If the "SS surplus" had not been collected from paychecks in the first place,

[AirAmFan]

how many millions of extra jobs would have been created over the past 20 years? How many trillions of National Debt dollars would not have been borrowed? How much lower would interest rates have been for everyone else? And how many trillions of dollars less would Americans have paid for oil and other imports?

These questions come to mind upon browsing through a new book by Prof. Ravi Batra of SMU, a guru on the economics of international trade who coined the phrase "jobless recovery". (The publisher's webpage for "Greenspan's Fraud" is at http://www.palgrave-usa.com/Catalog/product.aspx?isbn=1403968594 .)

He points out how collecting payroll taxes in advance to pre-fund retirement benefits destroys jobs and drags econoimies down. Payroll taxes are the most regressive kinds of taxes, since the highest marginal tax rate is paid by minimum wage workers, while the marginal rate on those whose incomes exceed a cap is ZERO.

Since poor and middle-class people save smaller proportions of income than the wealthy, virtually every penny collected in payroll taxes reduces DEMAND for everyday things, and thus reduces employment by companies who supply those things.

When a "Social Security surplus" is used to hide part of a deficit, an Administration can borrow that amount from other countries without alarming the business community. But nonetheless such borrowing crowds out productive borrowing for mortgages and businesses, raises interest rates, and makes foreign exchange rates less favorable for Americans.

And when the time comes for governments to pay back amounts "borrowed" from workers, very often budget politics makes the situation differ little from what would have happened had payroll taxes not been raised int the first place. To pay benefits after social insurance cash flows turn negative, governments must raise contemporary taxes or take out new loans from abroad.

Reading about this in Batra's book was an "AHA!" moment for me. Not only was the near-canonization of Ronald Reagan as a "tax-cutter" an Orwellian inversion, not only were taxes raised on the poor to slash taxes for the wealthiest, but Republican "Social Security reform" in the 1980s has generated substantial unnecessary unemployment and recessions, and has made future stagflation almost inevitable! "Supply side economics" has been the opposite of stimulatve for the American economy.

[orwell]

1. Flow of Funds

A lot of this is a flow of funds argument which should be obvious to those who claim to be "gurus".

Batra is right that SS taxes are regressive. But they also provide a safety net for those who are least likely to accumulate retirement or disability assets. All in all I would consider it a net gain, as long as the return on those assets is at a risk adjusted market rate. The last I heard T-Bonds/Notes supply this.

The "surplus" which in some respects is a misnomer, is the same as any "surplus" in an insurance policy. It no longer becomes surplus if/when the payout is due.

The only relevant question is why is the surplus counted against the deficit in the first place. On that I would agree with what I assume Batra implies in that it is convenient for politicians who wish to obscure tax and spending policies that are completely out of whack.

As far as the job loss argument, this seems like a stretch. Companies are always looking for ways to become more efficient, whether the SS drag exists or not. Since labor is their primary cost, labor costs are the place to look.

The amount of jobs lost has far less to do with the SS tax than to normal business demands for labor efficiency. This has been fed by the rise of outsourcing due to improvements in telecom technology, availability of highly educated foreign workers at labor rates orders of magnitude below US workers, beneficial US tax policy for outsourcing, and direct capital investment in plant and equipment offshore. BTW, this is not a recent anomoly. It is function of most economic structures throughout history.

Batra seems to jump on the latest economic talking points and spin them into a best seller. On closer scrutiny however, his analysis tends to be somewhat superficial.

That is not to say that some of these points (deficit/debt obfuscation by both parties) may be valid.

[AirAmFan]

3. No the surplus does NOT necessarily "provide a safety net" for retirees,

given the way Reagan's "Greenspan Commission" set up mechanisms for managing it. See the excerpt from the 1983 Final Report from this commission in post #12 of another active thread, at
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=132x1774228 .

Details on COLLECTING the surplus were spelled out in detail. But Greenspan knowingly and deliberately insisted on using the surplus to offset deficits due to the Voodoo "tax cuts" for the wealthy he originated, as Reagan's campaign economic adviser. Had the Commission made Social Security an independent entity with authority to invest in marketable bonds and other securities, the surplus WOULD have been a safety net. But only contemporary budget politics keeps the surplus from vanishing completely, given the absence of safeguards for ensuring the surplus is applied to the purpose for which it ostensibly was collected.

Also, are you suggesting that a payroll tax does not drive a wedge between supply and demand for labor, and does not diminish equilibrium employment? That's heresy for any economist regardless of ideology.

[orwell]

8. Huh?

You are confusing an accounting gimmick (book entry) with reality. The SS funds do hold IOU's from the Treasury. But these are not worthless as the boy king suggests. They are treasury bonds and notes. Whether or not this bond-denominated surplus is sequestered is functionally irrelevant to SS "solvency".

