Reality Check: Why Truth Will Protect Social Security (Marshall Auerback and Randall Wray)

[ProSense]

This is a follow-up to this piece

Reality Check: Why Truth Will Protect Social Security

by Marshall Auerback and Randall Wray

Myths and misconceptions about our best-loved program only add fuel to the critics’ fire.

It is clear from the comments on our last piece that we might have raised more questions than we answered. Above all, we want to make clear that when we discuss the funding aspects of the Social Security program, we are doing so in a way that is designed to safeguard it, not eliminate it. We believe that fictions are not necessary, because the truth will protect the program better than distortions, however well-intended. Enemies have lied enough; supporters do not need to battle fictions with more fictions. Here we will deal with a dozen issues surrounding the proposed payroll tax holiday, and illustrate why we do not believe that the holiday is a danger to the program — as long as we understand the facts.

1. Social Security Has Deep Support. Social Security is consistently counted as America’s most popular program. It lifts millions of seniors out of poverty <...>

2. Social Security is a Generational Promise....

3. There is No Viable Alternative.<...>

4. The Payroll Tax is Unpopular.<...>

5. Tying Social Security to the Payroll Tax is Problematic. <...>

6. Ignoring “Financing”, There is no Social Security Crisis.<...>

7. Sustainability Calculations Are Distorted. <...>

8. The Holiday is Good for the Economy.<...>

9. Payroll Taxes Do Not “Pay for” Social Security. Let us first look at this from a conventional viewpoint of government finance. Benefit payments are made by Treasury, just like any other federal government spending. Payroll taxes are paid to Treasury, just like any other federal taxes. If total spending, including Social Security, exceeds total tax revenue, including payroll taxes, the government records a budget deficit. It does not matter whether one part of the budget — say Social Security — receives dedicated taxes greater than spending. We can just as easily imagine that fuel taxes “pay for” transportation, and that income taxes “pay for” military adventures. If Social Security runs a surplus but the rest of the budget runs an equal deficit, the government has a balanced budget. It can say that the rest of the budget “owes” Social Security — but that is just internal record keeping. Later, if the rest of the budget continues to run deficits and then Social Security also runs a deficit, the sum of those two equals the budget deficit — an external deficit. The internal records that show Social Security has run years’ worth of surpluses do not change that fact at all. From the perspective of the budget as a whole, this internal accounting makes no more sense than when a household allocates the husband’s income to the house payment and the wife’s income to the auto loan with careful record keeping to track the husband’s debt to the wife when he comes up short. If total income is less than spending, there is an external budget deficit and the wife cannot collect from the husband on all the internal debts he may owe her from previous years.

But in reality, the government is not like a household and we cannot use conventional views about government finance. While we treat tax revenues as “income,” it is not the same as a household’s income and does not really finance government spending in the way that a household’s income finances its spending. The government actually receives back its own IOUs when taxes are paid; it issues its own IOUs when it spends. Deficits mean it issues more IOUs than it receives back. It cannot run out of its own IOUs. This is not a policy proposal, but rather a description of government spending.

<...>

10. Political Reality Check. Our support for a tax holiday has been labeled “politically naïve.” You want political reality? Retaining the fiction that payroll taxes “pay for” Social Security only gives ammunition to the enemies for the reasons we discussed above — it makes it possible to calculate the program’s shortfall. Amazingly, Social Security’s “friends” (like President Clinton and Candidate Gore) accept those calculations! And just what do many “progressives” advocate to resolve the program’s projected financial shortfall? Raising the cap so that taxes can be increased on higher income people. That is supposed to be politically popular — a way to influence friends and convert enemies? Social Security is already a bad “money’s worth” deal for high income people, who would much rather pull out and invest their savings in Wall Street.

<...>

11. Defending the Payroll Tax Plays Into the Hands of Social Security’s Foes.<...>

12. Americans Want a Better Life for Future Generations.<...>

Very interesting points worthy of discussion.

[Name removed]

1. Deleted message

Sub-thread removed by moderator. Click here to review the message board rules.

[iamtechus]

2. The OP is misleading and probably intended to confuse. Read this:

Top 5 Social Security Myths

Myth #1: Social Security is going broke.

