Obama on Social Security

I think one of the big questions hanging out there in the campaign is how America's currently McCain-loving seniors will feel when they find out about McCain's passion for wrecking Social Security. I got some remarks from the Obama campaign in my inbox this morning that represent the first real effort I've seen to get people thinking about this:

Now, John McCain’s ideas on Social Security amount to four more years of what was attempted and failed under George Bush. He said he supports private accounts for Social Security – in his words, “along the lines that President Bush proposed.” Yesterday he tried to deny that he ever took that position, leaving us wondering if he had a change of heart or a change of politics.

Well let me be clear: privatizing Social Security was a bad idea when George W. Bush proposed it. It's a bad idea today. It would eventually cut guaranteed benefits by up to 50%. It would cost a trillion dollars that we don’t have to implement on the front end, permanently elevating our debt. And most of all, it would gamble the retirement plans of millions of Americans on the stock market. That’s why I stood up against this plan in the Senate, and that’s why I won’t stand for it as President.

Indeed, beyond McCain, Republicans have a bad habit of coming out in favor of privatizing Social Security and then denying they ever did any such thing. Obama, meanwhile, is positioning himself with Wallace-esque rhetoric as a Social Security die-hard, saying his retirement security agenda "starts with protecting Social Security today, tomorrow, and forever."

McCain's approach to this, naturally, is to lie:

In short, he stridently denies that he wants to favor privatizing Social Security. He just favors policies that are the same as the policies that were called "privatizing Social Security" before the GOP found out that privatizing Social Security is unpopular.

Comments

It seems to me that McCain's greatest vulnerability might be the existence of 'Two McCains'. I don't think an Obama ad needs to do much more than play the many clips of McCain dueling McCain on policy. It simultaneously raises doubts among independents and Republicans.

Posted by Nathan A | June 13, 2008 1:48 PM

You say Obama, meanwhile, is positioning himself with Wallace-esque rhetoric as a Social Security die-hard

But from the context I think you mean McCain

Posted by DairyStateDad | June 13, 2008 1:53 PM

My Bad. I misread.

Posted by DairyStateDad | June 13, 2008 1:54 PM

Senator McCain can win by following the advice of Charles Krauthammer, namely declare the US is winning in Iraq and that pulling troops out, as recommended by Senator Obama is defeatism. That is, make the election about Iraq.

http://www.washingtonpost.com/wp-dyn/content/article/2008/06/12/AR2008061203474.html

Posted by SLC | June 13, 2008 2:07 PM

Can someone tell me why letting some people have privatized social security accounts is a bad thing? I'm not trying to troll, i honestly don't know much about it. An explanation or a link somewhere would be helpful. -thx

Posted by Hector | June 13, 2008 2:07 PM

Social Security: Hardly a consideration for people being hacked to death. Hands and feet cut off, burned alive.

Yglesias, no one is arguing that military intervention is the answer to all humanitarian crises, but how many have to suffer and die for your ideology. A half a million, a million – when, as a human being, do you feel inclined to act. Progressives listen to your words, but you sit in opposition to helping the poor and suffering you claim to represent. Who will help these people? You not only ignore their cries; you are an advocate for deafness to their suffering. Your writing could have helped these people, but you chose domestic political supremacy over mankind.
I have just one question:
If the short term invasion had ended with the Munich Agreement, would you have let the Final Solution come to fruition in the controlled territory?

Posted by cfpete | June 13, 2008 2:07 PM

Can someone tell me why letting some people have privatized social security accounts is a bad thing? I'm not trying to troll, i honestly don't know much about it. An explanation or a link somewhere would be helpful. -thx

Posted by Hector | June 13, 2008 2:11 PM

Can someone tell me why letting some people have privatized social security accounts is a bad thing?

Because the continued success of the system depends on everyone paying into it to support the people retiring. Under a privatized system, people would be paying into their own IRA-like funds with the money that is now deducted from their paychecks--which goes into a fund that's pays out benefits to existing retirees.

Posted by James Gary | June 13, 2008 2:17 PM

So the Obama position on Social Security is the left position, which can be summed up as:

"No one told me there would be math"

The system as it stands now is unsustainable. Within a decade it goes into deficit, and then it (along with Medicare) starts eating the rest of the budget. We can face this problem now, or we can do what Democrats and Republicans have done thus far - kick the can down the road.

At least Bush was smart enough to see that there is a problem; that puts him ahead of Obama already.

Posted by James Robertson | June 13, 2008 2:27 PM

Social Security is basically an extremely low cost annuity that everyone has to buy. It works really well. If you tried to buy the equivalent in the market the expenses would be a lot higher.

