We Wouldn’t Dare What Congress Did
Mar 15th, 2010 | 24 responses
The next time you hear a politician rail about Social Security and Medicare going broke, you have my permission to throw your shoe at him/her/it.
Since the Reagan administration, both parties in power have robbed the entitlement program trust funds as a kid breaking his piggy bank and paying it back in worthless IOUs. Folks, that’s not much of a stretch. Here’s why.
If the commissioners who run the trust funds called in the IOUs, the only way they could be paid in part is by borrowing more money from foreign investors and increasing the national debt by trillions of dollars more than we already owe. The treasury IOUs in the trust accounts are worthless on the open market.
Ronald Reagan, despite his god-like worship from Republicans, and Federal Reserve chairman Alan Greenspan, despite his success at keeping inflation under control, started it all by nudging Congress to borrow from the trust funds to pay for new programs rather than borrowing from foreign countries.
In fairness, revenue for the trust funds would have run into deficits without some necessary tweaking but at a much later date than, say, TODAY.
Speaking of today, Moody’s Investment Services reported the U.S. is in jeopardy of losing its Triple A ratings because its credit is nearly maxed out. That means higher interest rates for borrowing to meet its debt obligations.
The culture in Washington does not look favorably on politicians who claimed borrowing from the trust funds was a bad idea. At least 2000 Democratic candidate for president Al Gore had the courage of his convictions to place the Social Security trust fund in a “lock box.” Everyone laughed at him, especially after he was parodied on Saturday Night Live.
Bloomberg’s Business Week reported:
The governments of the U.S. and the U.K. must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.
Under the ratings company’s baseline scenario the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, according to Moody’s.
This is the first year since the 1980s when Congress overhauled Social Security that the pension program will spend more money than it takes in, by $29 billion. At the current rate, the trust fund will go broke in 2037. The $2.5 trillion in IOUs are being paid from borrowed money at a time the national deficit is $1.5 trillion this year and will continue to grow for several more years.
Social Security’s shortfall will not affect current benefits but will the future 78 million baby boomer retirees.
More than 52 million people receive old age or disability benefits from Social Security. The average benefit for retirees is a little under $1,200 a month. Disabled workers get an average of $1,100 a month.
Social Security is financed by payroll taxes — employers and employees must each pay a 6.2 percent tax on workers’ earnings up to $106,800. Retirees can start getting early, reduced benefits at age 62. They get full benefits if they wait until they turn 66. Those born after 1960 will have to wait until they turn 67.
In its 2009 summary conclusion Social Security Online reported:
But despite the difficulties—indeed, because of the difficulties—it is essential that action be taken soon, particularly to control health care costs.
Such pleas fall on deaf ears. Rep. Earl Pommeroy, D-North Dakota, who took over chairmanship of the House subcommittee on Social Security last week, told reporters: “The issues required to address the long-term solvency needs of Social Security can be done in a careful, thoughtful and orderly way and they don’t need to be done in the next few months.”
The national debt — the amount of money the government owes its creditors — is about $12.5 trillion, or nearly $42,000 for every man, woman and child in the country. About $8 trillion has been borrowed in public debt markets, much of it from foreign creditors. The rest came from various government trust funds, including retirement funds for civil servants and the military.
For complete details, click here for Social Security’s online annual report.
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EPILOGUE
My father had an expression for what Congress did to the entitlement trust funds. It was robbing Peter to pay Paul. What Congress accomplished was exactly what unscrupulous lenders did in the subprime mortgage scam — no money down, no credit check, no payment necessary.
24 Responses to “We Wouldn’t Dare What Congress Did”
Strangely enough, nothing in the linked article discusses Reagan or Greenspan. (It's a general article about SS from msnbc). Perhaps you are referring to the Greenspan commission which raised taxes above what was required for a pay as you go program (which SS had been historically). This in turn created the ability to use the excess money taxed under the social security tax to pay for other programs. It is true that Reagan started this. It is equally true that it largely wasn't possible pre-Reagan because the excess revenues weren't there to borrow.
