Friday, February 18, 2011

Change, Not Always For The Good

Citing the need for "a spirit of cooperation between Democrats and Republicans," President Obama on February 15 stated he and GOP leaders are "going to be in discussions over the next several months” over debt reduction. The New York Times reports a group of Senators holding talks to write debt-reduction legislation prompted by a recommendation of a majority of the members of the commission created by President Obama.

Fortunately, the National Commission on Fiscal Responsibility and Reform failed to come together on a set of proposals to which 14 of the 18 members would agree, the threshold established by the President when he announced formation of the group. Consequently, there was insufficient support to trigger automatic consideration by Congress of any scheme adopted by the commission.

Still, one of the six Senators collaborating on reducing the budget debt includes the Illinois Democrat Dick Durbin, which suggests both that the President will be kept apprised of the deliberations and that he has given the effort his support, qualified or otherwise. Given that both the party in charge of the House of Representatives and the President appear intent on undermining- uh, er, reforming- Social Security, it is useful to recall that the program has not contributed to the debt, is on sound financial footing, and is popular with the American people, notwithstanding the scare tactics of its opponents.

Current recipients and those close to the eligibility age will be unaffected by any destructive scheme adopted. But there is no reason to sacrifice a program which works in order to apply a quick fix to the growing deficit in the general budget. Opponents eye the Social Security trust fund because that's where the money is, which is one of the best arguments for leaving it alone.

* With its dedicated source of funding, Social security does not add to the deficit but actually reduces it in most years. It loans surpluses to the general budget, though uncharacteristically last year it paid out more in benefits than it took in payroll taxes.

* Social Security is fully solvent for the next 26 years. Annual Social Security revenues and interest on trust fund assets, combined, are projected to be sufficient to pay full benefits until approximately 2037. With assets exhausted, 78% of benefits then would be paid, and 78% in 2084.

*Critics enjoy denigrating its Treasury bonds as "i.o.u.'s "but, Dean Baker points out (as quoted by Media Matters),

markets view 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....

That accumulating interest and the securities themselves make up the Social Security trust fund. If the trust fund's Treasury securities are worthless, someone better tell investors throughout the world, who currently hold $4.3 trillion in Treasury debt that carries the exact same government obligation to pay as the trust fund securities.

* The aging of the American population, which critics simplify as Americans living longer, does not endanger the program. When the (Federal Reserve Chairman Alan) Greenspan commission in 1983 proposed a fix which was adopted by Congress, it did so in light of what it predicted, accurately, as the increased longevity of the population. Moreover, as Robert Reich notes, "it had a pretty good idea of how fast the US economy would grow. While it underestimated how many immigrants would be coming into the United States, that’s no problem. To the contrary, most new immigrants are young and their payroll-tax contributions will far exceed what they draw from Social Security for decades."

* Any gap between what Social Security takes in and what it needs to pay out is easily fixed. The ceiling on Social Security contributions (now $106,800, as adjusted annually for inflation) was set so payroll tax would be applied to 90% of all wages, a figure which was accounted for in the plan adopted by the commission. However, in a trend begun shortly before Ronald Reagan took office, an ever-larger share of the national income has gone to the wealthy; hence, a greater percentage of wages- now 16%, rather than 10%- is not eligible for the payroll tax. With the richest 1% of Americans taking in 11.6% of total income in 1983 and 20-21% now, the cap would have to rise to $180,000 for 90% of all wages to be subject to the Social Security payroll tax. That, in turn, would allow all benefits, not merely the 78% currently projected, to be paid for decades beyond 2037.

It is expected that the President will propose, or suggest, or infer support for, some combination of a payroll tax increase (probably a rise in the rate so that 90% of wages are eligible) and benefit cuts, th elatter phrased in a euphemistic manner. The modern-day Repub Party, which would be unrecognizable by Dwight Eisenhower and possibly Ronald Reagan, opposes all tax increases or anything it possibly can categorize as a tax increase. The mainstream media will call on Democrats to compromise as the President yearns to be understood as a bipartisan peace-maker.

This may not end well.

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