Matthew Yglesias » Is Social Security on the Chopping Block?

Apr 24th, 2009 at 5:23 pm

Is Social Security on the Chopping Block?

Not to get anyone too alarmed, but Ezra Klein’s 4:34 PM blog post offers some indication that Kent Conrad’s price for agreeing to give the American people the health care reform they voted for in 2008 was letting him mess around with cutting Social Security. Then in his 4:45 PM blog post we learn that in addition to Budget Committee Chairman John Spratt, the House Democrats will be sending Rosa DeLauro (D-CT) and Allen Boyd (D-FL) to represent them on the conference committee.

Boyd, if you think back to 2005, was the only Democrat to support privatizing Social Security, back when that was on the table. Lots of Blue Dogs in the House. One Blue Dog supported privatizing Social Security. And that’s who they picked.

Update To be clear, the Conference Committee isn't going to privatize Social Security. But even though there are two more Democrats on the Committee than Republicans, two of the Democrats—Conrad and Boyd—want to mess around with Social Security. So you have a majority on hand to recommend some kind of funny business, presumably a commission.

Comments
34

34 Responses to “Is Social Security on the Chopping Block?”

CParis Says:
April 24th, 2009 at 5:38 pm
They can commission all they want, but if these doofi think any Americans are going to stand for privatization or “reform”, they had better invest in bulletproof vests.

After most people saw their “retirement” investments – pension plans, 401ks, home equity, etc drop 30% or more due to lax govt oversight/regulation or outright fraud – and realize they will need to work 5 more years to recoup the losses – any discussion of knocking out the one remaining leg of the retirement stool is political suicide.
JonF Says:
April 24th, 2009 at 5:40 pm
I don’t expect Sociail Security to be “chopped”. I do expect some targeted, small-bore reforms: raising the tax cap, bumping up the retirement age and rejiggering the COLA. In this market you’d have better luck trying to get George W Bush elected for a third term than you would trying to convince people to shift their Social Security to the stock market.
Jasper Says:
April 24th, 2009 at 6:02 pm
They can commission all they want, but if these doofi think any Americans are going to stand for privatization or “reform”, they had better invest in bulletproof vests.

Well, hopefully by the time any commission manages to translate its recommendations into legislation a couple of years down the pike, Obama will have already achieved his two or three most important legislative goals. And then he can veto whatever nonsense the anti-FDR crowd sends his way.
MattYoung Says:
April 24th, 2009 at 6:04 pm
What did Yglesias say?

“Obama and congressional liberals want to focus on their core agenda—health care, energy, labor law, education [rather than bank bail outs].

Let me get this straight. We are discussing health care, because of Think Progress and their Congressional agenda, but we shouldn’t be dealing with health care because of Think Progress and their banking agenda.

Explain how this works again.
Brad Says:
April 24th, 2009 at 6:22 pm
Is social security on the chopping block? We can only hope.
Will Allen Says:
April 24th, 2009 at 6:26 pm
Goodness knows that the highest priority of our national government is and should ever remain the transfer of wealth to old people with the highest median net worth, without regard to the old person’s ability to provide for themsleves, often from other age demographics with a much lower median net worth.

Reactionary Progressivism! Hope and Change! Yes! We! Can!
Davis X. Machina Says:
April 24th, 2009 at 6:36 pm
The problem with the Will Allens of the world is that if we ever did means test SS, wiping out its political constituency in the process, he’d turn right round and, complaining about the transfer of wealth to the Undeserving Poor, proceed to kill it.

Consistent inconsistency, that’s the ticket.
James Robertson Says:
April 24th, 2009 at 6:55 pm
Unlike you, Matt, I think maybe those guys understand how the math works with the current demographics. Privatization isn’t the issue; it’s the system running into a brick wall that’s a problem.

The most likely fix will be to move the retirement age up from 67 to something like 72 (or higher), and to move early retirement up as well (or possibly eliminate it).
joneilortiz Says:
April 24th, 2009 at 7:01 pm
But I wonder if social security payments could be modified/reduced, without detriment, if there was a universal healthcare system in place. A significant percentage of received social security payments is probably spent (by seniors) on healthcare.
Not as Stupid as Will Allen Says:
April 24th, 2009 at 7:18 pm
Unlike the kind of idiots who support the mass slaughter of innocents, (that would be the clowns James & Will), those withe some inkling of actual math understand that Social Security is not, in fact, going to eat the budget. It is only those whose ideological preference is for a social darwinism (after all, we are dangerously low on canon fodder by relying only on the militaristicly patriotic and the sociopathic) who keep pretending there is a problem.

