Reply #5: From Feb 4

[LiviaOlivia]

From Matthew Yglesias
Feb. 4, 2005

Default

I see that no less a figure than Paul Krugman has now taken two cracks at the clawback issue, eliding the issue of the
Trust Fund default which Kevin Drum semi-questions. I think liberals are offering Bush too much benefit of the doubt on this subject, making cute suggestions that the White House press corps ought to try and demand a straight answer, etc. Here's the case.

The White House is now emphasizing that private accounts do not, alone, constitute a solution to whatever Social Security's problems are. The White House has repeatedly defined Social Security's move into cash flow imbalance starting in 2019 as the problem. One can dispute whether or not this is, in fact, problematic. It is clear, however, that it only is problematic if you think there's something problematic about paying the money back. We should, therefore, take the president at his word and assume that when he proposes unspecified benefit cuts large enough to bring Social Security into balance he means cash flow balance, which means trust fund default. I note that the major idea floated by the White House -- price indexing of all benefit calculations -- is a bigger-than-necessary cut if you use trust fund accounting. I also note that the clawback provision in the private accounts isn't properly motivated unless you assume the program to be in cash flow balance.

Last but by no means least, Jacob Sullum wrote a column which advocates defaulting on the Trust Fund debt (" (S)ince this fund consists of IOUs from the Treasury, the relevant date is 2018, when benefits promised to retirees will start exceeding payroll taxes and the system will begin running a chronic annual deficit . . . higher (income) taxes . . . Social Security's fiscal crisis begins in about a dozen years, so the focus on 2042 is misleading."). This column received a response from House Republican Conference Director Greg Crist who called it "a great article" and then complained about Sullum's use of the term "privatization." If the House GOP had some kind of objection to Sullum's view that the cash flow deficit is the problem Bush is planning on addressing, they had an ideal opportunity to do so. So, yes, a reporter should ask Bush about this. But until the White House offers some kind of credible, explicit denial, liberal bloggers and pundits ought to assume that the White House understands the implications of their words and is, in fact, planning on not repaying the money.

http://yglesias.typepad.com/matthew/2005/02/default.html

Definition: clawback (British) finding a way to take money back from people that they were given in another way; "the Treasury will find some clawback for the extra benefits members received"