We have blogged before about social security being like the blind men and the elephant, and how it depends on which part of its anatomy which blind man is touching. President Obama's deficit commission was touching the part that admits that the General Fund will have a $45 billion deficit this year just attributable to the amount that represents the difference in what is taken in by the government in FICA taxes and the amount that is paid out in benefits to retirees. Other blind men have pointed out that the Social Security Trust Fund (SSTF) has a surplus of $2.5 trillion in special Treasury bonds some of which it can cash in to cover the $45 billion gap.
Which blind man is right? Why, both, naturally. Ever since Reagan in 1983 upped the amount that FICA taxes bring in every year so that more was brought in than paid out, the General Fund has been feasting off the surplus thereby reducing the deficit in terms of money borrowed from the Chinese. The amount borrowed by the General Fund from the Social Security Trust Fund was then made up by the "special" Treasury bonds deposited into the Social Security Trust Fund. So if the national debt is considered to be the amount outstanding of Treasury bonds plus the amount in the Social Security Trust Fund of "special" Treasury bonds, the national debt remains the same whether or not some of the "special" Treasury bonds are cashed in and converted to regular Treasury bonds by selling this amount of debt to the general public (think Chinese). Both are backed by the "full faith and credit of the American government." But not really.
The difference is that bonds sold to the general public are marketable and must be paid back some day or, if you prefer, one investor is paid back by floating another bond to another investor. The bonds in the Social Security Trust Fund are bonds owned, not by the people, but by the US government and need never be redeemed if Congress takes appropriate action. Let me explain. A court case has set the precedent that American citizens have no direct claim to the money in the Social Security Trust Fund even though they've paid into it their entire working life. The saving grace of the whole mess is that the Social Security Trust Fund can go straight to the Treasury Department when it needs to redeem one of the "special" Treasury bonds. It doesn't need Congressional authorization. As we know, the budget has to be authorized by the House of Representatives. They wield authority over the US government's annual budget except for the amount redeemed by the Social Security Trust Fund.
However, the US Congress can vote at any time to (1) alter the amount that social security recipients get every month; (2) to give or not to give COLAs; and (3) to do away with social security as presently constituted altogether. The only reason they don't do any of these things is that social security is so popular and the Democrats defend it. Republicans would get rid of social security in a heartbeat, given the chance, and provided they can convince the American epeople that they would be better off if the program were privatized.
But the biggest rip-off of the American public was perpetrated by Ronald Reagan in his Social Security Amendments of 1983:
The National Commission on Social Security Reform (NCSSR), chaired by Alan Greenspan, was empaneled to investigate the long-run solvency of Social Security. The 1983 Amendments to the SSA were based on the NCSSR's Final Report.[53] The NCSSR recommended enacting a six-month delay in the COLA and changing the tax-rate schedules for the years between 1984 and 1990.[54] It also proposed an income tax on the Social Security benefits of higher-income individuals. This meant that benefits in excess of a household income threshold, generally $25,000 for singles and $32,000 for couples (the precise formula computes and compares three different measures) became taxable. These changes were important for generating revenue in the short term.
Also of concern was the long-term prospect for Social Security because of demographic considerations. Of particular concern was the issue of what would happen when people born during the post–World War II baby boom retired. The NCSSR made several recommendations for addressing the issue.[55] Under the 1983 amendments to Social Security, signed into law by President Ronald Reagan, a previously-enacted increase in the payroll tax rate was accelerated, additional employees were added to the system, the full-benefit retirement age was slowly increased, and up to one-half of the value of the Social Security benefit was made potentially taxable income.[56][57]
The 1983 Amendments also included a provision to exclude the Social Security Trust Fund from the unified budget (In political jargon, it was proposed to be taken “off-budget.”[citation needed] Yet today Social Security is treated like all the other trust funds of the Unified Budget.[citation needed] It is a political way of using a cash budget instead of the more appropriate accrual budget (for all the budgets in the U.S. government), and a way of disguising total debt.[58] This provision also provided for the exemption of Social Security and portions of the Medicare trust funds from any general budget cuts beginning in 1993.[46] This change was one way of trying to protect Social Security funds for the future.
As a result of these changes, particularly the tax increases, the Social Security system began to generate a large short-term surplus of funds, intended to cover the added retirement costs of the "baby boomers." Congress invested these surpluses into special series, non-marketable U.S. Treasury securities held by the Social Security Trust Fund. In other words, Congress borrowed the surpluses from the Social Security system; the Treasury securities held by the S.S. Trust fund are U.S. government "I.O.U.s". Under the law, the government bonds held by Social Security are backed by the full faith and credit of the U.S. government. Because the government had adopted the unified budget during the Johnson administration, this surplus offsets the total fiscal debt, making it look much smaller.[citation needed] There has been significant disagreement over whether the Social Security Trust Fund has been saved, or has been used to finance other government programs and other tax cuts.