Obama has the cash to turn up the heat on the Social Security issue. McCain can't worm his way out of this. This will tip the balance in old states like Florida and Pennsylvania. I don't see how McCain can win.

Posted by Chris | June 13, 2008 2:29 PM

Hector, we already support private accounts in our retirement system in the form of IRAs and 401(k)s. Social Security is a separate system, guaranteed system.

Posted by Tyro | June 13, 2008 2:31 PM

Is this a flip--flop after he promised to tax all income levels for Social Security?

http://www.political-buzz.com/

Posted by matt | June 13, 2008 2:33 PM

I can't make up my mind about SS. I worry that, as with private pension funds, it will simply vanish when it gets too expensive in a couple decades. Whereas, if I have the money in my own private account, it's mine and I'm not dependant upon the honesty, good faith, and money management skills of Congress.

OTOH, many people aren't saving for old age at all, and without SS we'll all have to pay for their support anyway.

Posted by An Anonymouse | June 13, 2008 2:37 PM

James Robertson, which program ran a surplus this year:

1. The United States Military
2. Social Security

Given that, which one is more likely to need to be fixed?

Posted by Left | June 13, 2008 2:37 PM

Matt, the reason seniors can still be for social-security-wrecking McCain is that they will not actually be effected. The wrecking will be written in so as to affect future recipients. And from the point of view of many seniors of the greatest generation -- the next generation of profligates (their children and grandchildren) will get what they deserve -- much less.

Posted by cynic-blog | June 13, 2008 2:40 PM

Social Security is a separate system, guaranteed system.

Sorry, but their is no guarantee.

In two landmark cases, Flemming v. Nestor and Helvering v. Davis, the U.S. Supreme Court ruled that Social Security taxes are not contributions or savings, but simply taxes, and that Social Security benefits are simply a government spending program, no different than, say, farm price supports. Congress and the president may change, reduce, or even eliminate benefits at any time.

Posted by jmo | June 13, 2008 2:45 PM

Within a decade it goes into deficit, and then it (along with Medicare) starts eating the rest of the budget.

That's an extrememly dishonest way to put it. For the past generation, the budget has been borrowing from Social Security in order to finance deficits that politicians don't otherwise have the balls to raise taxes to pay for. Since the 1983 Agreement headed by Greenspan and championed by Reagan, the FICA taxes used to finance Social Security were increased by way more than the then current costs of maintaining Social Security in order to provide surpluses specifically to ensure that the coming "deficit" wouldn't happen. Instead, politicians used that funding increase to finance the Reagan/Bush41/Bush43 budget defcits and lower taxes for the rich. To now claim that the looming Social Security funding shortfall is somehow a problem without acknowledging that the regressive tax surpluses used to finance said said shortfall were "borrowed" and never repaid completely distorts what the problem. For a generation the rest of the budget has raided Social Security - it is dishonest to pretend that at some point the general budget won't have to pay it back.

Equally (or even more) dishonest is equating funding issues for Social Security and Medicare in the same sentence. Social Security has a dedicated (regressive) revenue stream designed to fund it - medicare doesn't. The only thing that financing issues for both have in common is dishonest Republican attempts to equate the two and scare the American people.

Posted by Ethel-to-Tilly | June 13, 2008 2:48 PM

I can't make up my mind about SS. I worry that, as with private pension funds, it will simply vanish when it gets too expensive in a couple decades. Whereas, if I have the money in my own private account, it's mine and I'm not dependant upon the honesty, good faith, and money management skills of Congress.

OTOH, many people aren't saving for old age at all, and without SS we'll all have to pay for their support anyway.

Posted by An Anonymouse | June 13, 2008 2:52 PM

On a related issue, what's up with Obama's plan to remove the income tax burden from old people? Sounds like bad policy and pandering to me. Had anyone heard a cogent justification? (I'm all for a little pandering to prevent John McCain from getting the nuclear football, mind you, but it does seem like a curiously -- for this almost-always-thoughtful candidate -- bad idea.)

Posted by Jasper | June 13, 2008 2:53 PM

This is a rather odd debate, seeing I live in the heart of liberal land, Massachusetts.

State workers in Massachusetts can opt out of social security and instead pay into the state pension fund. How is this any different then the Bush - McCain plan?

This is being done NOW, in a state totally controlled by the liberal left! Yet, I am sure John Kerry would boo-hoo it and Ted Kennedy would boo-hoo it!

