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There's no immediate SS crisis. But there IS a SS SCAM that has been going on since 1983,

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ProgressiveEconomist Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Aug-26-10 10:05 PM
Original message
There's no immediate SS crisis. But there IS a SS SCAM that has been going on since 1983,
when Reagan's Greenspan Commission set in motion the generation of massive positive FICA cash flows, ostensibly to be used to pay Baby Boomer pensions.

And this SCAM will have to change when the FICA cash flow turns negative in a few years.

Trouble is, Greenspan saw to it that there would be no assurance that the FICA surplus actually WOULD be used for Baby Boomer pensions. He could have set up a Sovereign Wealth Fund, like state employee pension funds, that could pay out the money only for pensions. Alternatively, he could have ensured that FICA surpluses would be used to buy publicly tradeable Treasury bonds, that Congress would have to repay with interest on dates certain or endanger the full faith and credit of the US Treasury worldwide.

But he did neither of these things. Greenspan always had thought that the poor paid too little in taxes. So he set up a system where Reagan and all his successors but Clinton and Obama used FICA surpluses just as if they were just another form of general revenue, paying for big tax cuts for the rich, wars, and "defense" waste. FICA payroll taxes grew to outstrip federal income taxes for most workers.

But, just as the Greenspan Commission predicted, the FICA cash flow is slated to turn negative in a few years. The "trust fund" game will have to change. Congress will have to engage in combined strategies of--

(1) appropriating funds each year to repay Trust Fund bonds--or
(2) legislating lower payouts to pensioners than they are expecting, letting the Trust Fund grow fatter and fatter to no avail for Boomers.

Which strategy will be the dominant one is a matter of politics. Clinton tried to ensure that (1) would be the dominant strategy, by reducing deficits to free up future borrowing power that would let Treasury swap trust fund bonds for tradeable Tresury bonds. Dubya irresponsibly reversed this strategy and ensured that implementing strategy (1) would be painful.

But things still could go either way.

That's my opinion. WHAT'S YOUR OPINION?
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valerief Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Aug-26-10 10:41 PM
Response to Original message
1. Cut the military budget, eliminate free trade, and ensure people get jobs.
But what do I know? That would only help "the lesser people" as Alan Simpson calls us.
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Raster Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Aug-26-10 10:49 PM
Response to Reply #1
2. Alam Simpson should be horsewhipped on the Capitol steps with national live coverage.
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Hawkowl Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-27-10 02:39 PM
Response to Reply #2
20. I prefer waterboarding
Edited on Fri Aug-27-10 02:40 PM by Hawkowl
It is not considered torture--by rethuglicans.
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ThomCat Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Aug-26-10 10:50 PM
Response to Reply #1
3. You know far more than Alan Simpson.
That's for damned sure.
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ProgressiveEconomist Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Aug-26-10 10:59 PM
Response to Reply #1
4. Simpson doesn't mention that, if SS payouts are cut, TRILLIONS collected in FICA
surpluses since '83 will have gone to tax cuts for the wealthy, "defense" waste, and corporate welfare, rather than to what they were supposed to pay for.

Greenspan's Commission made accurate forecasts about how much money would be needed to fund Boomers' retirements. But they didn't ensure that money from "the little people" wouldn't just be used for Reagan's and the Bushes' largesse for what a Citibank strategist called "the plutonomy".
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dkf Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Aug-26-10 11:00 PM
Response to Original message
5. Yes yes yes. It was a complete scam perpetrated to raise taxes on the little guy to cut taxes for
The top! Instead of acknowledging that we keep believing that these bonds are like any other when they are not. What an outrage.

Yet how do we fix this? Maybe we should use the estate tax to buy assets that are placed in the trust fund. Taxing estates is the only way to recapture income that should have been held for the fund. I would even suggest buying physical gold.
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ProgressiveEconomist Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Aug-26-10 11:18 PM
Response to Reply #5
6. 'How do we fix this'? Clinton tried to set up a centrally-managed Sovereign Wealth Fund
for Social Security. That was when there still were fifteen years of surpluses to redirect. But the Rs were adamant--that would have been 'Socialism". Only privatization of Social Security would provide the "right incentives" rather than allow government to--heaven help us--exert political influence on market decisions.

See http://www.brookings.edu/papers/2005/04saving_diamond.a... .

IMO, time is running out for strategies other than (1) and (2) listed in the OP.
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dkf Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Aug-26-10 11:31 PM
Response to Reply #6
7. That is why you buy gold. No impact on corporate governance.
Edited on Thu Aug-26-10 11:38 PM by dkf
We already have the worlds largest reserves.

As we accumulate the gold we use it to replace the bonds. It's kind of a twist on your idea to pay down the bonds. I would prefer gold over anything else we could store value in.
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ProgressiveEconomist Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Aug-26-10 11:56 PM
Original message
Nice idea, but too late. When the FICA cash flow turns negative, current obligations
to current pensioners will exhaust all of FICA, and more. You'd need to have a FICA surplus with which to buy gold, index ETFs, publicly tradeable T-bonds, or any other asset.