Reality: There is no Social Security crisis. By 2023, Social Security will have a $4.6 trillion surplus (yes, trillion with a ‘T’). It can pay out all scheduled benefits for the next quarter-century with no changes whatsoever. After 2037, it’ll still be able to pay out 75% of scheduled benefits—and again, that’s without any changes. The program started preparing for the Baby Boomers’ retirement decades ago. Anyone who insists Social Security is broke probably wants to break it themselves.

Myth #2: We have to raise the retirement age because people are living longer.

Reality: This is a red-herring to trick you into agreeing to benefit cuts. Retirees are living about the same amount of time as they were in the 1930s. The reason average life expectancy is higher is mostly because many fewer people die as children than they did 70 years ago. What’s more, what gains there have been are distributed very unevenly—since 1972, life expectancy increased by 6.5 years for workers in the top half of the income brackets, but by less than 2 years for those in the bottom half. But those intent on cutting Social Security love this argument because raising the retirement age is the same as an across-the-board benefit cut.

Myth #3: Benefit cuts are the only way to fix Social Security.

Reality: Social Security doesn’t need to be fixed. But if we want to strengthen it, here’s a better way: Make the rich pay their fair share. If the very rich paid taxes on all of their income, Social Security would be sustainable for decades to come. Right now, high earners only pay Social Security taxes on the first $106,000 of their income. But conservatives insist benefit cuts are the only way because they want to protect the super-rich from paying their fair share.

Myth #4: The Social Security Trust Fund has been raided and is full of IOUs

Reality: Not even close to true. The Social Security Trust Fund isn’t full of IOUs, it’s full of U.S. Treasury Bonds. And those bonds are backed by the full faith and credit of the United States. The reason Social Security holds only treasury bonds is the same reason many Americans do: The federal government has never missed a single interest payment on its debts. President Bush wanted to put Social Security funds in the stock market—which would have been disastrous—but luckily, he failed. So the trillions of dollars in the Social Security Trust Fund, which are separate from the regular budget, are as safe as can be.

Myth #5: Social Security adds to the deficit

Reality: It’s not just wrong—it’s impossible! By law, Social Security’s funds are separate from the budget, and it must pay its own way. That means that Social Security can’t add one penny to the deficit.
----------------------------------------------------------------------------------
http://delmontpda.wordpress.com/2010/08/15/top-5-social-security-myths-debunked/

[ProSense]

3. Why don't you cite where the OP is misleading? Also, maybe

you should read this.

[iamtechus]

4. You don't get something for nothing.

If taxpayers are given a "payroll tax holiday", that will mean that 112 billion dollars will be taken from the general fund to repay the SS trust fund, thereby adding it to the deficit. Currently, we can claim that SS doesn't have anything to do with the deficit. That would no longer be true and would make SS vulnerable to the deficit hawks.

The social security system pays for itself and is solvent. Let's not fuck it up.

[ProSense]

6. This is the exact problem the OP addresses

" If taxpayers are given a "payroll tax holiday", that will mean that 112 billion dollars will be taken from the general fund to repay the SS trust fund, thereby adding it to the deficit."

Why is Social Security being linked to the deficit, even as a matter of moving money?

Social Security should be protected, but the payroll tax is regressive. This isn't to say get rid of taxes, but they shouldn't be linked to Social Security in the way they have been since Reagan. People who work should be guaranteed support in retirement.

Talking about health care as a right, Social Security should be a right. There are ways to fund programs that benefit society without the stigma of an impending crisis.

[Donnachaidh]

7. uhh -they cited 5 reasons

Certainly put more of a response in their reply :eyes:

[ProSense]

8. None of the reasons are

pertinent to the points in the OP. The reasons are debunking RW talking points, not addressing the points made by the OP authors.

[AndyTiedye]

5. Lowering the Payroll Tax Rate, but Raising the Cap

would make the payroll tax less regressive. It is currently the most regressive tax the Federal government levies.

Turns out Obama has actually proposed that. Funny we don't hear more about that here at least.

Does anybody have revenue calculations for the current payroll tax vs, the lowered rate in the tax bill, but with the cap removed?