As far as Obama suggesting the elderly not pay taxes, I think I can explain it. He has to offer something to appease them, since you can bet he will attack McCain based on his age. Obama does not want to totally alienate the elderly vote!

So he will attack McCain using agism; then buy off the elder vote!

Posted by Heather | June 13, 2008 3:05 PM

HERE WE GO AGAIN!. Every election cycle the Democrats say "the republicans are going to cut your social security, trying to scare senior citizens. Don't you bunch of liars have any decency? You tried it under Bush. He never cut social security. We all got yearly cost of living raises. You're just like the communists who say, "tell a lie real big, and tell it real often, and everyone will believe you." Wrong, you'll just be proven to be liars once again.

Posted by Jerry | June 13, 2008 3:07 PM

Jerry, seniors are just as hostile to undermining the Social Security benefits of their children and grandchildren as they are about their own. I know, the idea does not compute with you, but there it is.

One should remember that, when pressed, Bush had to admit that none of his Social Security ideas he floated saved any money. He just liked privatization for religio-ideological reasons.

Posted by Tyro | June 13, 2008 3:13 PM

"That's an extrememly dishonest way to put it. For the past generation, the budget has been borrowing from Social Security in order to finance deficits that politicians don't otherwise have the balls to raise taxes to pay for. Since the 1983 Agreement headed by Greenspan and championed by Reagan, the FICA taxes used to finance Social Security were increased by way more than the then current costs of maintaining Social Security in order to provide surpluses specifically to ensure that the coming "deficit" wouldn't happen. Instead, politicians used that funding increase to finance the Reagan/Bush41/Bush43 budget defcits and lower taxes for the rich."

Hmm. Tax cuts for the rich is such a nicely dishonest statement too. The tax code now is highly biased, so that any tax cut will mostly benefit people with nore money - then again, those who pay more will also benefit more.

On the larger point, I love your theory: if only the Feds had saved that money, we would have it now.

Well, they didn't, so we don't. The fact then remains that the system goes into deficit in a decade, and starts eating the rest of the budget. We'll end up:

-- pushing taxes to unsustainable levels
-- eliminating or cutting back the system a lot

I suspect (2) is more likely so hey - I'm mostly ok with the left's finger in the ears ignore the problem until it's a crisis theory. I rather suspect that you guys will be a whole lot less happy with how that plays out, but at least you'll be able to cast blame easily enough with your own mirrors.

Posted by James Robertson | June 13, 2008 3:17 PM

James, I hardly believe that our ability to pay our SS obligations will result in "unsustainable" methods of paying it off. We simply cut down on vanity wars and have moderate income tax increases to pay the costs of government.

This is a western country, after all, and those who benefited from artificially low income tax rates over the past few decades no doubt prepared and expected to pay higher rates in the future, right? And if they didn't, well, the LAST thing they're going to do is support politicians who are going to cut their SS benefits.

Governments have spending priorities. SS is one of them, and the government will focus on those priorities, even if it means exchanging one set of treasury bonds for another, raising more revenue to cover costs, and/or cutting back on less important spending initiatives, like middle eastern occupations.

Posted by Tyro | June 13, 2008 3:23 PM

James, you didn't seem to notice the question: which program ran a deficit this year? Was it Military Spending or Social Security?

When answered honestly it looks like James Robertson has a fingers in the ears strategy for the Federal Budget and a "running around with his hair on fire" strategy for undermining the safety net. I suppose that's okay if you are a dishonest hack, but for those of us who care about policies that benefit the nation, not so much.

Posted by Left | June 13, 2008 3:27 PM

"Can someone tell me why letting some people have privatized social security accounts is a bad thing?"

Well, Hector, the first thing to note is that the proponents of such a plan don't provide information, they provide propaganda. The Republicans want to totally eliminate Social Security but they can't propagandize that so instead they say they want to give people a choice of privatizing. Once they got that rolling they'd then start squeezing more and more people out of the existing system, claiming that the privatization scheme works.

Look at it objectively, as a mammoth mutual fund (which is the essence of what the Republicans propose.) When mutual funds get large it is harder and harder to manage them effectively: everything a huge fund does impacts stock prices because the fund's investments in the stocks in its portfolio must be large. So much of the claimed flexibility that the proponents wave around isn't there and can't be there.

Also look, closely, at Bush's words when he was on his propaganda tour: the scheme offers a chance for a better return. What you have to care about is the magnitude of that chance (is it 90%? Is it 1%? Is it .000001%?) but they won't give you straight information on that. Were it an actual mutual fund there'd have to be a prospectus that attempted to quantitate that "chance." As it's only political propaganda they can promise (or seem to promise) all sorts of things without ever having to tie the promises to reality.