As to the “lock box”, the reason people made fun of it was that it really didn't make any sense. Think about it this way. You (the government) are several trillion dollars in debt and paying interest on the debt. You have $100 billion more in receipts than you are going to pay out because of excess social security taxes (excess meaning more than SS owes in that year). If you don't spend the money, what do you do with it. Your only real choice is to retire debt. Where would you put the $100 billion if you didn't use it to pay off debt. The government doesn't have savings and really can't have them.
Beyond these two points, the substance of the post is correct. The Greenspan commission did not foresee government spending the extra taxes received and that was a mistake. The debt is a major problem and a major problem that, as yet, lacks a reasonable and specific solution from any quarter. Hopefully, that will change but I'm not holding my breath.
steve
“Your only real choice is to retire debt. Where would you put the $100 billion if you didn't use it to pay off debt. The government doesn't have savings and really can't have them.”
Put it a mattress, anywhere but out the door. What happened to past surpluses?
I have quoted this Mark Twain saying before, but it deserves being repeated:
It could probably be shown by facts and figures that there is no distinctly native American criminal class except Congress.
Hemm,
The government has never run a surplus when it had one, at least not in modern memory. In the world of the gold standard, the government could buy gold and throw it in Fort Knox. Not so much anymore.
My point is that paying down debt is the option when you have a surplus and that's different than out the door. It preserves borrowing for when you need it rather than when you don't. My comment was simply that the lock box would never really work, even if you believed that somehow Congress wouldn't spend the money.
Parenthetically, the same thing is playing out in the current version of HCR. Pretty much all of the offsets in the bill (with the exception of the Cadillac tax in 2018) are Medicare (either more taxes or reduction in payments). Conceptually, these should be used within the context of the Medicare program but instead they are going to be given in subsidies for a program that has nothing to do with Medicare. Isn't this the same sort of “theft” as was the case for SS? If so, why isn't Al Gore up in arms about it?
I believe we agree. My point was simply that using surplus money from SS to fund some other program is worse than putting it in a mattress, at least it would be a little more comfortable sleeping. Any program that gets funded in this way for one year ends up becoming a recurring expense that inflates the debt due to lack of regular funding going forward.
Hard to believe that politicians would actually decide to bankrupt a program like SS just for a short term gain…..
Am I the only one who thought “WHAT!!???” when I read that. Didn't Johnson make the unified budget that made the trust fund into open game? (rhetorical question, here's a link from Social Security and an editorial from a union site.)
http://www.ssa.gov/history/BudgetTreatment.html
http://www.boilermakers.org/resources/commentar…
Prof E,
I had the same reaction. The link doesn't go to any article that argues that Reagan started it. As I said, the only sense in which Reagan/Greenspan could have started this was by creating a system that allowed SS to take in more than it spent for a period of decades.
The rest, as you point out, was LBJ and the way Congress works.
Thank you. I just get a little peeved when I read someone scapegoating one criminal, while ignoring the rest of the gang.
I googled what I reported. There was reference to LBJ but it was unclear whether his administration was the first to raid SS. Until then I'll stick to my guns. It seems logical Reagan started the practice late in his second term after he and Tip O'Neill hammered out a SS solvency solution. Of course, I could be wrong. — Jer
The Social Security Scam
I have been trying to expose the Social Security scam for more than a decade, but nobody would listen. I appeared on CNN Today, with anchor Lou Waters, on September 27, 2000 to discuss my then newly published book, “The Alleged Budget Surplus, Social Security, and Voodoo Economics.” I tried to convince Waters that the government was spending Social Security money on other government programs. He just looked at me in disbelief and asked, “Are you a voice crying in the wilderness?” As it turned out I was a voice crying in the wilderness in 2000, and I have continued to be such a voice ever since. During that ten-year period, I have published four books on Social Security, the latest being “THE BIG LIE: How Our Government Hoodwinked the Public, Emptied the Social Security Trust Fund, and caused The Great Economic Collapse.” In addition, I have appeared on The Dolans (CNNfn), on CNBC, and on more than 170 radio talk shows in my crusade to expose the scam. I made extensive efforts in 2000 to persuade Al Gore to break ranks with Bill Clinton and pledge to end the raiding of the trust fund.
