconceptions that the trust fund is a myth and unnecessarily undermines confidence in the system's finances.
First of all, what the President said is absolutely true. Every dollar of payroll tax is spent, just as he said, on benefits and programs. Now perhaps "myth" isn't the best word choice, but let's also look up "trust" in the dictionary. The online Merriam-Webster dictionary says a trust is "a property interest held by one person for the benefit of another." (The other meanings clearly don't apply here.)
Here's what the Social Security Administration says on the topic: "Presently, Social Security collects more in taxes than it pays in benefits. The excess is borrowed by the U.S. Treasury, which in turn issues special-issue Treasury bonds to Social Security. These bonds totaled $1.5 trillion at the beginning of 2004, and Social Security receives more than $80 billion annually in interest from them."
It's no accident that Social Security is running surpluses today. A 1983 commission headed by Alan Greenspan, now chairman of the Federal Reserve, recommended increasing the payroll tax so that a surplus would develop to offset the drain on Social Security when baby boomers begin to retire. It's true, as Bush indicated, that most of the payroll revenues coming in today go out again immediately in benefits to retirees and the disabled. But not all of them. Social Security has to find a safe, secure investment for millions of dollars of annual surpluses. If skeptics think that U.S. Treasury bonds are a fiction, where would they invest the money?
The Social Security Administration is not exactly known for truth-telling as Milton and Rose Friedman sharply noted in their 1979 book Free to Choose. But the quote above is correct as far as it goes. But the MST uses this to say that the Social Security surplus is not being spent on other government programs as Bush and so many economists claim.
It's true that Washington will have to find the funds to repay those bonds, starting about 2018, when Social Security needs the money. But what Bush implied Wednesday was that the U.S. government will default on those bonds. That is an incredibly irresponsible action for a president even to suggest. We can only imagine how it will be viewed by the Bank of Japan, the nation's big insurance companies, and millions of individual investors who collectively hold $4 trillion in similar Treasury bonds and who fully expect to be repaid.
President Bush implied no such thing as default; the MST conveniently inferred it. "Finding the funds" means raising taxes - dramatically if we continue to do nothing today. Short of that, cutting benefits would be far preferable, even politically to default, for the reasons the MST gives.
Moreover, as some have pointed out, the president's approach hints at being simply unconstitutional. Amendment 14, ratified in 1868, says in Section 4 that, "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." The president, need we point out, has taken an oath to preserve, protect and defend the Constitution.
The MST would shriek in horror if W or any subsequent President truly did live up to the Constitution, vetoing all of the spending not specifically authorized as it requires. But this point is silly anyway, especially if you consider the historical context of this language. Indeed, the "do nothing" policy preferred by the MST is what truly would be damaging to the "validity" of the public debt.
To be sure, repaying the trust fund bonds when Social Security needs the money will be a fiscal challenge. But that's exactly why President Bill Clinton sought to run budget surpluses in the late 1990s and insisted that Congress dedicate the money to paying down federal debt. It worked: Federal debt held by the public dropped for four consecutive years, from 1998 to 2001, the first time that had happened since 1969.
Bill Clinton sought to run surpluses? Like Welfare Reform, he was dragged kicking and screaming to that party. And much as the 1994 Republican Congress would like to take credit, most of it was simply a windfall from the Y2K spending and dot-com bubble. And while its true that the Public debt, that owed to the outside world dropped, the total national debt continued to climb throughout, precisely because of the Intragovernmental borrowing we're talking about here.
It is also why the Bush administration's fiscal policies are so disastrous for the nation. The money he gave out in tax cuts, mostly to upper-income taxpayers, was money the government already was duty-bound to use for repayment of those bonds held in the Social Security trust fund. It was money destined to pay the old-age benefits that will keep many seniors out of poverty.
I'll ignore the tax cut rhetoric. I'll ignore the fallacy of static analysis. I'll ignore the nonsense about tax cut money being "given out" by the government rather than simply kept by its true owners, the taxpayers. I'm confused by this statement that this current money was "duty-bound" (by what policy or law?) for repayment of the bonds held in the "trust" fund. But Social Security isn't selling; they're buying ever more of these non-Public bonds and will be for years. Then MST says its destined to pay benefits, presumably future benefits since current needs are covered. To fulfill that role, the money would have to be saved, not spent as it is today.
For the fact remains that there is no Trust Fund in the dictionary and financial sense. The actual cash comes in, the actual cash goes out, and entries are made in a ledger book showing ownership of Treasury bonds for the amount spent on other government programs. To pretend that issuing bonds to yourself somehow creates or stores wealth is absurd, obviously so to anyone with common sense.
The huge deficits Bush continues to rack up, moreover, will make it exceedingly difficult to repay those bonds. It appears that is by design, to make possible the dismantling of the Social Security program. Bush is selling snake oil, and the American public should refuse to buy it.
We could all be happier with Bush's financial performance in his first term, despite the recession and the war. But to say that' s by design to dismantle Social Security, well, that I simply have to call a lie by the MST, a poor substitute for the reasoned argument they apparently could not produce.
The stakes are high, not just with Social Security, but with entitlements in general. We should be having serious, robust debate on these programs and their financing, not these continuing fact-starved diatribes.