There's more. What you might better ask is for the proponents to show you an actual plan and the actual rules - all of them - that would pertain. Then you and others could check to see if the reality matches the promises. The overwhelming probability is that they promise far more than wold ever happen. They aren't after your retirement security, they're after destruction of Social Security. They're after avoiding having to pay back, in taxes, all the money that has been lent by the Social Security trust fund. It's your money, it's your retirement: demand straight answers. (Be prepared for lots and lots of evasive answers, of course. That's what they have, that's what they rely on.) They want to keep from paying back to Social Security what is owed, because they recognize that will mean they'll pay higher taxes. The time for them to have acted was back when the trust fund was being spent. Now it's an obligation, now it has to be funded (but not if the Republicans can fool you into ditching the obligation.)

Posted by hewhoasks | June 13, 2008 3:31 PM

@James Robertson: Raising the retirement age a bit would significantly contribute towards SS solvency. At least try to be honest, rather than sputtering out another false dichotomy.

Anyway, once the Right trots out a framework for fixing SS that actually alleviates the problem, then you can sit there and smugly talk about casting blame. Otherwise, its just more hot air.

Posted by Tom Bitters | June 13, 2008 3:33 PM

Piss off, James Robertson.

http://www.cbpp.org/3-31-08socsec.htm

Simply eliminating ya' boy's irresponsible tax cuts for the super-rich funds the so-called "unsustainable" Social Security system forever.

Posted by Mayur | June 13, 2008 3:35 PM

Do some fact-checking, James Robertson.

http://www.cbpp.org/3-31-08socsec.htm

Simply eliminating ya' boy's irresponsible tax cuts for the super-rich funds the so-called "unsustainable" Social Security system forever.

Posted by Mayur | June 13, 2008 3:38 PM

An Anonymouse said:

I worry that, as with private pension funds, it will simply vanish when it gets too expensive in a couple decades. Whereas, if I have the money in my own private account, it's mine and I'm not dependant upon the honesty, good faith, and money management skills of Congress.

I hope you already have money in a private account.

As a look back at various periodic economic busts will show, you can't depend on the honesty, good faith, and money management skills of private investors, money managers, brokers, and bankers.

The only time the Federal Government seriously considered defaulting on the Social Security Fund was at GWB's and his Congress' suggestion.

The day the Feds repudiate the debt owed to SS will be the last day anyone shows up for the Treasury's bond auctions.

Posted by cmholm | June 13, 2008 3:51 PM

Sigh. Whether you like it or not, the people with money actually fund the jobs for everyone else. The very wealthy person who runs the company (privately held) that I work for, for instance - raise his taxes, and I can tell you exactly what will happen: job cuts. You might be aiming for "the rich", but you'll actually hit other people.

I'm all in favor of raising the retirement age; most of the opposition to that comes from your side.

In the end, this is all about choices. You can try raising taxes to European levels, but you'll then end up with European growth levels - which is to say, slow or none. Not to mention that the European social safety net is massively unsustainable, as it was premised on a constantly growing number of workers.

Essentially, Social Security (and any system like it) is a massive Ponzi scheme. It will work fine right up to the point when it falls over. You guys on the left will be completely stunned when that happens.

Posted by James Robertson | June 13, 2008 4:08 PM

Actually, your very wealthy boss probably draws a modest salary and has most of his money made by increasing the assets of his company. That's why he's Wealthy, not merely someone with a high salary. In addition, cutting jobs in response to moving to pre-2001 income-tax rates would simply hurt his top-line and future growth prospects of his company, a move which wouldn't make any sense. That you would think otherwise only explains why he's the boss and you're the employee.

In the end, this is all about choices

Yes, precisely. We can choose to pay social security, or we can blow our budget on other things. Supporting SS is no different than deciding to support a standing army or an occupation of iraq. Both cost money, and we can choose whether or not to continue. Our deficits and debt are relatively low as a percentage of our GDP, when we compare ourselves to peer nations.

Essentially, Social Security (and any system like it) is a massive Ponzi Scheme

Wrong, because the capitalism isn't a zero-sum game. It is a positive-sum game. If social security is a ponzi scheme that cannot pay its obligations, then investment accounts are also a ponzi scheme that cannot support retirement. The only reason SS fails would be if the economy rapidly and permanently shrank. In which case, nothing in your personal account would be worth much, either. SS, at least, could be rejiggered to guarantee some lower level of benefits in the event of an economic and demographic catastrophe that would cause such a thing, but the money in your private account might be gone.

