Aren't Ds just demanding that millionaires return some of the FICA revenues Bush stole for them?

[ProgressiveEconomist]

Aren't Ds just demanding that millionaires return some of the FICA revenues Bush stole for them?

Many who decry "deficits Obama has run up" omit one very important relevant fact that makes Obama different from all previous Presidents since Ronald Reagan: Starting in FY 2011, which already has begun, Obama will not have positive FICA cash flows to offset Federal expenditures and income tax "cuts".

Incredibly, Republican White HOuses since Reagan have squandered almost $THREE TRILLION" in FICA and interest Treasury owes to Social Security, most notably on "tax cuts" disproportionately favoring the very wealthy, but also on massive "defense" waste, corporate welfare, and "Homeland Security" boondoggles.

A Social Security Actuary's table I'll explain below shows the total amount of positive FICA cash flow each President since Jimmy Carter has had available as a possible "slush fund" for massive waste at the expense of future Baby Boomer retirees. Here are the highlights:

Positive FICA cash flow to Treasury (Millions of dollars)
___71,990 under Ronald Reagan
__214,923 under George HW Bush
__687,591 under Bill Clinton
1,359,536 under George W Bush
__219,032 under Barack Obama
----------
2,553,072 under Reagan to Obama

Note that for simplicity these figures don't include interest Treasury owes to Social Security.

Before Reagan, Social Security essentially was a "pay as you go" operation, taking in just enough in FICA each year to pay retirees and the disabled that year. Reagan's "Greenspan Commission" raised FICA payroll tax rates to generate a positive cash flow, which ostensibly was to be used to pay out Baby Boomer retirements beginning in the second decade of the twenty-first century.

But, by intention or by "accident", Greenspan did not establish a Sovereign Wealth Fund to see to it that the positive FICA cash flow actually would be used to pay retirements when Boomers would bulge out of the age distribution. Such soverign wealth funds are used routinely by US state pension agencies and by foreign governments. Instead, the extra FICA cash would be used to buy non-publicly traded "Trust Fund Bonds", which could not be redeemed for cash in global bond markets, but would have to be paid back by the US Treasury.

The table presented in Reply #1, which comes from the Social Security Actuary (at http://www.ssa.gov/OACT/ProgData/fyOps.html ), shows how much each President since Jimmy Carter took from FICA. Jimmy Carter had negative FICA cash flow, and Bill Clinton used positive FICA cash flow mainly to pay off debts and prepare to fund Boomer retirements with ample Treasury credit capacity.

But Clinton's successor, George W. Bush, squandered one and a half TRILLION, primarily on massive unsustainable "tax cuts" tilted toward the extremely wealthy, lost income tax revenues that hamstring his White HOuse successors.

I cannot for the life of me understand why the figures above are not a big part of the current debate over funding extension of the middle-class payroll tax cut.

Are not Democrats in effect asking millionaires and billionaires simply to return part of the one-and-a-half $TRILLION in FICA cash George W. Bush stole from retirees and the disabled, disproportionately just for them? Because FICA cash flows finally have turned negative, any revenues from a future income-tax surcharge on the very wealthy would go directly to Social Security payouts for retirees and the disabled. Unlike prior Republicans, GW Bush HAD to know that the "Social Security surplus" he was "returning to the people" would be needed imminently to fund Boomer retirements. And Bush bestowed largesse on the very wealthy at a time (unlike today) when the economy did not require massive stimulation.

IMO Dubya's tax cuts tilted toward the very wealthy had to be the most irresponsible fiscal actions ever undertaken by any US President. Had Dubya behaved responsibly with the largest portion of positive cashflow intended to fund Baby Boomer retirements, politicians would not now be talking about "strengthening" Social Security, ie cutting benefits so the squandered trillions never will have to be paid back from tax revunues and Treasury bond sales.

WHAT'S YOUR OPINION?

[ProgressiveEconomist]

1. Here's the complete table whose highlights are included in the OP

.Office of the Chief Actuary
Old-Age, Survivors, and Disability Insurance Trust Funds, Fiscal Years 1977-2010
Fiscal Year Trust Fund Operations Financial data

[In millions of dollars]

Fiscal___FICA
year_____cashflow___President_and_total_cashflow

1977____ -3,898____ Carter (D)
1978____ -4,266____ "
1979____ -1,983____ "
1980____ -1,120____ Jimmy Carter_____ -11,267

1981____ -5,020____ Reagan (R)
1982____ -7,936____ "
1983_______ 222____ "
1984_______ 262____ "
1985_____ 9,361____ "
1986____ 16,731____ "
1987____ 19,570____ "
1988____ 38,800____ Ronald Reagan_____ 71,990

1989____ 52,445____ George HW Bush (R)
1990____ 58,217____ "
1991____ 53,515____ "
1992____ 50,746____ George HW Bush___ 214,923

