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Social Security in violent transition?
Jackie Calmes at the NYT has a good summary regarding the last minute effort to get an extension of the 2% payroll tax reduction for 2012. (There is consideration this morning for a two month extension) There are some subtleties of the debate that are worth noting. Both sides agree that an extension should happen, but within both parties there is surprising opposition. The lovers of Social Security see the handwriting on the wall. They fear that a second year of a payroll tax break may be the last step leading to significant changes in America’s biggest social program.
However, that the payroll reduction hurts SS is a common misperception. That's not correct. Every month, the Treasury transfers cash to SS in order to make up for the shortfall. I follow this stuff; if these transfers had not been made, I (and a bunch of others) would have blown the whistle months ago.
As a result of these transfers, SS ends up unharmed by the tax break. Other taxpayers foot the bill. But since we have a deficit to begin with, this just adds to the countries red ink. Uncle Sam is digging into one pocket and transferring wealth to SS. This is the socialization of Social Security. What does it mean if SS becomes a ward of the state? Charles Blahous, an ex Bush advisor had this to say:
“The payroll-tax cut would take a major step toward transforming Social Security from what it has long been — an earned benefit, funded by separate worker payroll taxes — into an income-tax based system more akin to welfare.”
For years the SS defenders have pointed out that SS is self-funding and does not contribute to the deficit. That was not true in 2011 (to the tune of $115b). The on-budget expense/increase to public debt will be $120b in 2012. That’s real money.
It's an unfortunate fact that the US economy will flounder if workers pay only 2/3rd of the statutory rate in 2012. That’s how fragile the economy is. It’s not likely that things will be much different a year from now. Another “one time only" extension of the FICA tax breaks will be on the table twelve months from today. From the Times:
Robert Reischauer, Ex CBO and SSA.
“Imagine that next December the unemployment rate is 8 percent and a year later it’s 7.4 percent. We’ll still be trying to stimulate employment and terminating the payroll tax holiday will be a big hit on most families, one that will hurt job growth.”
Reischauer is right, we will not revert to the statutory rates, much less the 1% increase that is require to stabilize SSA. I think he's also correct with his projection of a huge fight:
“The nightmare that I have is that when it comes time to raise the tax back up to 6.2 percent, conservatives are going to propose that these two percentage points of payroll tax be devoted to individual accounts. That will precipitate a huge fight and could change Social Security in a fundamental way.”
There is a huge brawl in front of the country on this issue. Folks on both sides are deeply entrenched. The following is an exchange I saw on Angry Bear blog. It's an example of the rhetoric we will get, The fellow who wrote this, Dale Coberly, is a fairly well-know contributor to the SS debate. Dale loves SS and hates anyone who thinks that changes are required. If you have any doubts how visceral a fight we're in for, consider this bit of fluff:
rjsjust a heads up...Bruce Krasting says Social Security 2011 - Another Bad Year...he concludes: The current thinking is that SS is a problem that can be worried about in another ten years or so. That's simply not true.12/08/2011, 13:00:51– Reply
coberly
rjsthere are bigger liars than Krasting writing about SS. I can't keep up with them all, and with Obama killing SS outright with the permanent payroll tax holiday, and the Democrats and Progressives rallying behind him, there is nothing more I can do.
Maybe Krasting will be out of a job soon.
The stalwarts of SS recognize that the program is now vulnerable. They want bad things to happen to those who believe changes are essential. We're going to have a fight. A big one. Think, “Age Warfare”.
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Do not worry. Nothing left already unless you want to count IOUs in a "lock-box".
I forget... is $120 Billion for Social Security a significant amount? ...I'm still dazed and confused from the Fed handing banks $7 Trillion.
IRRC $120 Billion is about 10% of US Federal revenues and 10% of the deficit spending amount we seem to be addicted to these days.
