Thursday, July 31, 2014

Is the Attack on Social Security Finally Over?

-- Posted by Neil H. Buchanan

[Note: This post is a companion piece to my latest Verdict column: Message to Young People: Social Security Will Be There For You, Unless You Let Wall Street Take It Away From You.]

This year's go-round on the Social Security "drop-dead date" carousel was notable for its near invisibility. In previous years, the annual release of the Trustees' report would be breathlessly reported by every media outlet, with commentators decrying the failure of politicians to deal with this supposed crisis in the making.  This year, not so much.

Indeed, I would not have devoted this week's Verdict column to the topic, except that it appears that young people have actually come to believe the anti-Social Security hype.  True, they are not up in arms about it, but they appear to have adopted a desultory "We know we're screwed, but what else is new?" attitude.  It seemed worthwhile to take another crack at trying to help young people see that this is one area in which the news is good, and that they should not become pawns of the privatizers.

I have written quite a bit about this topic over the years, and the only interesting thing about it has been to see how impervious the conventional wisdom has been to the boring reality that Social Security is not "facing a crisis that requires immediate action," nor is it "going to go out of business, leaving future retirees high and dry."  None of that is even remotely true, but there are people who stand to profit (politically and economically) from ending or damaging Social Security, so the campaign to convince people that a crisis exists has continued for years.

As I mentioned above, what was odd about this year's release of the Trustees' report (which, for those of you who missed it, was on Monday of this week), is that the report said pretty much the same thing as always, but the news coverage was minimal.  The Times relegated it to the back pages of the paper, and there was virtually no discussion of it among the chattering class.  Does that mean that the fight is finally over, and that the reality at long last has overcome the forces that have been attacking Social Security for decades?  Unfortunately, that is almost certainly not what is happening.

Perhaps it is too much to expect people to admit out loud that they were wrong all along, and to say that Social Security should be left alone.  Explicit surrender is too much to expect.  Therefore, it could be that the usual suspects have simply slithered onto the next fight, finally telling themselves that this fight cannot be won.  This silence could be meaningful.

The more likely explanation, I think, is that believers of the conventional wisdom momentarily view Social Security as an issue that is not worth talking about, but only so long as Washington is gridlocked.  I am thinking here of the people who view themselves as "responsible," and who think that the Bowles-Simpson commission was a high point in American public life.  (It wasn't.  It really wasn't.)  We are not talking about embarrassments like Gov. Rick Perry, who might occasionally still say that Social Security is a Ponzi scheme (which is in competition for the most ridiculous thing Perry has ever said).  The question is what the self-styled centrists, who viewed the debt ceiling fights as opportunities to attack "out of control entitlements," are doing.

That Times news article from Monday, which reported on the release of the Trustees' report, quotes Robert Reischauer, the former CBO director who is now a Social Security Trustee, saying that "both of these very important programs are fiscally unsustainable over the long run and will require legislative intervention."  Here, "fiscally unsustainable over the long run" means this: If nothing changes, and if the economic forecasts turn out to be true (estimates that are, by they way, hardwired to be pessimistic, notwithstanding the claim that they are middle-of-the-road forecasts), then full benefits will not be paid at some point in the future.  But the call for "legislative intervention" simply means that Congress can, at any time, decide to prevent those cuts from happening.  If it does not, it will have chosen to allow the cuts to occur; but as I point out in my Verdict column (again), even those cuts would hardly be draconian.

Similarly, the Times article includes a quote from Republican Congressman Dave Camp, the current chair of the Ways and Means Committee, who will be retiring in January, blaming (you guessed it) President Obama: "This administration continues to ignore the fast-approaching crisis that Medicare and Social Security face, especially our Social Security disability program. The fact is, without bipartisan action, benefits will be cut.”

What Camp is doing is cherry-picking the most demagogue-friendly fact, which is that there are separate trust funds for different aspects of Social Security, and one of them (the disability insurance fund) will be depleted in a couple of years, unless money is moved around.  Of course, he ignores that the Trustees have already said that it is possible to do exactly that, moving money from the retirement trust funds to the disability trust fund (as has been done in the past), and the whole system would not reach depletion until 2033.  He also ignores the fact that depleting a trust fund does not end the program, and he still claims that the overall Social Security and Medicare programs are heading toward a crisis.  And it is worth remembering that Camp is held up as a moderate, reasonable Republican, not some firebrand.

How would we solve those supposed fast-approaching crises?  The Times quotes the wonderful Nancy Altman as saying that any problems could be solved by progressive tax changes, but of course, even fake moderates like Camp would never allow that to happen.  And with Democrats like Reischauer on board as saying that "legislative intervention" is necessary to make the programs "sustainable," the only consensus position among the people who view themselves as the sensible, realistic center of the spectrum will be to cut benefits.

In short, there is no reason to think that there has been a fundamental reassessment by anyone who has been pushing a political agenda that will lead to a fake compromise to cut Social Security.  When the political moment is right, they will be back at it, on both sides of the political aisle, hacking away at the security of future middle class retirees.

10 comments:

David Ricardo said...

An excellent post for many reasons, not the least of which is the presentation of the fact that no, Social Security is not going bankrupt, it will not cease to make payments and if there is insufficient funds to pay full statutory benefits at some unspecified time in the future it is an easy fix.

Mr. Buchanan’s commentary does raise one question which hopefully he and others who view this forum will address. That question is why do governmental pension plans have to be a fund. Why not change Social Security from a trust fund approach to a pay-as-you-go approach. Under this structure the payroll tax rate would be adjusted each year to provide the estimated (with some contingency) funding for paying the following year’s statutory benefits. Such a structure would (1) eliminate any discussion of SS going broke, (2) remove the surplus which funds government operations as a political issue, (3) immediately produce confidence in the system for all generations because current workers would know that while their payroll taxes are funding current benefits, future contributions would fund their benefits.