1993____ 46,788____ Bill Clinton (D)
1994____ 56,756____ "
1995____ 60,446____ "
1996____ 66,410____ "
1997____ 81,315____ "
1998____ 99,317____ "
1999___ 124,712____ "
2000___ 151,847____ Bill Clinton_____ 687,591

2001___ 162,987____ George W Bush (R)
2002___ 159,067____ "
2003___ 155,532____ "
2004___ 151,103____ "
2005___ 173,478____ "
2006___ 185,236____ "
2007___ 186,461____ "
2008___ 185,672____ George W Bush__ 1,359,536

2009___ 137,321____ Barack Obama (D)
2010____ 81,711____ Barack Obama____ 219,032

___________________ Reagan to Obama 2,553,072

Source: http://www.ssa.gov/OACT/ProgData/fyOps.html

SSA data last reviewed or modified January 31, 2011

The table begins with fiscal year 1977, the first fiscal year to begin on October 1. Prior fiscal years began July 1.

For simplicity, the table does not include interest on the FICA cashflow Treasury owes to Social security.

[dkf]

2. Half of me is sick we overfunded FICA, which could have funded household savings.

I think it is possible that it won't be paid if our budget gets bad enough. But it's what allows us to keep funding SS now even if we do have a negative cash flow.

I guess it all depends if we can afford to pay it or if we go the way of the Italians.

[ProgressiveEconomist]

8. 'Could have funded household savings' At least 1 economist (Ravi Batra,

formerly at MIT and more recently of SMU) argues that the Reagan-Greenspan-David Stockman Social Security "reform" DID fund financial activity--by the very wealthy. See http://us.macmillan.com/greenspansfraud/RaviBatra .

Batra argues that Reagan's 60 percent cut in marginal tax rates for the very wealthy, funded over the long term by 25 percent increases in payroll tax rates for the poor and middle class, had two long-term effects:

(1) MILLIONS of low-end and middle class jobs were destroyed, preventing wage growth and economic advancement for average Americans; and

(2) Very wealthy beneficiaries of Reagan's tax-cut largesse could not spend the vast majority of the extra TRILLIONS of dollars they received. So they bid up the prices of financial assets to unprecedented levels. Social Security "reform" in the 1980s was the ultimate source of the financial bubble that finally burst in 2007-2008, and brought the world to the brink of another great depression.

Batra's policy recommendation was to exempt the first $10,000 of earnings from FICA. But few listened to him, and the structure of FICA continued to do just the OPPOSITE of what Batra recommended. FICA taxes down to the first dollar of earnings and actually exempts every dollar ABOVE a threshold that did not hit six figures for decades.

[dkf]

9. Are there any studies on what it did to household savings at the lower/middle class level?

I came across a blurb by Daniel Cay Johnson which asserted this but could find nothing further. I still think it was a scam on the middle class which basically flattened rates and made the tax system a whole lot more regressive. But when I point this out I get blasted.

[ProgressiveEconomist]

11. Offhand, I don't know. But if there were any

such studies before 2005, surely they would be referenced in MIT/SMU economist Ravi Batra's book on this subject. See the link to the publisher's book page in Reply #8. Next time I go to the library, I;ll check for you and post my findings in this thread.

[dkf]

14. Thanks!

[ProgressiveEconomist]

20. I'd forgotten how shallow the research was in this book.

A quick scan of the book in the stacks refreshed my memory. Batra mentions household savings briefly in the next-to-last chapter (Legacy of Greenomics--see http://www.loc.gov/catdir/enhancements/fy0619/2004065030-t.html for the Table of Contents) . But his only reference is to a Census survey that found a high proportion of families had fewer than $1,000 in financial assets in 1995. He states without reference that the overall recent savings rate was 2 percent, compared to 8 percent in the 1950s.

A recurring theme in ultra-right analyses of Social Security is that SS crowds out private savings. You'd likely have little trouble finding numerical estimates of the effect of SS on household savings in published papers that reference scientific fraud and National Bureau of Economic Research President Martin Feldstein's decades-old paper, "Are Government Bonds Net Wealth?"

[dkf]

21. Why is that right wing? It makes perfect sense to me, especially if it is to pay off general fund

Obligations. SS isn't counted as wealth is it?

[ProgressiveEconomist]

22. The right wing likes to think that SS is not savings because it's a government

program. IMO, FICA deductions were not savings because they didn't go into a sovereign wealth fund dedicated to paying out retirement and disability benefits, rather than to reducing income taxes for the very wealthy, defense waste, corporate welfare, etc.

Had FICA deductions gone into a SWF rather than into general revenues, they would have constituted FORCED savings for the poor and lower middle class who otherwise would have lived from paycheck to paycheck, spending 100 percent of their earnings and even more from any high-interest-rate credit they could obtain.