IOW the current budget revenues do not lay aside any significant monies for funding SS, so the $120 Billion HAS to be from the deficit spending catastrophy, AND is additive annually to that deficit spending (IE becomes a structural necessity).
Considering that each $1 of new debt is actually reducing the GDP of the country, essentially we are rapidly eating our seed corn and due for a good dose of starvation to come.
Hope you all know how to plant potatos, corn, beans, etc. 'Cause good eating is conductive to good health.
Yes, $120b is a big deal. it would be a very big deal if it were to become permanent.
As bad at the $7 T was, that money has been repaid. But this money will never be repaid. It will come to a few trillion over the next decade.
Hey Bruce,
I really want to know if you are a paid liar, or a total dunce.
The $115B that SS "added to the deficit" is the interest owed to the trust (and it was $116B BTW).
The Fed just "bought" $1.2T in Treasuries, doesn't that add to the deficit?
Of course the differen is one of those is the result of sweat and blood, the other printed out of thin air to reduce the interest rate paid to people who actually lent their government money in good faith.
Seriously Dude, you owe the World an apology. And I hope you pray hard every night to the Almighty for how lucky you have been, cause Darwin supposed to take care of people like you.
B.S., the 120B is direct stimulus, and one of the few current policies that is actually helping to keep the economy afloat. If tax payers weren’t spending it here, we’d be spending it on increases in other social welfare programs like food stamps, unemployment benefits, and increased state taxes. Pick your poison. If you think this is bad now, wait till we try to privatize SS.
I'm out of the loop on your last point;"wait till we try private SS.".
I have my own private "SS" and it works for me. I don't label it as "Social" security though. I term it "private property and personal security", gathered through self-reliance and "retirement planning".
I think the founding fathers advised about this current outcome. If one studies both sides of their monetary proposals (both sides were addressed at the time, what with the Hamiltonian and the Jeffersonian posoitiond being debated broadly) and with the history of both proposals having been practiced, in all their facets, thier outcomes are visible to the interested observer.
I took the Jeffersonian (Austrian) position and have established a private retirement account that will be distributed as my needs dictate, not the government. I see this retirement spreading through the social fabric as it gets spent.
I hear what your saying, I do. But if you think we'll get anything like a 100% self-directed retirement out if privatization, your sadly mistaken. At best, we'll get the present 401k system that's ran by the same people that are fucking us all now. I don't want my life savings in the hands of anyone but myself. Their won't be a opt out, I guarantee you.
Now hear this! They own the ballpark and the game and can change the SS goldposts on whim. Because of their theft of the purchasing power of my savings, I pulled the trigger and I have opted out. It's in my hands. You take the tax hit and pay those fuckers out. Walk away and don't look back. Find or prepare another path. It's all a journey anyway, so write the script and star in your own the play. Fuck, you can even award yourself an oscar, cos it's your script.
They are ganbanging us in broad daylight now I refuse to co-operate. They'll just have to forgive me if I clamp my buttocks in resistance.
Bruce, do you really believe it has been repaid?
Even if it "has", I don't recall getting a 0.05% loan from the FED, did you?
Yep, all paid back *WinkWinkNodNod*
Yes, Of COURSE the same institution that happened to lie about loaning the money out, won't lie about it being paid back!
If repaying the debt is opening up shell corps and taking loans from them and moving the funds to the debtor then yes, they paid back the $7 trillion.
In the 1970's (the last time the economy went south seriously) the political class used gender and racial warfare to keep the people divided and pliant. The political class is looking for a new product for the 2010's. Age warfare seems to fit the bill. SS may or may not actually be harmed. But like the cold war and abortion this is an issue with a potential long life and will get lots of people involved with the political class. No clear-cut solution will ever be forthcoming.
So remember kids, keep an eye on the left hand while the right hand grabs the real prize. Thanks, Bruce.
good point, they know this will create generational warfare while we all ignore the real enemy, conman, and thief. The title should read: Social Security in a transition that will turn to violence