I have been outraged ever since I stumbled onto the scam more than ten years ago, and I have wanted to tell the whole world so everybody would be outraged. The fact that our government has “borrowed,” “embezzled,” or “stolen” $2.5 trillion of workers’ contributions to Social Security has to be “the greatest fraud ever perpetrated on the American people by their government.” Like Harry Markopolis, who unsuccessfully tried to expose Bernie Madoff for nine years, I have been trying to expose the Social Security scam for more than a decade, but nobody would believe me. I urge everyone who cares about the future of Social Security to visit my website at http://www.thebiglie.net and learn the rest of the story.
Allen W. Smith, Ph.D.
Professor of Economics Emeritus
Eastern Illinois University
Yippee! Its here! Now for the big choices – once we elect new representatives knowledgeable of the fraud committed.
Will the US invest in the future?
Pay Retirement and medicare of the baby boomers?
Cut Retirement and medicare of the baby boomers?
Try to raise taxes without a revolt?
Come to a swift conclusion to the wars in Iraq and Afghanistan – I pray.
Very interesting times indeed, no wonder several have bailed out – it is no fun
when discretionary pork is no longer available to send home.
Going to be quite fun and interesting!
Signed
A tail-end boomer who knew the screw has been coming for a long time.
There was no direct “raid” of Social Security: the funds have, in reality, always been mixed together, separated more by procedure than anything else. And several laws and administrations have added convolutions to the accounting.
So the closest thing to a raid would be to 1) report the budgets together, that is, stop accounting for the different funds to help hide the truth, and 2) distort the reporting to hide the real assets and debt. My previous Social Security Administration link describes the first in detail. Here's more on the second:
http://www.washingtonpost.com/wp-srv/politics/s…
I blamed a gang of people — you're blaming one. I've provided links to back up my position. Your turn.
Well, at least contributors on this site are starting to understand or admit what the Trustees have been trying to tell everybody for several years.
I still believe we'll continue to be treated to denial and deferral by the polticians in Washington, up to the point where Social Security begins running deficits (currently in 2016). At that point, more revenue will have to be raised to redeem trust-fund bonds, and that (more than earlier Medicare challenges, which the politicians don't deny — they don't discuss them at all) will mark the start of the tough times and the end of E-Z Vote-Buying, so I expect many long-term politicians in Washington to retire at that time.
The only reason they may leave earlier is, not Medicare problems, but worse fiscal problems (if Obama is any example, we're in deep trouble) or even a debt trap, currency value drop, or other sign the tough times are starting earlier than hoped.
If the information in the link to the SSA is correct (and I assume it is), then I think you are right that it would be more accurate to say that LBJ started it, and that it was continued by everyone since then. It appears there was some token effort to reign it in in the 1980s but they were not implemented. I'm sure once Medicare starts running a deficit then whichever party that is in power then will be falling over themselves to get it “off-budget”.
The way I look at it (and please correct me if my analogy is lacking) is to think of a bucket of water. You can't say “this half is for John and this half is for Sally.” The only reasonable way to split it up is to say “1 gallon of this water is for John and 1 gallon is for Sally.” It makes sense to account for them separately like that, even though it's just one bucket of water. Now imagine that you don't have to give Sally her water for a long time. So, you give 2 gallons to John. There's nothing wrong with that (otherwise, the gallon would have just sat around without being used) as long as John understands he owes you a gallon. But the “unified budget” theory allows you to report that you have a balanced budget of water. Eventually, Sally's going to get thirsty and, if John can't give you a gallon, then you're going to have to borrow the gallon from somewhere else. So, essentially, the unified budget is a mechanism to put off accounting for the debt until later.
I can't believe that politicians actually do this with a straight face, but not only do they do it, they shame anyone who points out the faulty accounting.
I'm not quite sure that I followed that, but the conclusion sounds right. It's just one of many official lies like the GNP, inflation, and unemployment. It's hard to believe any of the numbers once you find out what people have been doing to them.
