Somebody whose views matter has been talking sense about Social Security. Jacob Lew is President Obama's director of the Office of Management and Budget. Progressives weren't thrilled when the President tapped this guy for the job; he's a former Clinton administration proponent of financial deregulation who went on to be a Citigroup executive. That is, his biography makes him look like a Wall Street guy.But here he is explaining the facts about Social Security to USA Today:
There it is in a nutshell: Social Security is paid up old age insurance we have purchased through FICA taxes. If we take the view that because our insurance payments are invested in government bonds the money to pay benefits may disappear, we are saying that the U.S. government won't be there when we retire. Governments can't mess around with their bonds; when they do, they collapse. We are supposed to worry because China and other countries buy so many U.S. government bonds. They buy them because they are confident the bonds are safe and the U.S. government will be there. Can't we have at least as much confidence as foreign lenders around the world have?Specifically, looking to the next two decades, Social Security does not cause our deficits.
Social Security benefits are entirely self-financing. They are paid for with payroll taxes collected from workers and their employers throughout their careers. These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries.
When more taxes are collected than are needed to pay benefits, funds are converted to Treasury bonds — backed with the full faith and credit of the U.S. government — and are held in reserve for when revenue collected is not enough to pay the benefits due. We have just as much obligation to pay back those bonds with interest as we do to any other bondholders. The trust fund is the backbone of an important compact: that a lifetime of work will ensure dignity in retirement.
According to the most recent report of the independent Social Security Trustees, the trust fund is currently in surplus and growing. Even though Social Security began collecting less in taxes than it paid in benefits in 2010, the trust fund will continue to accrue interest and grow until 2025, and will have adequate resources to pay full benefits for the next 26 years.
Lew says something else important:
If we're worried about the federal budget deficit, that's what we need to worry about.The problem is not Social Security; the problem is the mismatch between outlays and revenues in the rest of the budget.
- Outlays: How about cutting meaningless wars and the bloated Pentagon? President Obama's budget doesn't scratch the surface of the money that could be saved there.
- Revenues: This one is easy. If you need money, get it from the people who have it. There is no reason rich people can't be taxed heavily on the part of their income that is over perhaps $250000 annually -- no reason except that they buy politicians to safeguard their privileges.
Where the federal budget comes in is them having to repay the money they have borrowed from the trust fund. That's why they make a big deal out of this to avoid having to pay that back.
ReplyDeleteThe federal budget does have to include interest on the bonds the government has sold -- that's the only reason anyone buys the bonds in the first place!
ReplyDeleteI agree with most of your analysis except for one point: With federal debt at record levels and growing, and with more of that debt in the hands of sovereign governments and powerful "banksters", how can Social Security funds lent to the federal government be viewed as anything BUT subordinate debt.
ReplyDeleteThere's no denying that current participating employees and beneficiaries hold a vested interest in what is THEIR investment. But how will we wrest those funds from the dominant hands of those who have no real insurable interest but hold US at their mercy.