Eclectic Research & Informed Opinion about.. Atheism, Cats, Chess, Economics, Finance, Futures, History, Humor, Nostalgia, Philosophy, Politics, Psychiatry, Science, 70's Disco, Sociology, Stock & Option Trading, Tennis....

Wednesday, August 09, 2006

Treasury Secretary Paulson Vows to 'Overhaul' Social Security, Medicare and Medicaid to fight rising costs

Above Curtesy of Ronni Bennett -

Paulson vows to stay on Social Security fight-

Although his two predecessors were carried off the field after bruising political battles, new Treasury Secretary Henry Paulson said Tuesday that he won't shy from the fight to overhaul Social Security.

Is there a Social Security Trust Fund or not?

This baby boomer has a little more than 13 months until he can begin collecting Social Security Retirement Benefits at the age of 62. On June 13, I wrote in this Blog:

"One thing I worry about as a Baby Boomer is that the Social Security Trust Fund is made up entirely of Treasury Bonds. The Federal Government spends the money contributed via the regressive payroll tax (paid mostly by middle-class and poor citizens) . So technically there is no 'Trust Fund', just pieces of paper (T-Bonds) backed by the 'full Faith and Credit of the U.S. Government'. Hmmm... And of course Congress may simply slash benefits at some point or adopt some simple minded 'privitization' scheme..."

"..A few days ago I listened to Ben Stein on Fox News give his opinion that Treasury Securities will be 'Junk Bonds' by 2012-2013, as the Trade and Budget Deficits soar..."

Congress has, of course, effectively cut Social Security benefits in the past by raising retirement ages and taxing previously untaxed benefits (when the recipient has income over a certain amount - a form of 'means testing').

The new Treasury Secretary said on 8/1 that
"four long-term challenges must be addressed: overhauling Social Security, Medicare and Medicaid to fight rising costs; increasing energy security; strengthening open trade policies; and combating issues of uneven wage distribution and growth."

I watched Secretary Paulson's speech at the Columbia Business School on CSPAN. He gushed and cooed about President Bush's 'leadership' on the economy and it is all too clear to me that "overhaul" is a rather transparent term for "cutting benefits", as Bush is on record as being completely opposed to raising the Social Security tax rate.

A little non-controversial history is in order here. The following are excerpts from "The Looting of Social Security" - Allen W. Smith, PH.D. (2004)

'With passage of the Social Security Act of 1935, America joined the rest of the developed world in making a commitment to provide a financially sound social security system that would take at least some of the worry out of the financial consequences of growing old...'

'...The entire Social Security program is now referred to as OASDHI which stands for Old Age Survivors, Disability, and Health Insurance. Although we usually refer to the Social Security Trust Fund, there are actually three trust funds: the Old-Age and Survivors Trust Fund, the Disability Insurance Trust Fund, and the Federal Insurance Trust Fund...'

'...Roosevelt wanted a financially sound Social Security Trust Fund that the American people could have confidence in. Social Security was an insurance program and the fees paid into it were considered insurance payments. Roosevelt could not have imagined a time when politicians would treat these insurance contributions as the equivalent of general revenue taxes...'

'...In 1941, Luther Gulick, a very distinguished professor at Columbia University went in to see President Roosevelt...Professor Gulick suggested that perhaps the time had come to stop levying payroll taxes separately from income taxes. Gulick went back and wrote a memorandum of the conversation. The president replied. He said: "I guess you are right on the economics, but those taxes were never a problem of economics. we put those payroll contributions in so as to give the contributors a legal, moral, and a political right to collect their pension and unemployment benefits with those taxes in there. No damned politician can ever scrap my social Security Program." '

--Congressional Record, October 9, 1990; speech by Senator Patrick Moynihan.

'...In 1983, legislation was enacted to improve the solvency of the Social Security trust fund, which had run small budget deficits for seven years in a row, from 1976-1982...Unfortunately, instead of using the increased Social Security revenue to build up the size of the trust fund for future retirees, as was intended, the government began using it to fund other government programs as soon as the surplus first appeared in 1983, and has continued to do so ever since. This practice has been obscuring the size of the federal budget deficits because, since 1983, the government has been subtracting the surplus in the Social Security trust fund from the deficit in the operating budget, reporting an official budget deficit that has been billions of dollars below the actual figure...'

Now we come to the controversial question that I posed in the header: Is there a Social Security Trust Fund or not? Two views--

The first, from the book quoted above--

'Every dollar of the $1.5 trillion cumulative surplus belonged to the Social Security trust fund and to the millions of individuals who had made contributions to it. Yet, as of late 2003, not a dollar of the $1.5 trillion was left in the fund.'