Posted by Tyro | June 13, 2008 4:22 PM

I love people who claim that SS is going bankrupt and there is nothing we can do about it.

This amounts to the claim that as a society, we can no longer support comfortably retired old people. Or in other words, our economy is simply not robust enough so that the workers can simultaneously support the young and old at the same time.

You can push the numbers around however you want, but at the end of the day the accounting doesn't mean crap. Our economy generates a certain amount of wealth each year. It gets distributed and consumed, or reinvested in the economy. Whether it's private accounts or public pensions or social security, old people living in retirement are consuming goods generated by our economy. They're not exactly living high on the hog, but at least they aren't poor (today). The great thing about social security is that it provides everyone with a guaranteed income floor. If you're trying to save for your own retirement, you have to worry about stock returns, which may do poorly in critical years for you, or projecting how many years you have until you die (how the hell do you do that?). The great things about social security is that it's a low overhead way of removing this risk.

Essentially, Social Security (and any system like it) is a massive Ponzi scheme. It will work fine right up to the point when it falls over. You guys on the left will be completely stunned when that happens.

No, moron, it would be a massive Ponzi scheme if it relied on massive exponential growth of the contributors. Yes, it works better when there are more contributors than dependents and the ratios in our society are going to shift, but we are not talking about a massive change here. The boomer generation poses a slight problem for our society as a whole as they will tilt our dependent/contributor ratio up for a couple decades, but the increase will not be much and it will probably go down again afterwards as our population will continue to grow.

Posted by mpowell | June 13, 2008 4:24 PM

As others have pointed out, James Robertson is definitely spouting GOP talking points and conveniently ignoring many facts, like the fact that the vast majority of the "deficit" can be made up by a slight hike in the wage cap, a small hike in the age of full coverage, and a small reduction in the annual growth of benefits.

He also ignores that the current projections are based upon the premise that the U.S. population will stagnate. While that may be true for births, are we really going to allow a labor shortage to occur and business to fail by not allowing more immigration? I doubt it.

An interesting thing to note is that the backers of privatization often quote historic stock market growth to "prove" that it will work, but they ignore three major points:

1) The state of the market when you retire can determine whether or not you CAN retire. They wish to kick the "security" part out of Social Security.

2) The average P/E ratio over the historic time frame they quote has about doubled. Do we expect it to double again?

3) Population has grown steadily over the years, a major requirement for the continued growth of GDP. So in GOP doublespeak, Soc Sec will go broke due to a lack of population growth, but private accounts will continue to rise just like when we had population growth. BUUUUUULLLLLL-S***!

"-- pushing taxes to unsustainable levels"

Sounds like a confession that the GOP has created a U.S. budget that can't be funded with our current tax revenues. (There's the reality of "tinkle down economics".) So once we can't raid Soc Sec surpluses, where do we trim $300+ billion per year from the budget, which doesn't even include paying back the trust fund? Hey, budget deficits don't matter! Ask Cheney!

And if it's such a problem, why do Bush and McCain support the continued consumption of the trust fund surpluses? Obama's budget proposals are not good, but McCain's are literally twice as bad.

More GOP fuzzy math.

Posted by LFC | June 13, 2008 4:27 PM

Yep, seniors understand why Social Security is a good program, and therefore oppose taking it away from their children and grandchildren.

Of course, as people live longer (with longer productive periods), it is going to make sense to tweak the system just a bit. Specifically, eventually we will have to increase the retirement age, thereby restoring a bit more balance between the contribution and withdrawal phases.

Posted by DTM | June 13, 2008 4:29 PM

You can try raising taxes to European levels, but you'll then end up with European growth levels - which is to say, slow or none.

James Robertson: You got a cite detailing your contention that "European Growth Levels" are exceeded by those in the US -- cites that point us to per capita GDP growth? I'm not saying US per capita GDP growth hasn't been fairly solid over the last 25 years or so -- mostly it has. But I'm told a number of European states, too -- all of whom tax their economies more heavily than the US -- likewise have enjoyed very robust per capita GDP growth -- especially over the last ten years or so since undertaking reforms. And yes, one is aware there are laggards (Germany, France, Italy), but the non-laggards have pretty much all been growing as fast as the US in recent years, all the while supporting much more generous safety nets than America.

The right wing trope that says robust government equates to poor economic performance is bunk. Fortunately, US voters finally seem to be catching on.

