Matt Touches on the Real Crisis

Big Media Matt has a piece up at the American Prospect Online where he works as a staff writer.

He makes the case that there is no Social Security crisis, but if you've been reading what I've posted here, he doesn't really break any new ground.

However, he makes a point that is important about the Soc Security Trust Fund and gets to what is the real crisis,

Advocates of eliminating Social Security argue that...the program holds no "real assets" instead of "mere IOUs." These IOUs, however, are U.S. Treasury bonds, considered far and wide to be the safest investment in the world. In times of grave national crisis, from the Revolutionary War to World War II, the federal government has financed its activities be issuing these bonds -- and they've always been repaid.

The president has chosen to finance a series of tax cuts for people earning more than $100,000 a year by selling these bonds to the central banks of China and Japan, and to Social Security. Now he says that he doesn't want to pay back what he's borrowed from my generation's retirement fund. That's just wrong. Worse, what kind of message does it send to the Chinese and others that Bush plans to offer an additional $2 trillion in bonds when the U.S. government takes the position that these are just IOUs that don't need to be repaid?

In a somewhat fair, (to my great surprise) summary of the Social Security situation in the WSJ online, they, in fact refer to the assets of the Trust Fund only as "IOU's" This is no doubt, an intentional deceit.

So let me elaborate on Matt's comments and the nature and history of the Trust Fund.

Here is the real crisis. When forced to discuss the facts, the Right has a problem. The Social Security Trust Fund is completely solvent for at least the next 50 years and very likely much longer (every year the economy grows at more than about 2% the life of the trust fund gets put off further), and if the economy booms, as it did in the nineties, it gets really put off.

A little history. Back in the early 80's Social Security was running a deficit (retiree benefits paid exceeded Social Security taxes collected) and thanks to Ronald Reagan, the US government deficit had also soared following his tax cuts to wealthy Americans. Republicans were desperate to fund their tax cuts to the wealthy without asking the wealthy to actually give some money back in the form of income tax increases.

So Alan Greenspan had a plan to make Social Security not only currently solvent but to create a trust fund that would cover the baby boomers. The plan was simple. Raise the regressive Social Security tax rate to create a surplus that would be placed into a "Trust Fund" that would purchase US Treasury bonds as it's assets. We were selling these bonds anyway to fund the deficit.

Per this plan, the Social Security Admin has taken the money from wage earners ever since, paid current benefits and purchased bonds with the excess,which they are doing even now. For the Rs, this was a win / win. This trust fund helped to fund the Republican tax cuts. See the Social Security money is counted as general revenue the same as if it were income taxes (again a practice which continues to this day) which makes the deficits appeared smaller. So, they literally took money from working families (raising the Soc Security tax rate and not the income tax rate) and transferred that money to the wealthiest Americans in the form of large tax cuts.

Well, actually, they borrowed the money from working families to fund their own tax cuts.

And here is something else I've mention before, but which bears repeating. As I said, the Rs didn't want to give back some of their tax cuts. So raising the Soc Security tax was perfect. The SS tax is capped. This year the cap was about $5,500 so that once you made over $87,500 in wages, you no longer paid Social Security taxes on the remaining wages, -- and non-wage income (from investments, real estate developments, stock speculations, etc.) are not taxed at all for Social Security.

Depending on economic growth, in about 15 years or so, Social Security will have to start cashing in some of it's assets to supplement current SS taxes collected to pay benefits -- exactly as Greenspan's plan envisioned.

But here is the real crisis. Republicans who took the money of working men and women to fund their tax cuts in the 80's and the last few years, don't want to pay it back. See, it may require tax increases to honor the bonds that funded the nation's debts ran up by these tax cuts. They may have to give back some of the money they took. You know what that means? We've got a f*cking crisis!

Now, one final point. Trust Fund or no Trust Fund, we had to sell bonds to fund the government deficits, and we've sold more bonds each year then the Trust Fund purchased. So this debt would exist even if there were never a Trust Fund. As Matt pointed out above, besides the Trust Fund, these bonds have been sold to investors, foreign and domestic. Under Greenspan's plan, we bought with excess Social Security funds, bonds that would have otherwise been sold to investors. Like any debt, we must honor these bonds and in honoring them, we are simply repaying money taken from wage earners under the promise that at retirement they would receive guaranteed Social Security Benefits.

In short, excess Social Security taxes have been taken from working people to fund tax cuts for wealthy people, and they don't want to give it back. So they want to convince us of a crisis for which we must borrow trillions more, rather than cash in the bonds already borrowed.