Blogs > Cliopatria > Social Insecurity

Feb 10, 2005

Social Insecurity


by Cliopatria


Just one quick observation.

Without the Social Security surpluses of the 1990s, President Bush would never have been able to push through his tax cuts for the wealthy in 2001.

In fact, without the Social Security surpluses there would have been no general surpluses in the 1990s.

It was because Social Security was bringing in billions of surplus dollars that the budget was finally in the black.

So President Clinton shouldn't have talked about the budget being in balance. It wasn't.

In a way then the Democrats are to blame for the Republican Social Security scam. The Democrats bragged about a surplus that didn't really exist and the Republicans took advantage of that rhetoric about a non-existent surplus to push through Bush's tax cuts.

In the Democrats' favor is that President Clinton wanted to use the surplus Social Security revenues to pay down the national debt, which would have helped the government weather the coming shortfall in Social Security revenues.

In the Republicans' favor ... well, I can't think of anything. They used a bogus surplus to sell unfair tax cuts and are now trying to push through a bogus "reform of Social Security that doesn't even address the problem it is supposed to rectify, as Slate and the NYT have figured out. Indeed, instead of fixing Social Security, Bush's reform adds a couple of trillion dollars in debt to the mess.

And they call this the greatest democracy on earth!

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John M Morgan - 2/24/2005

Dave Koitz’ CRS report you posted is very useful, though it does not support your blanket statement that “Social Security inflows and outgoes have not been part of the federal budget since 1984.”

In fact what it explains is that the government has essentially been keeping 2 sets of books. Politicians want to have it both ways, so they can say they are protecting SS with separate accounting, but trot out the “unified budget” when it suits their purposes of claiming they have balanced the budget or make the case that we can afford a tax cut.

The “unified budget” is also routinely used to make the military portion of the budget look like a much smaller portion than it is when the SS trust funds are accounted for separately.

The editor’s “Social Insecurity” statement is too short to explain the situation in detail, but everything he says in it is essentially correct. The CRS report supports his statement that Clinton’s budget was not in balance when SS funds are accounted for separately and that the Bush administration used this fake balance to promote its tax cuts. The report is out dated so it doesn’t show the results of Bush’s budgets.

There is not yet a definitive answer to the question of whether the government securities that represent borrowing from the SS trust fund are just as binding as other government debt. How secure they are is dependent on the battle for public opinion and perception that is currently being waged.

Many who want to protect the present SS system declare emphatically that the trust fund surpluses that have been borrowed for general government spending are just as binding as any other government bonds. However many others are busy undermining confidence in this obligation. For instance Allan Sloan in Newsweek (2/14/05 p.43) says: “. . .the fund’s irrelevant folks. It’s an accounting entry, not real money.”

Dave Koitz also co-authored a CBO report promoting the “unified budget” figures as giving more accurate picture of the government budget: Social Security and the Federal Budget: The Necessity of Maintaining a Comprehensive Long-Range Perspective http://www.cbo.gov/showdoc.cfm?index=3650&;sequence=0
The only way the “unified budget” can present a more accurate picture is if the debt to the trust fund is not seen as binding.

Unlike income tax, which is progressive, SS tax falls much more heavily on the poor, because it starts at an annual income level of around $300 and cuts off currently at an income level around $90,000. There is justification for using an un-progressive tax to fund SS because lower income people get back a greater percentage of what they put in than do higher income people. That is one of the virtues of the present system--it helps distribute the income so older people don't live in poverty.

Using the regressive SS tax to fund the general government is immoral if there is any doubt about whether the government can or will pay it back. It is essentially borrowing from the poor and working classes to give the wealthy a tax break and when the loan comes due defaulting on the loan.

If SS, which is running a surplus will be, according to Bush, "bankrupt" in 2042 when the surplus is projected to be used up, then why don’t we hear that Medicare is "bankrupt" now, since it has been running a deficit for years. Or for that matter why don’t we hear that the Federal government is "bankrupt" since it has been running a deficit for most of the last half century.

We probably are heading for a financial crisis that will hit long before SS runs into deficit. It will be due to a variety of things, including government debt, environmental damage and the peaking of world oil supplies.

In fact, how and how much we fund Social Security, as with everything else, is primarily a political decision. The right wing is trying, by constant repetition, to persuade the younger generations that they can't and shouldn't count on SS and that the governments obligations to pay back the trust funds are not binding. I can see no other explanation for the alarm being raised than a calculated effort to destroy faith in the SS system as a first step to destroying it.

John M. Morgan

HNN - 2/17/2005

Thanks. This is helpful.

John H. Lederer - 2/17/2005

http://www.ncseonline.org/NLE/CRSreports/Economics/econ-104.cfm?&;CFID=19185148&CFTOKEN=16712886#_1_3

HNN - 2/12/2005

Have you got a citation? I'd like to read more about this. I have not come across this change.

John H. Lederer - 2/12/2005

LBJ's act to put Social Security on budgt in 1967 was reversed in 1983 or 84 so that it went back off budget.

HNN - 2/11/2005

The key change was in 1967 when LBJ incoporated Social Security into the federal budget. This was to help him hide the true costs of the Vietnam War.

In 1983 the Greenspan Commission recommended--and Reagan and Congress approved--a dramatic increase in Social Security taxes to put the system on a strong path into the far future.

The increase in taxes helped Reagan offset his tax cuts of 1981.

I am not an economist. But this is my understanding of the brief history of Social Security surpluses.

So both LBJ and Reagan used Social Security to hide the effect of their policies on the federal budget.

Bush I and Clinton used those same Social Security surpluses to make the budget look better, too.

John H. Lederer - 2/11/2005

Social Security inflows and outgoes have not been part of the federal budget since 1984.