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Jun 24, 2011

Congressional Hearing On Social Security Funding

 The House Social Security Subcommittee held a hearing yesterday on Social Security's finances. 
Stephen Goss, Social Security's long time Chief Actuary, testified about the underlying cause of Social Security's long term financing problem:
... [T]he real reason for the rising cost of Social Security over the next 25 years is the aging of the population, not principally because we are living longer or because of the post-World War II baby boom, but because of the drop in birth rates since the baby boom. ...
The fact that overall birth rates dropped from 3 to 2 children per woman in the United States has led directly to the change in the age distribution of our population that presents a financial challenge not only to Social Security and Medicare in the future, but also to every aspect of our economy. ...
Goss also addressed the question of whether the Social Security trust funds have any real significance:
Perhaps the strongest evidence of the importance of the trust funds is constraint they provide on program financing. History clearly shows that Congress is moved, even forced into action anytime a trust fund approaches exhaustion.
Thus, while Social Security has run a cumulative surplus of $2.6 trillion since it started collecting taxes in 1937, the rest of government has run up a debt now over $14 trillion and rising.
 Will this argument convince those who believe that the Social Security trust funds are a meaningless abstraction? Of course, not. They would be arguing that it's a meaningless abstraction even if the trust funds were completely invested in gold ingots.

The Subcommittee also heard from: 
  • The Chief of Staff of the Joint Committee on Taxation, whose written remarks are about as tedious as one would expect from someone in his position.
  • Someone representing a group of state and local employees who don't want to be covered by Social Security. Are you really sure given what's happening to public employee pensions?
  • Alex Brill (who testified that if we raise the FICA tax, we should do it by extending it to employee benefits, which means that he's arguing for a middle class tax increase instead of an increase in taxes just on the wealthy) and Andrew Biggs (who recommended lowering benefits -- but not on poor people), both of whom work for the American Enterprise Institute and are thereby indirectly on the payroll of the Koch brothers.
  • Mark Warshawsky, formerly a Bush Treasury appointee whose main job at the time seemed to be promoting Social Security privatization. He is now on the Social Security Advisory Board. He almost literally pleads in his written remarks that we not increase Social Security taxes on the wealthy. The first reason he gives is that this group has not "seen particularly large gains in earnings." His argument is that those earning between about $100,000 and $215,000 haven't had big earnings gains. It's those earning above $215,000 who have had the big gains! That's your best argument?

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  • 3 Comments:

    Blogger Tim said...

    Check out an evaluation of Social Security Solvency at http://timargues.blogspot.com

    11:14 AM, June 24, 2011  
    Blogger Don Levit said...

    THe FASAB is the accounting advisor for the federal government.
    In a paper published June 21, 2011 entitled "Revisions to Identifying and Reporting Earmarked Funds: Amending Statement of Federal Financial Accounting Standards 27:"
    page 35 "Investments in Treasury securities for funds from dedicated collections should be accompanied by a note that explains the following issues:
    The U.S. Government does not set aside assets to pay future expenditures associated with funds from dedicated collections. Instead, the cash generated from such funds is used by the U.S. Treasury for general Government purposes.
    Treasury securities are issued to the fund as evidence of dedicated collections and provide the fund with the authority to draw upon the U.S. Treasury for future authorized expenditures.
    Treasury securities held by a fund from dedicated collections are an asset of the fund and a liability of the U.S. Treasury, so they are eliminated in consolidation for the U.S. Government-wide financial statements.
    When the fund from dedicated collections redeems its Treasury securities to make expenditures, THE U.S. TREASURY WILL FINANCE THOSE EXPENDITURES IN THE SAME MANNER THAT IT FINANCES ALL OTHER EXPENDITURES."
    http://www.fasab.gov/pdffiles/exposure_ef_2011.pdf.
    Don Levit

    1:12 PM, June 24, 2011  
    Anonymous Anonymous said...

    Riiiight. This has been the case since time immemorial. Nice that you have discovered it.

    12:40 PM, June 25, 2011  

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