“the faulty accounting”
As I've also said frequently: We need to subject our own federal government to the same Generally Accepted Accounting Principles (GAAP) that we expect business firms to use.
Where is a (truthful) balance sheet and an income statement?
“once Medicare starts running a deficit”
From the Summary:
“For the third consecutive year, a 'Medicare funding warning' is being triggered, signaling that non-dedicated sources of revenues—primarily general revenues—will soon account for more than 45 percent of Medicare's outlays. …
The projected exhaustion of the HI Trust Fund within the next eight years is an urgent concern. Congressional action will be necessary to ensure uninterrupted provision of HI services to beneficiaries. Correcting the financial imbalance for the HI Trust Fund—even in the short range alone—will require substantial changes to program income and/or expenditures. …
It is expected that about one quarter of Part B enrollees will be subject to unusually large premium increases in the next two years.”
…with the accompanying penalties if they're purposely violated.
Make that: (currently in 2010):
http://www.cbsnews.com/stories/2010/03/16/polit…
You win, teacher T. Despite who was first and despite the accounting
gymnastics, the bottom line is the SS trust fund was used to pay for other
programs and essentially paid back in worthless paper. The result is the
IOUs now are being honored by borrowing more money and increasing the
national debt. — Jer
Well, Jer's thread is more propitiously timed than ever, it seems.
“Social Security to Start Cashing IOUs”
My reaction:
1. That much earlier than 2016! Maybe in time for the 2014 elections, I've thought before, but now?
2. Okay, time to find out what happened — is there a bigger rise than expected in disability claims, not just as an early retirement strategy but because of all those thrown out of work during this recession?
3. I fear the ignorance and denial will re-surge when the surpluses return (while the rest of us will be more aware now of the problems all the way to 2016). That's even with current fiscal problems, bad ones, massive overspending and debt done very poorly, and an intended course by Obama's administration in the wrong way, more big spending, then deficits indefinitely — the opposite of the need soon for an austerity program in order to recover (which means mainly spending reductions rather than more tax increases, getting the debt way down so that we're prepared to fight the real entitlement cost problems after 2020 without ballooning the debt and facing a debt trap, default, and the temptation to inflate).
4. We're more likely now, earlier, to see what I've warned people about for years, too — how to face the entitlement problem. We'll see the painful process of trying to reach “equilibrium,” sharing the pain among taxpayers facing likely increases because of this, and beneficiaries subject to cost controls. Get ready for the pain to reach, and the objections and claims of suffering to come from, both groups.
I told you so. (I'm surprised that deficits began this early, though. It could be due to the economy.)
* * *
Well, I've been trying to warn people for ages about the coming problems. Jer set up a thread here to repeat the warnings. (Those Trustees have tried all this time, even if ObamaCo has inhibited their warnings recently.) Now we're facing deficits early, and the problems that go with ending or reducing them — while in a slump, with fiscal mismanagement and some fear of default or a downgrade and interest-rate rise as the EU countries fear (which inhibits too much additional misspending, hopefully).
I wonder if this is from early retirements due to layoffs, or to a rise in disability claims. (Unemployment is expected to remain high for the next several years — more bad news.)
“In the short term, the nonpartisan Congressional Budget Office projects that Social Security will continue to pay out more in benefits than it collects in taxes for the next three years. It is projected to post small surpluses of $6 billion each in 2014 and 2015, before returning to indefinite deficits in 2016.”
I honestly don't believe this was foreseen by the people retiring currently from Congress. But now I'm moved to reconsider.
It's like poor foreign policy stuff — same with these stupid entitlements. The stupid and professional parasite class has denied problems, fought reforms, blindly defended the programs irrationally for all these years; now (or later, when worse happens) that there are problems,
Of course, this is “early and small,” and many of the devoted worshippers may still deny there's a problem, and many stupid people may simply ignore this or shrug at it. (That's also part of entitlement addiction or dependency and an authoritarian or totalitarian effect: passivity, even “learned hopelessness” [Seligman].) It's a huge alarm signal for us to recognize (more important right now than the response, if we can muster one), while others will ignore it or pretend it doesn't exist (or say it means nothing to worry about).