This is a simple, easy to understand solution. In fact if the SS fund is depleted in the 2030 decade the solution implements itself. The concept of unfunded liabilities goes away because there are no unfunded liabilities. Building up a fund is required for individuals and for non governmental organization because individuals have limited working life and non-governmental organization have or could have limited life. But government has unlimited life, so there is no real need to build a fund to make payments when government is gone, because it ain’t gonna be gone. Such a system works nicely at the state level, solving their unfunded pension issues also.

Problem solved, next issue.

David Ricardo said...

Some time ago Mr. Buchanan noted that the posts here were connected to and part of his posts on Verdict. Having finally had the time to view his Verdict column I should note that he does address the Pay as You Go issue there, although it is not clear why that model needs to be abandoned for the Boomer generation bulge in payments.

Mr. Buchanan’s point in that column is that the threat to SS is political, not economic. He is correct. Specifically the threat is turning the system over the Wall Street. Between taking tens of billions in fees each year and unregulated investment practices Wall Street could easily do for SS what they did for banking and financial institutions in 2007-08.

Neil H. Buchanan said...

My thanks to David Ricardo for his excellent comments. Interestingly, although I have often written about the shift to a trust fund in the 1980's for the Boomers, I have done so only as a matter of historical background. I have not really addressed whether it was a good or a bad idea. Fodder for a future post.

As to the annual pay-as-you-go idea, my comments in the Verdict column indicate that such an approach would introduce significant uncertainty for workers and/or retirees. The Trustees could announce every year a new payroll tax rate, in the same way that they now announce the new max earnings cap for payroll taxes each Fall (due to inflation). I'll have to think more about this, which will in part mean trying to predict just how much variation there would be in tax rates (or benefits) under such a system. No matter what, it's a very interesting idea.

As DR also says, "the solution implements itself" in a few decades, if the forecasts turn out to be true. That makes me think that there is more to be said about Reischauer's invocation of the "unsustainability" of the system. It's obvious (to economists) what he means, but that word doesn't fit within the policy/political discussion, and it is seriously misleading.

Just when I thought that there was nothing new or interesting to think about re Social Security!!

David Ricardo said...

Thanks to Mr. Buchanan for his appreciative comments.

With respect to uncertainty about future benefits from a pay as you go system, under current law the benefits are not tied to how much an individual has paid into the system but to the individual’s historical income and the rate of inflation. So absent statutory changes the benefits determination would not change with a change to pay as you go. The current uncertainty on benefits arises from the question of what will happen if the Trust Fund is exhausted, that is, will increased payroll tax rates and/or funding from general revenues provide for full statutory benefits, or will benefits be reduced to balance the payroll tax revenues with benefits paid.

So going to a pay as you go system would actually reduce uncertainty on the benefits side to uncertainty over whether or not there would be a statutory change in the benefit determination, uncertainty that is present now and will always exist. And the change would force reality into the debate on benefits. Politicians who wish to increase or even sustain current benefits would have to face the issue of a higher payroll tax rate on current workers, and current workers would have to balance paying higher rates in the present for higher benefits in the future. It’s like a Balanced Budget Amendment for SS. And raising the cap might seem a lot more politically and economically palatable. All very interesting.

But Mr. Buchanan correctly highlights the uncertainty that would be created by an annual change in the payroll tax rate. This issue might have to be addressed by using a 3 to 5 year forecast to set a payroll tax rate that was fixed for that period, along with a suitable reserve in the SS Fund to provide for forecasting errors.

Finally, an equally interesting issue is whether or not pay as you go would solve the unfunded pension liabilities problem of state and local governments, and if so what would be the economic, legal and political implications and how to guarantee current and future retirees that the benefits would be there.

Unknown said...




Very awesome post , i am really impressed with it a lot


فوائد الزنجبيل

فوائد الرمان

فوائد الحلبة

فوائد البصل

فوائد الزعتر

فوائد زيت السمسم

علاج البواسير

فوائد اليانسون

فوائد الكركم

قصص جحا

صور يوم الجمعه

علامات الحمل

تعريف الحب

حياة البرزخ

فوائد الزبيب

Unknown said...




Very awesome post , i am really impressed with it a lot


فوائد الزنجبيل

فوائد الرمان

فوائد الحلبة

فوائد البصل

فوائد الزعتر

فوائد زيت السمسم

علاج البواسير

فوائد اليانسون

فوائد الكركم

قصص جحا

صور يوم الجمعه

علامات الحمل

تعريف الحب

حياة البرزخ

فوائد الزبيب

Anonymous said...

Thanks for taking the time to discuss this, I feel about it and love learning more on this topic. If possible, as you gain expertise, would you mind updating your blog with more information? It is extremely helpful for me.
www.crupetech.com |

Unknown said...



thanks so much i like very so much your post
حلى الاوريو الفطر الهندي صور تورته حلى قهوه طريقة عمل السينابون طريقة عمل بلح الشام بيتزا هت كيكة الزبادي حلا سهل صور كيك عجينة العشر دقائق

Unknown said...

Pretty portion of content. I just stumbled upon your weblog and in accession capital to assert that I acquire in fact enjoyed account your weblog posts. Any way I will be subscribing on your augment or even I achievement you get admission to constantly quickly.
autoingrosstore.com |

Stuart Brown said...

If the young don't believe social security will be there for them, maybe they will be inspired to save more for retirement.