The only advantage to the "lock box" or sequestration approach would be a political one. It would reveal the tremendous failure by all the politicians in managing the country's economic affairs. Most of these bums should be thrown out of office for their economic illiteracy alone.

Also, are you suggesting that a payroll tax does not drive a wedge between supply and demand for labor, and does not diminish equilibrium employment? That's heresy for any economist regardless of ideology.

What I am suggesting is that the effect is marginal, nothing like what is proffered up by business propagandists. It is a cover story if you will to mask the fact the any business is always looking to maximize profit, primarily through labor efficiency.

You are talking about 12+% when you include SS and Medicare contributions by employers. Healthcare, pension and other employee "costs" are significantly higher than that. Why not the "hysteria" over these obligations? Because it is not "fashionable". The attack is on SS. Why? Because the powers that be are trying to achieve two things.

They want to dismantle what is in essence NOT a retirement plan, but an insurance policy. The Cons hate the concept of public contributions for public benefit because there is no direct ownership or control. They view it as "socialist" and have since its inception. They are conceptually opposed to it.

But even they realize that it is a politically popular program that very effectively achieves its goal as an insurance plan or social safety net. So the latest salvo attempts to reshape it as an owned private retirement plan with some disability provisions. The metagoal if you will is to offset the coming drawdowns by the aging boomer population who have fueled the stock market binge through 401-K and IRA contributions. They need fresh meat.

Greenspan is very concerned that as these assets are sold to fund the boomer utilization of retirement aspects of the SS system, it will knock the hell out of bond prices, thereby raising interest rates and lowering economic growth.

You have to be very careful when you deal with economic arguments. They are frequently used to explain very complex human social behavior in trite simplistic terms, many times with political spin. What I am clearly stating is that all parties have an agenda here, in Mr. Batra's case to push his book using the sensational talking point du jour. When the very basis of the SS system is misconstrued, all economic theories/"solutions" that flow from such analysis have to be considered suspect.

Here is some information that may be more useful in understanding what is really going on:

http://www.dollarsandsense.org/1104orr.html

Thanks for your response!

[AirAmFan]

10. No, I'm not "confusing accounting with reality"

The very fact we're having this conversation, and Dubya's decision to continue his Social Security Dismantlement Road Show, are signs that Social Security is in the gravest danger ever in seven decades.

True, the non-marketable Trust Fund bonds the SSA keeps in a file drawer in West Virginia are guaranteed by the full faith and credit of the US. It is fair to say that Social Security is NOT going broke--it's the COUNTRY that Republicans have driven from surplus to the brink of bankruptcy in just four years of fraud, waste, and job-destroying largesse for the wealthiest.

But, as the link in post #3 above shows, from the very beginning of the massive Greenspan Trust Fund, it was clear that this ostensible retirement insurance fund for seniors was subject to political manipulation. The securites are not marketable and thus could not be sold for cash or converted into non-Government bonds if its managers thought diversification would be wise. Even if Treasury defaulted openly on Trust Fund bonds, under the law any positive FICA cash flow would continue to be "invested" in Trust Fund Bonds. And there is no independent body managing the funds. They have been "loaned" to Congress with no guarantee that Congress will pay when due the benefits retirees are expecting.

Pay no attention to whar Republicans say about "saving" or "reforming" Social Security. They are interested in one thing only: extending past 2018 the time when the FICA cash flow turns from positive to negative. Follow the money!

[orwell]

11. Huh? Part Deux

The very fact we're having this conversation, and Dubya's decision to continue his Social Security Dismantlement Road Show, are signs that Social Security is in the gravest danger ever in seven decades.

We are having this discussion because the Rove machine has spun this into a hysteria for reasons I have already stated.

True, the non-marketable Trust Fund bonds the SSA keeps in a file drawer in West Virginia are guaranteed by the full faith and credit of the US. It is fair to say that Social Security is NOT going broke

The key words here are full faith and credit. This makes the IOU's the pretzledent sold as worthless (now changing his tune that such paper is featured in his latest "plan") functionally the same whether they are held sequestered (off budget "lock box") or on budget for the purposes of funding.

it's the COUNTRY that Republicans have driven from surplus to the brink of bankruptcy in just four years of fraud, waste, and job-destroying largesse for the wealthiest.

Here we agree with the stipulation that the yearly deficit/accumulated debt is the result of both parties over a period of decades. I would agree that Democratic Tax and Spend has preference over Republican No Tax and Spend, but in the end there is plenty of blame to be placed on both, Clinton's "economic miracle" notwithstanding. At the very least Clinton's policies began to reverse the slide into economic hell.

But, as the link in post #3 above shows, from the very beginning of the massive Greenspan Trust Fund, it was clear that this ostensible retirement insurance fund for seniors was subject to political manipulation.