But it appears that FICA very likely was a pure shift in the tax burden from progressive income taxation onto highly regressive payroll taxation, with a zero percent marginal rate for the highest earners. That interpretation would be disproved only if Congress appropriates general revenues or reserves Treasury credit for repaying the $three trillion taken from poor-and-lower-middle-class paychecks since the Reagan-Greenspan-Stockman "reforms". I'll believe it when I see it.

[dkf]

23. Yes..Cynical me looks at future projected expenses and doubts we will do so.

I think it was a scam on the average Joe, especially because it was implemented by Reagan. It's a back door flat tax for gods sakes.

[pscot]

3. That's a highly speculative supposition

As tricky Dick once said, "Watch what we do, not what we say."

[LiberalAndProud]

4. ^this

[ProgressiveEconomist]

5. 'Watch what we do, not what we say.' That's PRECISELY what I've done here--

I "followed the money" and found that George W Bush by himself squandered more than half of a generation's worth of extra payroll taxes workers paid ostensibly to fund Boomer retirements.

[JDPriestly]

6. K&R

Except that the Sec. of Treasury is, according to the statute when I last read it, responsible for safeguarding the Social Security or FICA Trust Fund, not the Fed Chair, and Obama should not be advocating for a continued vacation on payroll taxes.

The fundamental principle behind Social Security is that those who receive benefits from it pay into it. Social Security should not be funded from the General Fund under any circumstances, and the General Fund should pay back money borrowed from the Social Security Trust Fund just like it should pay back any other debt. See the 14th Amendment to the US Constitution.

The Social Security Trust Fund really belongs to those who have paid and are paying into it as well as those who will pay into it.

Thanks for posting this.

[ProgressiveEconomist]

7. Thanks for the kick and rec. Just one

quibble with your post: Isn't having Treasury issue new publicly-traded debt to buy back Trust Fund bonds just as good as having Congress pay back Social Security from general tax revenues? That was Bill Clinton's plan, after he failed to get Congress to establish a centrally-managed Sovereign Wealth fund dedicated to paying out Boomer retirement benefits. Clinton eliminated deficits, building up Treasury's credit capacity so it easily would be able to fund payments to the Trust Fund from publicly-traded bond sales.

Unfortunately, George W Bush has made that path to repaying the Trust Fund very difficult also. Good luck borrowing trillions for the Trust Fund when Treasury already has to borrow 40 cents for every dollar of general federal spending.

[dkf]

15. "Social Security should not be funded from the General Fund under any circumstances"

So you are against the payroll tax holiday?

[Faryn Balyncd]

10. This needs wide dissemination. Corporate media's distractions are shameful.

k and r

[ProgressiveEconomist]

12. 'Needs wide dissemination', You and everyone else have my permission to use

anything in the OP and Reply #1 anyplace else you wish, with two provisos:



.

[ProgressiveEconomist]

13. The two provisos are:

Do not distort what I said here so much that I would disagree with you.

Be sure to include the link to this thread: http://www.democraticunderground.com/100225553 .

[econoclast]

16. Question for the OP

You say that

"Greenspan did not establish a Sovereign Wealth Fund to see to it that the positive FICA cash flow actually would be used to pay retirements when Boomers would bulge out of the age distribution."


If a SWF had been established, in what should the Funds have been invested?

[ProgressiveEconomist]

18. According to many economists whe helped Bill Clinton craft his 1999 SWF proposal

to dedicate FICA to retirement and disability benefits, broad indexes of bonds and equities would be most appropriate.

See http://www.clintonfoundation.org/legacy/012099-fact-sheet-on-saving-social-security-now.htm . Clinton held a memorable WH Forum on this issue, but congressional Republicans shot down the resulting Sovereign Wealth Fund policy proposal for SS reform.

Noteworthy among the speakers at that forum was MIT's Peter Diamond, who won the Nobel Prize in Economics last year, but in June of this year withdrew from his Fed nomination because Senator Richard Shelby (R-AL) and other Republicans had blocked Diamond as "UNQUALIFIED"! See http://thinkprogress.org/economy/2011/06/06/237019/nobel-winnerdiamond-withdraws

Note that, following Republican rejection of Clinton's proposal to dedicate FICA cash to its ostensible sole purpose, George W Bush proceeded to squander more that half of the entire positive FICA cash flow since Greenspan ginned it up in the early 80s. A historic last chance to make it easy for tens of millions of Baby Boomers to retire was lost, but very few people noticed, or even would have understood what was happening had they noticed.

[gratuitous]

17. You're advocating class warfare!

The wealthy stole that money fair and square. Asking them to pay it back is class warfare! Ask Rush. Or Billo. Or any of a hundred other multimillionaires with daily access to a national broadcast platform, who are so oppressed they can barely squeeze a word edgewise into our national conversation.

Aren't you ashamed?

[Curmudgeoness]

19. I have been saying this for so long, and to be honest,

no one is listening. I think you did a great job of explaining it, and I hope that more people will pay attention to the details.