Posted by Jasper | June 13, 2008 5:03 PM

James Robertson, I'm sure you would also put forward the GOP argument regarding deficits and taxes--that our low non-FICA income tax rates (which, under Republican rule, have resulted from deficit spending vice cuts in spending) promote growth in the economy and ultimately result in higher revenues in the long run. What's funny is that while conservatives are willing to take the growth and run with it as long as they can run up HUGE deficits, any time a Democrat takes the reins of government, we're suddenly doomed by demographic problems and the Malthusian cost of entitlement programs.

I predict you will see Boomers (at least those in non-physical labor jobs) put off retirement as long as necessary if their stock portfolios don't support their golf habits.

Erosion of benefits by inflation and the decrease in home equity will be more of a problem for these seniors than the raw question of sustainability of the SocSec program's current benefit levels.

Posted by Other Mike | June 13, 2008 5:28 PM

James Robertson, I'm sure you would also put forward the GOP argument regarding deficits and taxes--that our low non-FICA income tax rates (which, under Republican rule, have resulted from deficit spending vice cuts in spending) promote growth in the economy and ultimately result in higher revenues in the long run. What's funny is that while conservatives are willing to take the growth and run with it as long as they can run up HUGE deficits, any time a Democrat takes the reins of government, we're suddenly doomed by demographic problems and the Malthusian cost of entitlement programs.

I predict you will see Boomers (at least those in non-physical labor jobs) put off retirement as long as necessary if their stock portfolios don't support their golf habits.

Erosion of benefits by inflation and the decrease in home equity will be more of a problem for these seniors than the raw question of sustainability of the SocSec program's current benefit levels.

Posted by Other Mike | June 13, 2008 5:30 PM

"At least Bush was smart enough to see that there is a problem; that puts him ahead of Obama already."

So I guess you never heard about Hillary pummelling Obama for wanting to raise the cap on Social Security contributions.

Perhaps you also didn't find out about the details of Bush's plan. He used the spectre of a future crisis to push the idea of private accounts which would have done nothing to make the system solvent--quite the opposite, actually.

At least McCain in this clip is honest enough to point out that fixing the future shortfall will have to be a Reagan-Tip O'Neil kind of solution that has to do with *raising payroll taxes* or cutting benefits. So while he denies he's for privatization (right before he basically admits it), he admits he favors increased payroll taxes with bipartisan cover.

Unfortunately his "it's their money" line is completely dishonest. I have no problem with an extra program to give some workers a chance to get matching funds for something like a government 401K. But McCain is talking about using payroll taxes for these accounts. A) that makes the system less solvent, not more, and B) under Bush's plan these would not be true "private accounts" that people could control and get money out of. They'd be government-controlled funds invested in the stock market and doled out to you at retirement, minus the interest on the money the government had to borrow to let you have your "private account".

Posted by Colatina | June 13, 2008 7:35 PM

Obama will turn the tide against himself.

He doesn't consider this an income tax increase. Neither does he consider the "expiration" of the Bush tax cut an income tax increase. He stands for new and significantly higher income taxes on the rich, moving us back to rates higher than under Clinton, H.W. Bush or even Ronald Reagan.

Obama stands for a return to tax rates not seen since Jimmy Carter.

Posted by anil petra | June 13, 2008 8:34 PM

The system won't go into deficit in 10 years. Read something on it that isn't a precis of a report from the Republican echo chamber.

Posted by Jeffrey Davis | June 13, 2008 8:49 PM

The day the Feds repudiate the debt owed to SS will be the last day anyone shows up for the Treasury's bond auctions.

Are you serious? They won't "repudiate the debt" they will do things like increase the retirement age and make you spend your 401k and IRA money before you are eligable for SS.

The most likely scenario in my opinion is the government will say: If you have contributed to your 401k and/or IRA and can support yourself in retirement you will get little or nothing from SS. If you spent all your money on bass boats and SUVs then the government will allow you to collect.

Net result - those who save will get screwed.

Posted by jmo | June 13, 2008 8:57 PM

anil petra, try to post rationally. George W. Bush is responsible for the tax increase. He, and his party, decided that they wanted the tax cut to be temporary. No one forced them to do that. If you don't like George W. Bush's tax policy, take it up with him.

While you are taking things up with George W. Bush, you might ask him about how he plans to cover the massive debt he has run up as a result of his inept tax policies. Or are you an idiot like James Robertson who thinks nothing of running the Federal Government with an ever increasing debt but imagines that a shortfall predicted a decade hence is a critical emergency - right now? Perhaps instead, you are a nitwit like jmo whose predictions are based on absolutely nothing and whose contribution to this discussion, therefore, is less than nothing.

