Democrats Split on Social Security
By DAMIAN PALETTA
WSJ
Democrats have broken ranks over a move to consider Social Security changes—including possibly raising the retirement age—to ensure its long-term fiscal health in combination with an effort to reach a deficit-reduction package.
The idea of putting Social Security into play has triggered a firestorm of opposition from several corners of the Democratic party. Senate Majority Leader Harry Reid (D., Nev.) and Sen. Chuck Schumer (D., N.Y.), two of the Senate's most powerful lawmakers, have said revisions to Social Security shouldn't be attached to a deficit-reduction plan. They argue the program's benefits are covered by giant trust funds that have no impact on the deficit.
"I believe it is a separate discussion from either the short-term or long-term budget discussions," Mr. Schumer said earlier this month.
Dozens of other House and Senate Democrats appear to agree. AARP, the powerful lobbying group for Americans over 50, is also raising concerns.
(More here.)
WSJ
Democrats have broken ranks over a move to consider Social Security changes—including possibly raising the retirement age—to ensure its long-term fiscal health in combination with an effort to reach a deficit-reduction package.
The idea of putting Social Security into play has triggered a firestorm of opposition from several corners of the Democratic party. Senate Majority Leader Harry Reid (D., Nev.) and Sen. Chuck Schumer (D., N.Y.), two of the Senate's most powerful lawmakers, have said revisions to Social Security shouldn't be attached to a deficit-reduction plan. They argue the program's benefits are covered by giant trust funds that have no impact on the deficit.
"I believe it is a separate discussion from either the short-term or long-term budget discussions," Mr. Schumer said earlier this month.
Dozens of other House and Senate Democrats appear to agree. AARP, the powerful lobbying group for Americans over 50, is also raising concerns.
(More here.)
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4 Comments:
PART I
First, I don't listen to Fox News or Rush Limbaugh or Hannity or Beck. I studied Social Security and all its nuances and realities under Tim Penny and Vin Weber in 2004/2005 as a member of the University of Minnesota Humphrey Institute Policy Forum when Social Security was our Forum Directive for the year. I have significant bona fides when it comes to Social Security. I cannot tell you how many politicians, think tanks, pundits and media personnel we met with over the course of our year long program that all had a different take on Social Security - its past, its current challenges and its future. On our DC trip in February 2005, we met with at least eight different groups each that had a viewpoint on Social Security. I have to point this out because I don't want anyone to diminish my comments by trotting out the Limbaugh's and Fox News's of the world when I was educated on Social Security from those people who are on the inside of the issue.
First, what is the Social Security Trust Fund? Several times since the 1960s when Social Security ran surpluses, Congress would take out portions of those surpluses and replace the surplus dollars with 30-year Treasury Notes (bills, bonds, etc..) and use the cash on current spending at that time. The collective accumulation of these Treasury Notes became known as the Social Security Trust Fund. The real cash surpluses that Social Security ran for years is NOT the Trust Fund (even Wikipedia has this wrong). Simply put, the Social Security Trust Fund is not 'real' dollars and even Obama OMB director Jack Lew admits this.
Over the last 50 years, some of those notes have been redeemed by Social Security with the Treasury Deparment and Treasury paid back the money to Social Security on those notes either by asking Congress to borrow money or asking Congress to raise taxes. However, as previous Congress' would borrow from the Social Security surpluses, the cumulative balance of Treasury Notes rose to nearly $25 Trillion that the Treasury Department now owes to Social Security.
While it's true, according to OMB director Jack Lew, that the notes that comprise the Social Security Trust Fund are 'backed by the full faith and credit of the US government', that does not mean the Trust Fund notes are 'real' dollars. 'Full faith and credit' means the US government INTENDS to raise this money in order to pay Social Security. Treasury knows it has to pay back these notes when Social Security attempts to redeem them. The problem is Treasury may not have the cash to redeem them.
the US government will have three options available to redeem the trillions Treasury owes Social Security:
1) Congress will have to raise taxes to cover the redemption owed by Treasury to Social Security, or
2) Congress will have to borrow money to cover the redemption owed by Treasury to Social Security, or
3) Congress will have to 'monetize' these debts which is to say the Fed will have to print the money owed to Social Security.
PART II
So, what we have is a situation where we have to pay for the same dollars twice - once when the FICA taxes were collected and again when Congress has to raise the money for the Treasury Notes that comprise the Social Security Trust Fund.
As for the 'full faith and credit of the US govermment', the faith in the US government to handle this is not as secure as it once was and as for our credit we can't keep borrowing money when we have borrowed beyond what we can legitimately pay back to our creditors. We are at a point where the US government can't borrow any more money and we certainly can't print any more money and it looks like the only way we can pay these Treasury Notes is to raise trillions in taxes. And in this moribund economy, where are you going to find this amount of tax revenue when the GDP is around $14 Trillion for the whole country?
The real danger is that when Social Security attempts to redeem the trillions it is owed by the Treasury Deparment, the Treasury Deparment may not be able to pay. This is the crisis, my friends.
Anyone who tells you Social Security is just fine and dandy due to the Trust Fund and the 'full faith and credit of the US government' is not living in reality.
Here's the relevant part: "'Full faith and credit' means the US government INTENDS to raise this money in order to pay Social Security. Treasury knows it has to pay back these notes when Social Security attempts to redeem them. The problem is Treasury may not have the cash to redeem them."
In other words, we have a General Fund problem. That will require cutting expenditures and raising taxes in order to meet the debt obligations of the US Government...including to Social Security.
That's right, Tom, but that's not what Social Security was supposed to be - it was not supposed to be a General Fund item at all. Social Security was supposed to be a self-funding program. As long as our fertility rate stayed above 2.0 (replacement level), Social Security would generally remain self-funding. When Social Security was started in 1935 until about 1980, our fertility rate ran well above 2.0 ranging anywhere from 2.1 to 3.7. And it's no wonder that during these years Social Security ran significant surpluses collecting much more in FICA than they were paying out in benefits. By 1980, things started to change and the fertility rate dropped precipitously falling below 2.0 for the first time since 1935 and running at about 2.0 over the last 30 years with today's fertility rate at about 2.1 just above replacement level. In 1980, the first cracks in the solvency of Social Security came to light and again, it's no coincidence that these cracks coincided with the dropping fertility rate. Couple that with the fact that Social Security began paying out more benefits - SSI, survivor benefits, etc... and the fact that Congress had been raiding the surpluses and you have a recipe for disaster.
It has become a General Fund problem with liabilities that in reality probably won't be paid. To be sure, I am 41 years old and have paid in to the system for 25 years and when I retire in 2037 - the same year Social Security pays out its last dollar - I will have paid in to a system with nothing to show for it and I have resigned myself to that fact and have adjusted my retirement savings to account for that. My government is screwing me and millions in my demographic because some incumbent wants to keep his job and keep his retirement voting bloc in line to help with his re-election.
I know you have faith in government, but if you think Social Security can remain exactly as it is today and that we can these overpromised benefits to it and other programs, you have a lot more faith in government than I do...
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