Monday, August 30, 2010

Another Alaskan Myth-Maker

Now we know why (other than the family feud) Sarah Palin actively supported political unknown Joe Miller in what appears to have been a successful primary race against the incumbent Republican, Lisa Murkowski in Alaska. Like the former governor, Miller doesn't get it quite right. Asked by Bob Schieffer on CBS (transcript here, in PDF) on Sunday about his support for privatizing Social Security, Miller replied in part

But to suggest that there is nothing that can be done that we have to continue as the way things are, ignores the fact that the trust fund is empty, it's full of IOUs. It ignores the fact that as of April this year there are more expenditures or there are more outlays coming out from Social Security than there are inlays.

Miller's latter assertion is accurate, inasmuch as the report from the Social Security trustees "anticipates a large deficit for 2010, due mainly to the recession’s negative effect on payroll tax revenues, followed by periods of declining deficits (2011-14) and small surpluses (2015-19) as tax revenues increase with the economic recovery from the recession and the ACA’s deficit-reduction provisions take effect."

The trust fund, however, is not empty but instead is expected to be exhausted in 2037- 27 years from now. Contending that the trust fund is "full of IOUs" is simplistic, an effort to imply that the fund is unstable and unreliable. Representative Earl Blumenauer (D-OR) on his website explains

The Social Security Trust Fund operates much like a bank or credit union. When you deposit money in your bank, the money just doesn't sit there, waiting for you to return and claim it. Rather your bank lends the money out to other customers, who then repay it with interest. However, the bank must maintain enough cash on hand so that when you chose to withdraw your money, you can.

Excess funds in the Social Security Trust Fund are invested in federal securities, which are owned by the Trust Fund and backed by the full faith and credit of the United States government. These dollars are then available to be spent for things other than Social Security.


These are not mere "IOUs"; rather,

The U.S. Treasury bonds issued to Social Security are financial assets in the same way that stocks, corporate bonds, or US Treasury bonds purchased by foreign investors are assets. They have the same status as US bonds owned by Japanese pension funds and the Chinese government. They represent a legal claim on revenue and are backed by the full faith and credit of the United States.

Since the founding of the Republic, the federal government has paid off its debts. The federal government must honor the debt to the Social Security Trust Fund when it comes time to redeem the bonds.


The Center for Economic and Policy Research notes "it as almost inconceivable that the government will not honor its bonds, which is why the interest rate on long-term bonds is near its lowest level in the last 60 years."

Later Sunday, according to Think Progress, on ABC Miller claimed

....when you look at the Constitution and you evaluate what the plan was originally, it was for states to take on more power than the federal government, particularly in the areas of, such as those things that may promote the general welfare. It was not a federal role.

It seems the United States Supreme Court has had something to say about that. Article I, Section 8 of the U.S. Constitution reads in part

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.

According to the Legal Information Institute of Cornell Law School, Alexander Hamilton held a "broad, literal" interpretation of the clause while James Madison believed that it more restricted the federal government's power of taxation and appropriation. But "finally, in United States v. Butler,543 the Court gave its unqualified endorsement to Hamilton’s views on the taxing power" In an opinion written- ironically- by a Supreme Court Justice named Robers, the Court concluded "the power of Congress to authorize expenditure of public moneys for public purposes is not limited by the direct grants of legislative power found in the Constitution."

So in one day, Joe Miller lied about the condition of the Social Security trust fund, fostered misinformation about the nature of its reserves, and falsely implied that there is a serious question as to its constitutionality. This is not accidental: It is part of what a Firedoglake blogger described as an effort "to convince people that Social Security is in crisis, because the Trust Fund is illusory, and then use those lies to convince Congress and the public to accept cuts in Social Security benefits to 'save it.'”




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