[sigh]
Well, maybe now many of the ignorant, and some with a political angle who are professional denialists for a reason, and who to now have deliberately refused to face the problems, could be forced to learn or face reality.
The story played to the ignorant, the stupid: it talked about the “lock[ ]box,” as if that would have worked. [rolling eyes] It neglected the Ponzi-scheme nature of the program (pay-as-you-go) that will be whacked by demographics from the next ten years onward.
Goss is telling the stupid people what they've need to know (and what stupid program defenders have to admit) for years:
“If this helps get people to look more seriously at that in the nearer term, that's probably a good thing. But it's only really a punctuation mark on the fact that we have longer-term financial issues that need to be addressed.”
Are there excess disability claims, or early effectively-forced retirements due to layoffs from the slump?
** WHERE IS THIS NEWS ON SOCIAL SECURITY ADMINISTRATION'S WEB SITE? **
As well as the press conference?
As well as press conferences by any Dems who aren't stupid and would seize this opportunity — where is the bill to lift or end the payroll income tax cap, or at least someone saying that's what will be done promptly? Related support about the political-cover “deficit commission,” et cetera.
Why don't they know exactly (down to the minute or second) when deficits began, and why?
Why aren't they telling us all these things?
Clowns in the bureaucracy, clowns in Congress, clowns running our federal executive. Arrgh.
I did note that one (1) news source on-line at least got the right word in the title: DEFICIT.
http://www.cbn.com/cbnnews/finance/2010/March/S…
Also, the one remark about the trust-fund bonds by someone really is the best, befitting those who have wanted vast spending of all kinds, not only intelligent stimulus spending, and want much more, and like Obama's deficits-forever kind of future. We're in no position to do a stimulus or reform our entitlements easily, and these people want us to be in even worse condition! (“Just print the money.”)
“Those bonds are protected by the full faith and credit of the United States of America. They're as solid as what we owe China and Japan.”
“Social Security begins running deficits (currently in 2016)
Make that: (currently in 2010):'
(I use the Trustees as my normal source of information, but CBO is good, too.)
http://cbo.gov/ftpdocs/108xx/doc10871/AppendixD…
http://www.cbo.gov/ftpdocs/108xx/doc10871/Budge…
(They even compare themselves with the Trustees.)
http://www.cbo.gov/ftpdocs/104xx/doc10457/08-07-Social...
I just checked TMV (main page) and there is no new thread about this yes. I used the singular because there might be one (1) about this, as opposed to 10+ bashing Sarah Palin, say, or 20+ about any GOP villain that can be blamed if health care “reform” fails, etc.
Will this Social Security problem (which becomes a federal fiscal problem) become an issue with Washington this year, and in this 2010 campaign? I fear it actually may not, and we may have to wait until later this decade for anything to happen, still. (As with our misspending and debt…arrgh…)
Incidentally,
CBO is reputable but what it says shouldn't be taken as gospel. Its information and that of others (like MedPAC for Medicare) are high quality and probably suitable for everyone's use for reference, but it's associated with Congress, and with politics. Maybe not as obviously perverted as “science” has been with “climate change,” or other instances of academia, and of course the media, but still, be careful.
Orszag came from there. Note.
Also, I'm wondering about a remark that may not be true but made me think nevertheless. SSA wants this money back, so I heard, from Treasury. We all know Treasury is greedy at least, but they may be desperate to get their hands on as much money as they can get. (Think about the TARP “tax” on the banks.) I wonder what else that's making them desperate at Treasury, they they won't tell us Americans but they do tell the Chinese government, our creditors?
Aaaaaaaaaaaaaaaaaaaaaand, don't forget the burgeoning government employee liability problem.
Huge downsizing and revisions of the “promises” [sic] made to these people has to be done sooner or later.
(They still have defined-benefit plans!)
http://online.barrons.com/article/SB12684381587…