It was a political construct from the beginning, but one which I support. I agree that keeping the surplus on budget masked the gross deficits caused by Reagan's tax cutting which finally were so apparent that even Ronnie the great was forced to reverse course later in his reign of fiscal terror.

securites are not marketable and thus could not be sold for cash or converted into non-Government bonds if its managers thought diversification would be wise.

Here we get to the crux of disagreement. It is essentially moot whether the securities are sold on the open market at maturity or exchanged for transfer payments by the US Government. What is critical are the words full faith and credit. The securities are functionally the same no matter where they are redeemed. In general insurance/pension assets are bought to be held to maturity, not to be traded in the open market. BTW I support a risk adjusted diversified portfolio, but somehow I think the idea of the US SSA buying German Bunds is a no go.

Even if Treasury defaulted openly on Trust Fund bonds, under the law any positive FICA cash flow would continue to be "invested" in Trust Fund Bonds. And there is no independent body managing the funds. They have been "loaned" to Congress with no guarantee that Congress will pay when due the benefits retirees are expecting.

But there is a guarantee. It is the same guarantee as on any government issuance. It is the full faith and credit of the United States. BTW: That is the same guarantee on the money in your wallet. If the Treasury defaulted it would be the same as if they defaulted on sequestered Treasury issuance. Functionally there is no difference.

Pay no attention to whar Republicans say about "saving" or "reforming" Social Security

I assure you I don't. I pay little attention to what any politician says unless they have previously demonstrated a propensity for speaking the truth free of ideological constraint. There are precious few.

They are interested in one thing only: extending past 2018 the time when the FICA cash flow turns from positive to negative. Follow the money!

I would submit to you that the Cons wish to destroy the social contract that is social security altogether. They have hated it from its inception. It is particularly galling to them that it is one of the most successful programs (ends reflecting intent with minimal unintended co sequences) in US history.

We agree on one very salient point. Greenspan and others of his phony Ayn Rand circle jerk intentionally meant to mask the disastrous no tax and spend policies of King Reagan and his followers. It was just the latest ploy in the decades long endless Keynesianism that has "protected us" from the negative side-products of capitalism.

On edit: BTW Thanks for the responses. At least you are trying to find out the truth which is more than I can say for 99% of the mass mind.

[AirAmFan]

12. Is there an echo in here? You're being WAY too trusting of a Republican

Congress and a Republican WH, Orwell

SSA's portfolio of Trust Fund bonds is NOT like a private investor's ladder of T-bonds. Congress is not a bank; right now, it's dominated by grifters, scam artists, and bagmen for plutocrats.

For one thing, a private investor can take the likelihood of default into account in deciding whether or not to buy a bond. The poor schmegeggy who has FICA deducted from his pay has no choice whether or not to "loan" his hard-earned pay to Congress.

Congress has NUMEROUS technically legal ways of reneging when it comes time to pay back retired workers, because it can always "reform" the benefit schedule, and can always dream up new ploys to grab hold of FICA cash for its wealthy campaign backers.

Instead of going to fund benefits contemporaneous retirees currently expect on bond maturity dates, Trust Fund bonds can be "rolled over" into whatever new scheme Congress deems advisable, to keep the FICA cash flow positive and provide ever more "tax cuts" for the wealthy. Instead of being paid out to contemporary retirees, Trust Fund bonds could be rolled over into inflation-prone "privatized accounts" due 30 or 50 years into the future.

Any future worker receivables not indexed for inflation will provide the Fed with a powerful long-term incentive to inflate. Over a period of decades, an extra two to five percentage points of inflation every year will reduce extended Trust Fund debt to insignificance.

[orwell]

13. Huh? Pt III

I trust Congress? You are not only unfamiliar with me, but must rarely read what I write.

Congress is not the "full faith and credit". Neither is the Pretzledent, nor the Courts. I hate to break this to you but the full faith and credit is us, the taxpayers.

Guess what. Pay as you go is paid by us as well, the FICA taxpayers.

If the guarantor is the same, and we are discussing default, there is no functional difference.

I hate to break the news to you, but the Fed has been inflating since they came into creation. I have been discussing this ad nauseum at DU for years. They need no further incentive. They have stated it as a policy goal. Remember Governor Bernanke's recent bromide: "We'll drop money from helicopters if necessary". Deflation is public enemy No 1 at the Fed.

Over the long term the whole US debt fueled ponzi scheme is going to collapse. The Social Security "crisis" is a distraction from the true structural rot that is our economic system. While we sit here chatting, rearranging the deck chairs on the Titanic, global elite capitalists, and their privileged pundits and blowhards, are quickly dumping dollars and moving assets and capital into the latest greatest growth engines where the rape and pillage will continue unabated.