Posted by Left | June 13, 2008 9:06 PM

In Sweden, a neocon paradise (irony), a big part of the Social Security equivalent is privitized. So far, it seems to works well.

Posted by TL | June 13, 2008 9:15 PM

This is typical Liberal Democrat Obama stuff; They criticize Republicans who do have ideas about serious issues, but 'neglect' to mention their own solutions...

So what is it, Obama? Higher SS taxes? - How much? Reduced/delayed benefit? - When?

And for comparison, I sure wish I had the return on my SS taxes that I have had on my 401k over the years... But of course, my 401k is not in govt control, so the liberal Dems don't like that. Can't have people thinking for themselves!

Posted by BillSanford | June 13, 2008 9:52 PM

There is nothing better than people spewing partisan talking points criticizing others of not thinking for themselves.

Posted by Ethan | June 13, 2008 10:15 PM

We waited out communism and we can wait out social security. The government itself predicts that the system begins to "tap the trust fund" in 2018, which of course means it's really going to happen in 2015. And this trust fund? Literally a file cabinet of laser printed IOUs from the government to itself.

At his next town hall McCain should have everyone get out pencils and pens and a scrap of paper and write "IOU (print name) 6 trillion dollars. Signed, (signature)." He can then hail everyone as trillionaires and solicit gargantuan campaign contributions. After everyone has a good laugh, he could then point out that each and every one of those napkins and slips of paper is worth about as much as the entire social security trust fund.

The left fantasizes that they can boil the frog, that if it can just paralyze all attempts to reform SS then eventually workers will accept the punishing taxes that will be required to support it. The left has a big surprise in store for itself.

yours/
peter.

Posted by peter jackson | June 14, 2008 2:45 AM

And this trust fund? Literally a file cabinet of laser printed IOUs from the government to itself.

Read the Constitution. The US has to honor its bonds.

In Sweden, a neocon paradise (irony), a big part of the Social Security equivalent is privitized. So far, it seems to works well.

Same as in the USA. A large component of the retirement system is supported by private accounts in the form of IRAs and 401(k)s.

Posted by Tyro | June 14, 2008 5:16 AM

Tyro, the U.S. Supreme Court not only has read the Constitution, it decides what the Constitution means. In the 1930's, it decided that the U.S. Treasury could default on its bonds, which the Treasury proceeded to do. The Treasury had sold war bonds during WWI on the condition that they would be redeemable in gold to protect the purchaser from inflation. Later, though, Congress rubber-stamped FDR's proposal to outlaw American private ownership of gold, which was a basic means of self-defense against monetary inflation. The Court ruled that the Treasury need not observe the gold-redemption requirement in the bond indenture and could freely repay the bond owners with devalued paper dollars.

As you have pointed out, the Constitution requires the US to honor its bonds. The selfsame Constitution grants the Congress the power to coin money and regulate its value, a power the Congress used during the Great Inflation of the 1970's to rob owners of Treasury bonds of hundreds of billions of dollars' worth of purchasing power. An explicit default on Treasury bonds is unConstitutional but an implicit default through inflation is as legal as church on Sunday.

Posted by Jack Olson | June 14, 2008 9:52 AM

An explicit default on Treasury bonds is unConstitutional but an implicit default through inflation is as legal as church on Sunday.

And about as politically tenable as, oh, raising gasoline taxes.

American politicians will continue to fund the SS checks of retirees because not doing so will guarantee a pink slip from the voters.

Posted by Jasper | June 14, 2008 11:03 AM

Ah the brilliant financial minds of the right:

At his next town hall McCain should have everyone get out pencils and pens and a scrap of paper and write "IOU (print name) 6 trillion dollars. Signed, (signature)."

It would almost work if it weren't even more stupid than the last set of moronic talking points we've already shot down. God you people are just so fucking stupid.

And the guy whining about the gold standard? Wow. Clue to the clueless - the horse has left the barn, Elvis has left the building, and the Constitution doesn't mention gold (okay, it says states can't create their own money that isn't gold or silver - which, amazingly, they still don't).

Social Security is on sounder financial ground than the United States military. The IOUs created by the general fund borrowing against overpayments by the working class have nothing to do with morons who would vote for John McCain writing themselves IOUs. The increase in taxes stemming from the repayment of the monies borrowed by the general fund isn't my fault - this was a scheme by Saint Reagan with his toady Greenspan.

Posted by The Left | June 14, 2008 11:15 AM

Oh boy.

To answer Hector's fundamental question of 'why not privatized accounts?'