James, for example, has long advocated that we ignore the trust fund and simply allow the beneficiaries of three decades of overpayment by the working class a free ride. That this is grossly unfair doesn’t matter. I guess when you can justify mass slaughter “because they had it coming” a little theft from the working classes is nothing.

Davis X. Machina has Will “torture loving thug” Allen down.
David Waldman Says:
April 24th, 2009 at 7:22 pm
The conference committee couldn’t touch Social Security with reconciliation if it wanted to. It’s against the rules to deal with Social Security under reconciliation.

And although the presence of both Boyd and Conrad among the conferees worries me a bit, the mechanics of conference voting are such that they may not be able to collude very closely on this. The House and Senate conferees vote as a bloc, one vote from the House delegation and one from the Senate, the disposition of the vote to be determined among the conferees from each respective house.

Still… not much of a margin. I suppose Boyd could pants everyone by voting with Ryan and Hensarling, but it’d be a death warrant.
Glaivester Says:
April 24th, 2009 at 7:23 pm
James, for example, has long advocated that we ignore the trust fund and simply allow the beneficiaries of three decades of overpayment by the working class a free ride.

Of course, to be fair we ought to deduct the refundable portion of the earned income tax credit from the “Trust Fund” as it is a de facto tax cut to Social Security taxes.

I personally never liked the term “Trust Fund” because it implies that there is an actual independent fund of revenues that the government has with which to pay out Social Security when it runs deficits. In realiy, the government has no net assets in the Trust Fund because for every penny of “assets” it also has a penny of liabilities.

The “Trust Fund” is, essentially, just the accounting of much money the Gerenal Fund is on the hook for in terms of paying out Social Security benefits once the SS system goes into deficit.
James Robertson Says:
April 24th, 2009 at 7:32 pm
Trust Fund? What Trust Fund? I’m surprised anyone believes that’s anything more than a promise by the Feds to pay in the future. It’s every bit as worthwhile as Wimpy’s “I’ll gladly repay you on Tuesday for a hamburger today” line.

There’s no money there, just promises. Those promises rely on increased taxation, more bond sales, or both. Had Bush not spent like a madman for 8 years, only to be followed by a someone even more insane on the “spend like a drunken sailor” front, selling bonds might not be such a problem. As it is, we are reaching truly scary places in terms of our overall debt. It’s an open question as to whether we’ll be able to to keep spending as we have been; Obama is clearly betting that the answer is “yes”.

I don’t think he’s right, but we all get to see how that bet plays out. As of right now, Social Security stops paying into the general fund in 2011, and starts requiring that money be pulled from the general fund that year.

Given our political class (both parties), I expect lots of lying, denial, and accounting tricks to try and mask that reality.

Oh, and to the oh so clever guy who thinks I was in favor of slaughtering Iraqis – I wasn’t (and I’ve explained my take on the Iraq war before) – but I hear nothing but crickets from the left as Obama has the military bombing the Afghan/Pakistan border. I guess some collateral damage is more equal than others…
John Says:
April 24th, 2009 at 7:39 pm
How are treasury bonds owned by the Social Security trust fund any different from treasury bonds owned by anybody else? The government isn’t going to default on its debts, so the trust fund will be paid back out of general revenues just like all the other interest on the national debt.
John Says:
April 24th, 2009 at 7:41 pm
And let’s recall – U.S. treasury bonds are considered the most reliable form of investment in existence. The safety of other kinds of investments is measured by comparison to U.S. treasury bonds. What should the trust fund have been invested in, if not u.s. government debt?
James Robertson Says:
April 24th, 2009 at 7:47 pm
I don’t think anyone fears an actual default – but there has been fear expressed (by the Chinese, one of the biggest buyers of our debt) that we’ll effectively default by debasing the currency via inflation. It doesn’t even matter whether you count that as a real risk: they count it as a real risk, and they’re the ones that matter. They’ve already started shifting their buys from long term bonds to short term ones, and that makes our borrowing more expensive.

This is all about perception, and the people who matter – the ones who buy the bonds – are thinking that we are spending irresponsibly.