'The kindest thing we can say is that the government "borrowed" every penny in the fund and spent it on other things. But the word "borrowed" implies repayment. None of the funds have ever been repaid to date, and I don't expect to see very much, if any, of the money to ever be repaid, because that would require substantial tax increases.'

'...The government leaders who currently hold office...are so politically motivated that I can't imagine them raising taxes--even to honor the commitment that the government has made to repay the borrowed funds...And President George W. Bush seems absolutely determined to use every dollar he can get his hands on to repay his political supporters with tax cuts...'

'...If the money is never repaid, then we must use the word "stolen"-- not "borrowed'-- to describe what happened to the reserves from the Social Security trust fund...'

'...By law, Social Security trust fund surpluses are supposed to be invested in U.S. Treasury securities,which are supposed to be the safest of all investments, and interest is paid to the holders of of Treasury securities. The only catch is that the government pays interest on funds borrowed from the Social Security trust fund by posting "special issue" securities just like the ones it posted when it borrowed the money. This means that both the assets and the earnings of the Social Security trust fund are in the form of government IOUs that have no commercial value...'

A different view is presented in Social Security - The Phony Crisis by Dean Baker and Mark Weisbrot (1999)...

'The alarmists object...when the trust fund cashes in its bonds, the government will have to find money somewhere. So Social Security - or some other spending - will have to be cut. On this basis they dismiss the trust fund's assets as 'mere pieces of paper" or " the government owing money to itself." Dubbed merely an accounting fiction, the trust fund vanishes...'

'...While it is indeed true that the government will have to borrow from other sources as the Social Security surplus shrinks, its need to borrow has nothing to do with the solvency of the Social Security system...'

'What does it mean, then, to say that Social Security must be cut rather than that the government must meet its obligations to the trust fund? When the government bonds held by Bill Gates or Ross Perot or any other wealthy individual or pension fund mature, nobody proposes that the creditors should not be paid their principal. Yet the reformers insist that the 144 million Americans who loan money to the U.S. Treasury form the Social Security trust fund somehow do not have the same claim. One reason they are able to get away with this assertion is that the Treasury's current borrowing from the trust fund is not counted as part of the federal government's unified budget deficit...'

In my opinion, Messrs. Dean & Weisbrot may be technically correct on the economics, but I have to agree with President's Roosevelt's assessment quoted above by Senator Patrick Moynihan. Although the payroll taxes are still collected separately, the current surplus in the trust fund is being used to finance general government operations. This is clearly compromising the contributors' legal, moral, and a political right to collect their pension ... benefits with those taxes...

On Nov. 5, 1990, it actually became illegal to use Social Security revenue to pay for non-Social Security programs. Section 13301 of the Budget Enforcement Act of 1990 specifically mandated that Social Security trust fund monies be kept separate from general revenue funds. But nothing changed.

"The same basic rule should apply to the Social Security trust fund. These monies should be used only for the purpose for which the money is collected. If, when I practiced law, I violated that trust, I could be subject to disbarment...The discussion is are we violating a trust by spending Social Security monies for some other purpose?...The obvious answer is yes..."

" embezzlement...thievery..."

"Maybe what we should all do in conjunction with the president, to really carry this conspiracy to its appropiate end, is rather than having it called the Social Security trust fund, why do we not change it and call it the
Social Security slush fund?"

---Congressional Record (10/9/90) Speech by Senator Harry Reid


Anonymous Ronni Bennett said...

MrKen - what an excellent overview of the Social Security issue. I've let it slide during all the hubbub and all of moving and getting settled in a new city and appreciate this excellent piece.

8:15 AM

Blogger MrKen45 said...

Hi Ronni !

Thank you for your nice comment. I have become a regular reader and fan of your very professional & great Blog!

I'm convinced that the Bush Administration is out to destroy Social Security as part of its war on the poor and middle class by utilizing a number of strategies. Among these are 1)promulgating misinformation about the program's health (as Pres. Clinton's former head of the SSA has indicated); 2)lowering taxes in a time of war when it should be raising them-which will soon help precipitate an economic crisis (along with our humongous national debt and the Fed's encouragement & support of a 'housing bubble'), when it will be claimed the U.S. cannot afford to pay benefits to all the retired 'boomers'; 3)Lumping Social Security along with Medicare & even Medicaid-these are totally different problems, as the Brookings Institution has recently pointed out on CSPAN.

I am continuing to do research on this very important topic to us baby boomers...

3:46 PM


Post a Comment

Links to this post:

Create a Link

<< Home