So none other than Alan Greenspan was responsible for upping the amounts paid into social security on the theory that "some day" the amounts paid out by social security would be there for the baby boomers. These excess amounts were immediately "stolen" by the General Fund in order to make the deficit smaller than it otherwise would have been and so that taxes on the wealthy would not have to be raised. Now that it's time to pay the piper by paying the amounts back into the SSTF, the Republicans, debt conscious as they are, don't want to do it. It would result in non-marketable Treasury bonds which the government owes to itself (hence I.O.Us.) being converted into marketable Treasury bonds that the government owes increasingly to foreigners.
Now the insidious part of this whole mess is that Alan Greenspan's suggestion for increasing the long term solvency of the SSTF in 1983 was that it was to be done on the backs of the poor. Social security is a regressive tax to begin with. There are no deductions and no exemptions. Many poor people pay more in FICA taxes than they do in income tax. Reagan's social security tax increases of 1983 hit the self-employed very hard, particularly the one man or one woman self-employed. All of a sudden they were responsible for paying both the employee's and the employer's share of FICA taxes. The self-employed's FICA taxes went from 9.35% in 1983 to 14% in 1984, an increase of 50%. Thank you, Ronald Reagan. And to top this indignity off, the self-employed do not collect any more upon retirement than they would have if they had made the same amount over the course of their lifetime as an employee even though they've paid twice as much in. Talk about Republican support of small business! So in effect the General Fund raised taxes on the poor in order that it didn't have to raise income taxes on the rich in order to pay routine government expenditures. Now that the poor have been milked sufficiently for 27 years, Republicans don't want to honor the monies borrowed from the SSTF by paying out money from the General Fund which would mean either increasing the national debt or raising taxes. Evidently, Republicans don't count the "special" Treasuries in the SSTF as part of the national debt. The "off budget" non-marketable "special" Treasury bonds owned by the SSTF would have to be converted to "on budget" marketable Treasury bonds and sold to the general public (Chinese).
The way Republicans (not the government) are attempting to do this is not by renegging on the "full faith and credit of the American government." No, they are even more crafty than that. What they would like to do is to change the rules altogether regarding social security which is entirely within their purview. If they are successful at doing this, they will have accomplished two things: 1) they will have successfully paid government expenditures for 28 years partially with a regressive tax on the backs of the poor, particularly the self-employed; and (2) they will have avoided raising taxes on the wealthy to pay back into the SSTF the amounts promised and guaranteed by "the full faith and credit of the American government". They will have finessed the "full faith and credit of the American government," and the IOUs in the SSTF could sit there in perpetuity without ever having to be redeemed! Paying back the "special" Treasuries would be moot! To summarize, this is due to the fact that no American citizen has a legal claim on the social security funds and that Congress has the legal right to change the rules at any time.
So this is why you hear all the talk about privatization and how social security cannot afford to pay recipients in the future. It is because Republicans effectively want to reneg on the "full faith and credit of the American government" but do so in a way that is entirely legal. As a by-product they could rejoice in the fact that they've ripped off the poor for 27 years (thanks to Alan Greenspan, Ayn Rand's protege) and they wouldn't have had to raise taxes on the rich. Extending the Bush tax cuts for the wealthy, which Obama agreed to do, has just perpetuated the rip-off and added fuel to the fire of those clamoring to get rid of or privatize social security.
On a personal note, I paid FICA taxes for most of my life as a self-employed person. That means that I pay both the employee's and the employer's share which amounts to 15.3%, more than Warren Buffett pays on his capital gains taxes. Because there are no deductions or exemptions on FICA taxes, I pay a lot more in FICA taxes then I do in income taxes. I also collect social security and have been doing so for the last eight years even though I continue working. That means that I continue paying FICA taxes even though I'm almost 70 years old and collecting social security. Not only that but I pay taxes on my social security income. I'm supposed to get a "raise" on what I receive in social security each year because I'm continuing to pay into it each year, but that "raise" doesn't amount to a can of dogfood per month, and, I believe, there are some years where I haven't even gotten that. Maybe it's tied into the COLA department. Last year social security recipients notably did not even receive a COLA. You might note that Republicans are very interested in doing away with COLAs altogether for social security recipients. To sum up, even though I'm almost 70 years of age and still working, I pay social security taxes at the rate of 15.3% which is more than the 15% capital gains tax that Warren Bufett and other rich people pay. And, since I receive social security payments, I pay taxes on them too! And because I continue to pay through the nose in FICA taxes, I receive a can of dogfood a month (one or two dollars) as a "raise" almost every year. How about this for a rule change: once a person starts to collect social security and is still working, he or she shouldn't have to pay into it any more. Here's another: self-employed people who have paid double in FICA taxes should receive double in benefits once they start collecting social security. And of course a simple rules change that would "save" social security would be to raise the cap on the amount of income on which FICA taxes are paid. Right now it's around $100,000. Simply raising it to $200,000. would guarantee payouts ad infinitum. But Republicans only want to raise taxes on the poor and redistribute wealth upward. It's not that they don't want government to use the tax system to redistribute wealth. It's just that they are not in favor of redistributing it from rich to poor; that would be socialism. It's only capitalism when wealth is redistributed from poor to rich.