So in the end, you and I as taxpayers will be responsible for the coming private pension and Medicare bombs (far more imminent and far worse than the SS "crisis" by the way), as we would be no matter what flavor of paper or holding tank it resides in.

That, I'm afraid to say, is the reality of Full Faith and Credit.

Enjoy!

[dcfirefighter]

2. I agree completely

You cannot disassociate the negative effects of a payroll tax with the positive effects of a social safety net.

More than anything, we need to end the payroll tax. Social Security should be just that: a social security net, not a half-assed pension.

Every american over the age of ~65 should receive ~1.5 x the poverty level. End of story.

I don't really care where the funds are raised, though I will throw out the idea that taxes against land value and 'uncreated' wealth are the least economically harmful taxes, and may be beneficial assigning resources.

To start with, I'd auction broadcast rights, as well as use-rights of federal land. I'm not sure how much that'd raise, but it'd be a healthy chunk of the payments, AND their value should increase over time.

[LuPeRcALiO]

4. great ideas you got there

The whole laughable bankruptcy lie would have no traction whatsoever if everybody didn't assume SS was supposed to "pay for itself" and then some.

And now that they've vandalized the trust fund it looks like we'll be paying for it twice, whether we ever actually get a retirement pension or not.

[orwell]

9. Congratulations

At least you are attempting to think out of the box.

The most efficient economic relationship exists when the actors receive direct benefit/disbenefit from their actions.

So who benefits from a social insurance policy? A disproportionate direct benefit is to those who receive more in investment assets than they contribute. There are some in the SS matrix who fit this description. But to a larger extent, we as a society have agreed that the whole society benefits by not having those least able to physically contribute (the elderly) being relegated to poverty at the end of their lives.

So the question becomes, how best to fund this and how best to establish effective feedback mechanisms? On the surface, any form of "use tax" would offer such a mechanism. But in the case of a social safety net, how do you construct such a tax?

We have decided that since we are effectively compensating those with diminished economic productivity, we should directly tax those who are currently productive. In some sense, this a rather direct relationship. You are contributing labor in real time now, which will be invested to be "cashed in" when you are a net consumer of labor in the future. This seems like an apples for apples economic construct.

But all of this is in the context of insurance, rather than direct pension investment. In other words, we have accepted the fact that we may receive more, less, or equivalent benefit in relation to our "investment", just as you would any insurance policy.

I pay for homeowner's insurance with the hope that I may never collect. Is this a bad investment? Well after my house burned down, suddenly I was brilliant. If it hadn't was I cheated?

I don't see a problem with the payroll tax, even though it is regressive. The regressivity seems likely to be offset by the likely greater benefits received at retirement or due to disability by the lower income worker relative to their contributions than the more affluent one.

And I say this as a self employed person who has to write a little over 15% on my business net every year.

[AirAmFan]

5. I just can't believe what Democrats have let the other party get away with

for over 20 years. This is Econ 101: No tax kills more jobs more surely than a direct tax on payrolls. During *'s 2001 "tax cut" campaign and during 20 years of Reagan worship during and after his time in office, I can't recall one Democrat ever making this point:

Republicans are financing cuts in the top income tax rates for the wealthy with Social Security Trust Fund money taken out of paychecks, with the lowest-wage workers paying the highest rates. And in the process Republicans have the temerity to claim they are stimulating the economy! They are doing just the opposite, taking money from people who would spend it right away on goods and services and giving it to people who will not.

This is why the economy is not generating on a regular basis the minimum 150,000 jobs a month needed for people just entering the workforce.

[kentuck]

6. But doesn't that assume wages would grow to make up the difference?

I don't think I buy his premises...all the growth that would be created if we didn't have the "regressive" SS tax.....

[AirAmFan]

7. Batra is a strong advocate of "pay-as-you-go", which was the founding

principle of Social Security until Reagan and Greenspan threw a spanner into the works in the early 80s. Batra doesn't advocate ELIMINATING the payroll tax entirely. He just wants to get rid of the extra 25 percent in higher FICA rates Greenspan tacked on 20 years ago, the extra that leads to the "surplus" every year. Batra's preferred way of restoring "pay as you go" is exempting the first $10,000 of every worker's annual wages from the payroll tax. In a couple of pages in Chapter 11, he surmises that policy would once again allow FICA to collect just enough to pay current benefits, with no extra slush fund for "tax cuts" for the wealthy.

When a "blip" such as the Baby Boom drives the system out of balance, extra tax revenue and new borrowing must make up the shortfall. Batra advocates surcharges on people in the highest income tax bracket. Raising the "Paris Hilton tax" is another appropriate policy that comes to mind. Why shouldn't billions and trillions of unearned dollars for heirs and heiresses be confiscated and distributed to poor retirees? Maybe the Paris Hiltons of the world would be driven to do something useful with their lives.