Paul Krugman asserts that everything is a-ok with Social Security...
Submitted by All-Time QB on Sun, 2007-11-18 16:19
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Krugman is correct
Right now, Social Security is in a surplus. The surplus is being borrowed by General Budget to cover the deficits.
Thus when baby boomers retire, the surplus will be gone. And there will be deficits. That means the loan by the General Budget will be recalled.
That means either you increase General Taxes to pay the loan. Clinton did it and had big surpluses in the 90's.
And if that fiscal responsibility continued during the baby boom years then there will be no problem covering the SS deficits due to demographics.
If you need to increase income tax rate to cover deficit so be it. Because SS money is not a tax but a insurance money owned by the employees who paid to the system. Thus all the loans to it should be paid.
I agree with Hillary and Krugman on this one. Why would you fix SS on the backs of employees. Get your house in order first so that it meets its debt obligations
to SS.
Aside: of interest to liberals,
here is a related
post.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
Conservatives say there is no trust fund
But I say --if General taxes need to repay the loan to SS, then so be it.
Thus Clinton is right--the solution is a fiscally responsible budget.
Social Security is a Ponzi Scheme...
the only way you can keep it solvent is to continue to raise payroll taxes. As it stands right now, it is bad deal for those 25 and younger because they are going to actually receive a negative rate of return.
And i don't know where you are getting this idea that you can just raise federal taxes to make up any shortfalls. Social security is an acturial insurance program, it is not a a general welfare transfer program--that would require some fundamental new legislation to redefine as you are claiming. And we are still a democracy right? maybe we don't want to vote to turn Social Security into a general welfare program and raise federal taxes to pay for it.
In and of itself, Social Security might not be a crisis but combined with Medicare, we are confronting a 53 trillion dollar liability that can only be "solved" by dramtically raising payroll taxes and dramatically increasing the eligibility age. That's a fact.
And the "Clinton Surpluses" had nothing to do with that budget deal, it was a short term aberration caused by skyrocketing financial markets in the late 90s driven by the tech sector in a climate of low energy costs and a strong dollar. Those days are gone. In fact, the dollar is on the verge of losing it's privledged status as the global reserve currency which would only compound the solvency issues.
Do you have any insurance?
I guess you think all insurance is a Ponzi scheme?
Yes, we are a democracy (Democratic-Republic of course) which is why such a popular program remains well supported. You want to cancel it, while most of your fellow voters... don't.
No, just the SS Insurance Program...
Sure, it's popular with those who benefit from the ponzi scheme, but not so popular with the younger generation these days...
KNZ,
Is that what he said, implied or insinuated? No, he did not...not even close, NO. And NO, no talk of SS being an insurance program changes that.
Why talk like that?
BTW, if not for the Bill of Rights and the some iron-clad parts of the Constitution, many many many things would be popular that are thankfully unconstitutional.
My point there is that popularity is weak grounds for defending most anything.
Why General Taxes?
Why federal taxes? Because SS surpluses right now are going to the federal taxes to cover budget deficits.
Thus when the SS is in deficit later---then the federal taxes have to pay the deficits.
Another way to put it, the loan to SS should be repaid even if you have to increase federal income taxes. Or the SS Trust fund should be honored.
Not exactly accurate...
By law, Social Security Trust Fund can only be vested in a special type of Treasury Bond that can't be sold on the open market and redemmed only by the SSA, which, in effect, lends money to Treausry and reduces the need for the Treasury to issue public bonds to make up for account deficits. However, technically, Social Security Surpluses are not part of general revenues and never have been.
If nothing is done, by 2018, there will no longer be an annual surplus and the SSA rather than rolling over any Treasury bonds will actually have to start redeeming them for cash to pay out all the benefits. If the United States government annually had budget surpluses, then you could those surpluses to redeem the SSA Treasury bonds, but since the US government almost always runs annual budget deficits, you will have to have the Congress authorize the Treasury to issue Public bonds to raise the cash to redeem the SSA Treasury Bonds. However, doing this really makes Social Security a welfare transfer program, not an actuarial insurance program, and you would have to some fundamental new legislation that would guarantee Social Security redemptions in the budgetary process. Otherwise, what if you had an economic depression or a World War in the future and SSA redemptions got squeezed out, which could conceivably happen if there wasn't a law in place that guaranteed such redemptions.
