Aug 16, 2010

Three-Card Monte

From Paul Krugman writing in the New York Times:
Social Security turned 75 last week. It should have been a joyous occasion, a time to celebrate a program that has brought dignity and decency to the lives of older Americans.

But the program is under attack, with some Democrats as well as nearly all Republicans joining the assault. Rumor has it that President Obama’s deficit commission may call for deep benefit cuts, in particular a sharp rise in the retirement age. ...

[W]here do claims of crisis come from? To a large extent they rely on bad-faith accounting. In particular, they rely on an exercise in three-card monte in which the surpluses Social Security has been running for a quarter-century don’t count — because hey, the program doesn’t have any independent existence; it’s just part of the general federal budget — while future Social Security deficits are unacceptable — because hey, the program has to stand on its own....

And having invented a crisis, what do Social Security’s attackers want to do? They don’t propose cutting benefits to current retirees; invariably the plan is, instead, to cut benefits many years in the future. So think about it this way: In order to avoid the possibility of future benefit cuts, we must cut future benefits. O.K.

What’s really going on here? Conservatives hate Social Security for ideological reasons: its success undermines their claim that government is always the problem, never the solution. But they receive crucial support from Washington insiders, for whom a declared willingness to cut Social Security has long served as a badge of fiscal seriousness, never mind the arithmetic. ...

4 comments:

Anonymous said...

Excellent article. The news coverage of the recent SS board of trustees report emphasized that SS is now paying out more than it is taking in. This is in spite of the fact that the report says the SS trust fund will continue to grow until 2027. How can this be? The popular media ignores the fact that income to the trust fund does not come only from payroll taxes. Taxation of benefits and interest income from the trust fund assets are also significant sources of funding that will allow income to continue to exceed the outlay. It is another case where opponents of SS want it to be self-funded from payroll taxes and consider it to be in the red if it is not, but at the same time they don't want to pay the interest due to the trust fund after decades of spending the surpluses in payroll taxes.

Nobbins said...

Ah, good to see this on your blog. I was gonna email you about this otherwise.

My favorites:

"[The fact that] Social Security has been running for a quarter-century doesn’t count — because hey, the program doesn’t have any independent existence; it’s just part of the general federal budget — while future Social Security deficits are unacceptable — because hey, the program has to stand on its own. "

"In order to avoid the possibility of future benefit cuts, we must cut future benefits."

Don Levit said...

Anonymous:
Taxation of benefits and interest income arise from general revenues. Income taxes on benefits are paid into the general fund of the Treasury.
Interest income is "paid" by issuing Treasury securities.
You may recall that Roosevelt didn't want general revenues to pay for Social Security. It was to be self-supporting.
I don't have a problem with the trust fund being paid back.
That money was borrowed years ago, and spent for battleships, education, etc.
The problem is just that - the money was spent.
Now, intragovernmental debt (debt between the Treasury and the trust fund) becomes public debt. And, this public debt must be paid, and it gets no assistance from the trust fund, because the trust fund is not cash.
So, the public debt increases, for it is paid from - you guessed it-borowing from the Treasury's general fund.
Don Levit

Anonymous said...

If the SSA trust funds are not repaid, it will be the first time the US government has reneged on its debt since ??? The issue should be framed in terms of whether the US government is going to welsh on a just debt.