Too bad you didn't suggest this twenty years ago!
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dkf Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-27-10 12:12 AM
Response to Original message
11. No not from surplus. Dedicate extra estate tax revenues to recapture taxes that were reduced under
Reagan, Bush, etc. Then take those estate taxes, buy gold, and replace fake bonds.
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ProgressiveEconomist Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-27-10 12:35 AM
Response to Reply #11
14. Diamond and Orszag suggest something like that at the link in post #6, but
they make it an option, rather than a main strategy.

They point out that the proportion of total earnings escaping Social Security payroll taxation because of the earnings cap has risen more than 50 percent since 1983. Since all of this tax-free income is at the top of the income distribution, it only makes sense to try to recapture it through estate taxes and income tax rates on the very wealthy.

But I doubt many Republicans would see things that way.
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dkf Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-27-10 12:49 AM
Response to Reply #14
15. This would be specifically to recapture the surplus funds they spent earlier.
It doesn't solve the basic problem of what happens when retirees outnumber workers. It's just an idea.
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BeFree Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Aug-26-10 11:35 PM
Response to Original message
8. So
The IOU's of the SS are in non-public, non-negotiable bonds?

They are a 'special' kind of bond that is unique only to SS?

And:

Is what Gore said about putting SS into a 'lock box' similar to the Sovereign Fund?


I like this idea of appropriating funds each year to repay Trust Fund bonds.
If we raise taxes on the ultra rich for the revenue, I don't see a problem.
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ProgressiveEconomist Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-27-10 12:26 AM
Response to Reply #8
13. IMO the kind of asset held by the Trust Fund is far less important than Congress's
ability at any time to cut benefits, raise retirement ages, or redefine cost-of-living adjustments.

Congress in principle could NEVER actually have to repay pensioners a dime of the accumulated positive cash flow, if they cut payouts by the right amount every year.

If they did that, non-tradeable Trust Fund bonds would "roll over" rather than be defaulted upon, just as publicly-traded T-bonds would have.

With the current system, though, Congress does not have to act on benefits even if they don't pony up the money. Bond markets worldwide definitely would notice a default on a tradeable treasury bond, but not necessarily a default on an accounting gimmick like a Trust Fund bond.
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dkf Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-27-10 12:52 AM
Response to Reply #13
16. I don't think the gimmick bonds have a maturity date.
They don't even need to roll it over nor pay cash interest payments as it is currently paid in more bonds.
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Faryn Balyncd Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Aug-26-10 11:56 PM
Response to Original message
9. Using the SS trust fund for general revenues instead of the income tax is higher REGRESSIVE....FICA


...taxes are for SS for those who paid in to the system, and should not be raided so that wars, corporate welfare etc are paid from regressive payroll taxes.



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ProgressiveEconomist Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-27-10 12:08 AM
Response to Reply #9
10. You've got to appreciate Greenspan's far-seeing evil genius. The poor suckers
having more and more deducted from their paychecks for FICA thought that Social Security had nothing to do with the rest of the Federal Budget.

Tens of millions of them, inclluding, tens of millions of middle-class Democratis, actually voted for Reagan--twice--and still regard him as a saint. They still don't realize that their hard-earned wages were the source of Reagan's largesse to the rich, and that getting the SS pensions they expect and paid for will entail a big political fight every year until they die.

What really makes me appreciate Greenspan's genius is the fact that--if Congress doesn't pay what's required one year--the "Trust Fund" actually declines LESS than expected, generating a false sense of security indeed.
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dkf Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-27-10 12:25 AM
Response to Reply #10
12. You are right...that is a twisted evil genius.
And so wrong. This pisses me off.
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Mnpaul Donating Member (754 posts) Send PM | Profile | Ignore Fri Aug-27-10 03:24 AM
Response to Original message
17. It gets worse than that
They are not even paying interest on that money



Instead of paying the interest(intragovernmental debt) they are using more treasury notes to pay the interest. Treasury notes issued to pay the interest on treasury notes. 873 billion 2003-2007 and it continues today.

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ProgressiveEconomist Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-27-10 05:57 AM
Response to Reply #17
18. Have you seen this USA Today article about Trust Fund mechanics?
http://www.usatoday.com/news/washington/2005-02-28-trus... .

It was a real eye-opener for me five years ago. I remember it well, and am glad usatoday.com still archives it online for anyone to Google.
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Enthusiast Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-27-10 06:43 AM
Response to Original message
19. Your opinion is solid and mirrors
my own.

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Wednesdays Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-27-10 09:30 PM
Response to Original message
21. K&R
:kick:
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scarletwoman Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-27-10 10:26 PM
Response to Original message
22. I rec'd your excellent OP yesterday, here's a kick. (nt)
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