Social Security Madness Part Three

It's been a little while since I talked about Social Security (almost a full day) so let's get right to it. But before I do let me explain why this issue is important to me, and hence to this websitee. I have three reasons.

1. Social Security is genuinely a successful and popular program. While I wouldn't encourage anybody to depend strictly on Social Security for their retirement, for most retirees that social security check makes a huge difference in their lives.
2. Social Security is a genuinely successful and popular Democratic program. In this age, when Democrats are essentially on the run, standing up for one of our real successes should be a no-brainer.
3. I believe that if the American people really understand the issues surrounding Social Security "Reform," it can't help but hurt the Republicans political. This is not as petty as it sounds (although I admit, it's a little petty). The Republicans right now, and particularly the Bush Administration have a whole lot of bad ideas. If we can stop them here, it will make it harder for them to accomplish their other goals.

Those are my reasons, so like I said yesterday, expect to see more of this. Which brings us to today's article, by Rich Tucker, entitled "Social Security: All Trust and No Fund." Let's count the lies together.

The fact is, Social Security is "pay as you go." It always has been. That means it relies on today's taxpayers to pay today's benefits. Which works well as long as there are more taxpayers than beneficiaries. Indeed, for years we've been taking in more than we've been paying out. The extra money is supposed to go into that trust fund. It doesn't.

Instead, the Treasury spends the difference on roads, sex-education programs, parks and whatever else the federal government buys. The trust fund gets an I.O.U., which is stored in a fireproof safe to be made good some day with future tax money.

. . . Again, those who claim Social Security is solvent rely on the trust fund, which supposedly has enough money to make up those deficits until 2032 or 2042 or whenever. But the trust fund is like my $50,000 I.O.U. It's a promise with no money attached. If we really intend to pay Social Security benefits in, say, 2025, we'll have to take lots of money out of general tax revenues to do so. That will mean higher taxes, less spending on other government programs, or both.

OK a little history (courtesy of an article by Paul Krugman). Do you know why the Social Security office takes a little more than it needs in taxes? It is because in the 1980s President Reagan pushed through an increase in Payroll Taxes in order to ensure the solvency of Social Security. Payroll taxes are regressive taxes, meaning they hit the working class and the middle class more than they hit the wealthy. So basically the government, under Ronald Reagan's leadership, told America's workers, "Hey we are taking a little more these days, but it's so in the long run we will have money to keep Social Security going."

And now Rich Tucker and others are saying "Hey you remember that little bit extra we took from you guys? Well we pissed it away, so now we're going to have to shut down Social Security anyway."

Only of course the real problem is that it isn't pissed away. Instead that money was invested in government bonds (which is what Tucker means when he says that the Government took money out of the Social Security Fund to pay for roads and what not). Yes, it's true, right now the Social Security office holds thousands of Government Bonds. So do a lot of people. Many retirement plans outside of Social Security also hold government bonds. So do individuals. I hold a few myself. But these bonds are different, apparently. Whereas most finance people will tell you that Government Bonds are a very low risk investment, these particular bonds are in fact a high risk investment, because the Government can just say, "Hey we aren't paying you back."

I'm not sure how the government does that without starting a massive world wide financial panic, by the way. As many have pointed out, the Social Security Crisis is really a General Revenue Fund Crisis. The US has a good credit record; we traditionally pay our debts. But, of course, the Bush Administration has been enormously fiscally irresponsible, which may affect our ability to pay off our debts. It sure would be nice if President Bush could convince us all that one section of the U.S. National Debt didn't have to be paid off. For President Bush I mean.

For the rest of us it might be nice of President Bush and Congress came up with some fiscal responsibility.