They don't work. The particularly don't work for workers making under the median. If you use actual numbers and not stale talking points. This was true for the Posen Plan that Bush implicitly backed, it is true for the LMS Plan currently being pushed. Each costs workers more and deliver less. People will go round and round until everyone is dizzy but when you actually put pencil to paper privatizers numbers don't run.

I don't really mean to be an outright blogwhore but I got invited to put up a Social Security series at the Econoblog Angry Bear and the twenty and counting entries are indexed at this post on my Social Security site Social Security Posts on Angry Bear. The series is getting a good reception and anyone who wants to enter into an actual data based discussion is welcome to join in.

But a couple of notes. Social Security privatization is fundmentally being sold using two sets of books, one to predict crisis and one to present solutions. Dean Baker put up the 'No Economist Left Behind' challenge in Nov. 2004. It asked advocates of privatization to show they could get real 6.5% returns using the growth numbers of the standard Intermediate Cost assumptions. Nobody successfully met the challenge. Social Security 'crisis' relies on an economic model that counts on a near-term and permanent crash in productivity and GDP. Which may happen, I read Roubini just like anyone else, but if so your stock portfolio is not going to look very healthy.

Social Security solvency or insolvency tracks the real economy, if the latter does well solvency is enhanced, if the latter stalls so to some degree is solvency degraded. But the bias is to the upside. If you look at the numbers, which is why very few Social Security threads have any numbers at all, they end up being inconvenient for the argument.

Take the argument that Social Security is going into some sort of deficit come 2017. Leaving aside the point that the Trust Fund balance is scheduled to be $3.6 trillion in inflation adjusted dollars Table VI.F7.—Operations of the Combined OASI and DI Trust Funds, in Constant 2008 Dollars, Calendar Years 2008-85 [In billions] or $4.5 trillion in 2017 dollars and conceding that in reality future benefits have to be paid out of actual future productivity what is the actual gap we are talking about? I'll bet big money that neither Peter Jackson or James Robertson know the answer, and even if I lose that bet I'll double down that they wouldn't admit it if they knew it.

In 2017 this country will somehow have to come up with $18.5 billion in 2008 dollars or $23 billion in 2017 dollars to match the gap between Social Security Income excluding Interest and Cost. This represents only 10% of the actual interest accrued on the accumulated Trust Fund. Anyone who tells you with a straight face that represents some huge financial crisis at best doesn't know what the hell they are talking about.

Now certainly the dollars ramp up from there but even in 2025 we are only talking an inflation adjusted $177 billion, or not much more than the current stimulus package (and I don't remember any concerns that world bond markets were trembling because of that extra $158 bn in borrowing). There is a period from about 2035-2041 where transfers rise to the $300 billion range, which is to say less than the Bush Administration average deficit. And then the obligation stops entirely unless we choose otherwise, 'crisis' in context is a big tax cut for 2042. If you look at the numbers.

Which is why numbers are so scarce on the ground in these discussions, the kind of screw up the narrative being pushed.

Posted by Bruce Webb | June 14, 2008 1:48 PM

"As you have pointed out, the Constitution requires the US to honor its bonds."

Exactly where does this requirement get stated? Article 1 Section 8 gives Congress the "power" to pay debt in its first clause and the power to borrow in the second clause but I don't see any explicit limitations on their ability to restructure or if necessary abrogate those debts. Now Article VI does validate all pre-existing debt as being valid against the United States but this seems more to be about continuity of government and maintenance of credit going forward than anything.

The Constitution may in its language ASSUME that the US will pay its debts but nowhere that I see is that spelled out as an absolute requirement.

http://www.usconstitution.net/const.html#Article1

I find this typical of 'strict constructionists', they seem to be working out of a Constitution of their own imagination, one that is a lot more explicit than the actual one we have. In reality the Constitution sets relatively few limits on the powers of Congress to handle the nation's business.

Posted by Bruce Webb | June 14, 2008 2:13 PM

"An explicit default on Treasury bonds is unConstitutional but an implicit default through inflation is as legal as church on Sunday."

Well I disagree on the former, but really some of these Social Security critics are trying to draw distinctions between the Special Treasuries and other dollar denominated instruments that don't actually exist. As an example those pieces of paper in your wallet or represented in electronic form in your bank account would not be immune to such a policy of hyperinflation. The notion there is any legal or political mechanism that would allow the Congress to selectively not honor this particular obligation is nutty and derives simply from a need to sustain the narrative of 'Phony IOU', itself a successor to the totally discredited 'Bankrupt' narrative that was deconstructed during the 'There is no Crisis' effort of 2005.

Posted by Bruce Webb | June 14, 2008 2:28 PM