However, the closer we get to 2018, special interest groups like the AARP will never let the prospect of Social Security benefit shortfalls to be included in the general budgetary process and you will see a drastic increase in the payroll tax to keep Social Security benefits from never going into the red.
However, the longer you wait until 2018 approaches, the more drastic the remedies that will have to be implemented.
This is why Krugman is dead wong.
My position, if it was just Social Security, that would be one thing, but with Medicare included, the notion of only increasing payroll taxes is not viable option. It simply would become intolerable taxation levels. So you would have to drastically cut benefits or raise eligibility ages. The longer you wait, the more drastic the changes will have to be.
The idea that you can do nothing and merely rely on "Clinton Budget deals" to handle passing off Social Security and Medicare shortfalls to the general budgetary process is just a laughable proposition.
Paying debt to SS is not welfare
"However, doing this really makes Social Security a welfare transfer program, not an actuarial insurance program,"
I disagree.
SS right now is lending money as treasury bonds to the Federal budget. Thus Federal taxes will have to pay the treasury bonds when it needs to be redeemed by SS. This does not make it a welfare. Many countries, people, companies hold treasury bonds too. And eventually it will come due and need to be paid. If US does not have money to pay for it what will they do? Wont they raise the money ---either by borrowing again or raising taxes. SS treasury bonds is no different from other treasury bonds.
welfare?
"...have the Congress authorize the Treasury to issue Public bonds to
raise the cash to redeem the SSA Treasury Bonds. However, doing this
really makes Social Security a welfare transfer program...
I don't follow this logic at all. To the extent that SS is budgetd separately from the general fund, that status of the general deficit is irrelevant. It's only a wealth transfer systemto the extent that
1) It gets an artificially high interest rate on its surplus
2) Wealth is transfered within the system
Other than that, I wouldn't call it an insurance system...that's only part of it's structure.
"what if you had an economic depression or
a World War in the future and SSA redemptions got squeezed out, which
could conceivably happen if there wasn't a law in place that guaranteed
such redemptions."
You're basically talking about the economic collapse of the USA. Once things get that extreme, all bets (and promises) are off. It wouldn't make a difference whether your money went to SS, to the stock market, a bank account, or real estate: any way, your savings would probably be worthless.
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
I wasn't referring to a massive collapse...
but i was referring to a very real scenerio of instances of protracted periods such as war or economic downturn that would introduce doubt in the ability to use general funds to make up for the benefits deficits during such times.
cutting benefits = raising taxes = selling bonds
You seemed to be suggesting that the Federal government would be unable to pay out those benefits, whether through increased taxes or increased debt. That sounds like a pretty serious problem. If there's no-one left to borrow from, then how would the government be able to cut SS payments, since apparently many people would be using SS just to make ends meet?
SS is just a shell game--it doesn't increase or decrease the amount of wealth in society, so I don't see how playing with it now would affect the amount of wealth that we have when hard-times strike.
Unless you are suggesting that a more-balanced budget today will increase the savings rate of our society.
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
Federal Govt can do it
If there was no 8 years of Bill Clinton, may be I would have thought you right.
But you forget CLINTON proved it can be done.
Clinton proved that the govt can be managed competently for the benefit of everyone.
To the point that Greenspan is alarmed that we are paying our debt too fast.
I remember that debt clock in New York going dark.
he switched topics mid-argument
Krugman starts off by pretending to talk about Social Security, but he defends the stability of the SS system with this quote, about "the long-term fiscal condition of the US":
“The long-term fiscal condition of the United States has been largely
misdiagnosed. Despite all the attention paid to demographic challenges,
such as the coming retirement of the baby-boom generation, our
country’s financial health will in fact be determined primarily by the
growth rate of per capita health care costs.”
It's a bit of a stretch to equate "long-term fiscal condition of the US" with "Social Security", unless you are willing to eliminante the formal separation between SS and the rest of the US budget...which would effectively amount to a tax increase to pay for SS.
I think there's some merit in just replacing SS with an anti-poverty program for the elderly paid from the general fund, but apparently people have a strong psychological/emotional connection to the idea of SS as a hybrid savings/insurance system funded by the working people themselves.
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
I sent you a PM at FD
You've got it Adam.....
and good comments all around.
IMO, Dr. Krugman continues to put support the idea that he's no longer a serious economist. This defense in particular borders on insulting.