Saturday, January 5, 2013

One complaint toward each side on the Social Security discussion

This is nearly utopian level wishful thinking, I know, but here are two arguments in the Social Security discussion that I wish would be abandoned, one from each side. I’ll start with the progressive side, because that’s where I generally live.

Progressives love to point out that Social Security is really off-budget, that it is funded by its own revenue stream, and that by law it cannot spend money from the general fund, and so it cannot contribute to the deficit.  For example, Ed Schultz on the Ed Show made this point forcefully on a recent show, and cited this video of a noted progressive thinker as authority.   When---if---the SS trust fund runs out of money, under current law the SS system would have to live on it’s current receipts, and progressives often cite the 2012 SS Trustees Report, which estimates that current receipts will be sufficient to pay 75% of payable benefits in 2033, declining to 73% in 2086 (which is a far out as the forecast goes).

Ok.  This is technically true.  But honestly, do we, any of us at any point on the political landscape, really believe that the retired population in 2033 will meekly accept a sudden 25% reduction in income?  Do we really believe that Congress will blithely allow this to happen?  The pressure to resolve this will be simply overwhelming, and the results will, without any doubt, spill over into the general deficit.  What’s more, when that calamity is facing us, as progressives we will loudly explain that SS should spill over to the general deficit: our responsibility to care for the elderly will not end when the trust fund is exhausted.  Let’s stop pretending that a future SS deficit can’t be a problem---it can be.  We can argue, reasonably and correctly, that the SS shortfall is not the dominant financial problem (health care costs hold that position by current estimates), and we can argue that repairing the SS shortfall should be fairly easy to do.  But let’s put away the technically-true-but-misleading argument that SS is strictly firewalled away from all other expenses.

And conservatives love to point out that, technically speaking, the SS trust fund is already absorbing taxpayer’s funds since SS already distributes more than it receives from payroll taxes alone; it distributes all of that plus some of the interest income it receives from the Treasury. 

Again, this is technically true in a cross-eyed sense, but utterly misleading.  It’s absurd to claim that the SS system, having saved trillions of dollars over the last several decades, and having provided those saved dollars to the general taxpayers by buying Treasury securities, is somehow to blame for the interest the Treasury now must pay on that debt.  If the SS trust fund sold all of those bonds to someone else, and purchased corporate bonds with the same interest rate instead, it would have the same income from it’s savings and the Treasury would face the same interest payments---but now to China, or whoever purchased the bonds that SS sold.  And of course, the businesses who borrowed money from the trust fund at the (very low!) Treasury interest rate would have to pay interest to the Trust Fund.  Presumably those businesses would not borrow the money unless they thought the profits they could make from investing that money would be greater than the interest they would need to pay.  But if only they didn’t have to pay any interest, their profits would be even higher!  Would the same people who are blaming the SS system for draining the Treasury right now continue to blame the SS system for draining profits from the businesses to which they lent money?  Do they blame banks for extracting interest from businesses who borrow money from them?  I suspect that the answer to these two questions are: yes, and no.  No, they don’t blame banks for charging interest; that, they would explain, is how the system works.  But yes, they would blame Social Security, because Social Security is a government program and they always blame the government first.

In the coming weeks I expect to hear both of these arguments over and over and over again.  In a better world, I wouldn’t hear either of them.

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