And you know what? Forget partisan politics. Forget how much Bush spent, it really doesn’t matter. What matters is that the people who buy our debt are thinking this now. Either the Feds can deal with that, or they can really hope that a train wreck doesn’t happen. Hope, as they say, is not a strategy. The various military plans and social welfare plans that people have won’t matter much if we have a couple of failed bond sales.
Jasper Says:
April 24th, 2009 at 8:09 pm
Trust Fund? What Trust Fund? I’m surprised anyone believes that’s anything more than a promise by the Feds to pay in the future. It’s every bit as worthwhile as Wimpy’s “I’ll gladly repay you on Tuesday for a hamburger today” line.

It’s far more worthwhile than a promise from Wimpy, and that’s because Social Security is extremely popular, and job-security loving members of congress are loathe to piss off their constituents. I suspect in the coming decades Social Security’s popularity at the margins will likely increase, given the fact that the percentage of the population drawing benefits will likewise be increasing (and given lingering memories of the crisis of ‘08/’09).

Incidentally, Social Security is not just popular among the blue hair cohort; younger voters, too, receive a benefit in being relieved of financial responsibilities they’d otherwise incur from elderly parents unable to pay their bills…

And you know what? Forget partisan politics. Forget how much Bush spent, it really doesn’t matter. What matters is that the people who buy our debt are thinking this now.

Oh please. The percentage of US debt that is being purchased by frightened American investors has skyrocketed. There are plenty of people interested in lending money to Washington. Quite frankly, we don’t need the Chinese to buy our bonds any more. And yes, taxes will have to go up in a few years. So what? Taxes are good. They replace borrowing and buy lots of highly valuable public goods.
Random Dude Says:
April 24th, 2009 at 8:20 pm
Only one Blue Dog supported SS privatization? Ever hear of a guy named Harold Ford? TPM called him “Dean” of the “Fainthearted Faction” of Dems who flirted with SS privatization.

http://www.talkingpointsmemo.com/archives/149742.php
The Mahablog » Good News Says:
April 24th, 2009 at 8:33 pm
[...] a deal was stuck that would allow conservatives to mess around with Social Security. For this, see Matt Y. and [...]
Glaivester Says:
April 24th, 2009 at 9:01 pm
And let’s recall – U.S. treasury bonds are considered the most reliable form of investment in existence. The safety of other kinds of investments is measured by comparison to U.S. treasury bonds. What should the trust fund have been invested in, if not u.s. government debt?

The point is that the Trust Fund does not represent any net assets of the government, because the Trust Fund is as much a liability of the government as it is an asset.

Oh please. The percentage of US debt that is being purchased by frightened American investors has skyrocketed. There are plenty of people interested in lending money to Washington. Quite frankly, we don’t need the Chinese to buy our bonds any more

This is, of course, due to an increase in savings, and will end if the anti-saving Keynesians get their way. Keynesian policy (which is what the current people are pushing) is designed to increase total indebtedness, so if American investors are purchasing enough U.S. debt that foreign borrowing is largely unnecessary, Keynesians are going to argue that the U.S. must keep spending more until we do need the Chinese again.

And yes, taxes will have to go up in a few years. So what? Taxes are good. They replace borrowing and buy lots of highly valuable public goods.

Yeah, people keeping their own money sucks.
cmholm Says:
April 24th, 2009 at 9:33 pm
The point is that virtually no bond fund of any sort represents any net assets. Nobody has your money in a drawer or in gold, ready to cough up.

The only difference between the backing of corporate, personal, or governmental debt is that for the first two, you’re ultimately counting on being able to seise and sell off physical property to cover your investment, v. a government either creating money (selling more bonds) or budgeting tax revenue.

Right now, I’d be counting on the taxes coming in before being able to sell an asset.
Jasper Says:
April 24th, 2009 at 9:33 pm
…if American investors are purchasing enough U.S. debt that foreign borrowing is largely unnecessary, Keynesians are going to argue that the U.S. must keep spending more until we do need the Chinese again.

No they’re not. Keynesians are going to argue “that the US must keep spending more” until the economy is once again growing briskly, at which time increased tax revenue will allow the public debt to begin shrinking as a percentage of GDP. It’s not liberals, but conservatives these days who espouse policies that increase the debt to GDP ratio over the course of the business cycle.
Myles SG Says:
April 24th, 2009 at 10:07 pm
kind of funny business, presumably a commission.

What’s wrong with a commission of enquiry? Do you mean to repressive all non-liberal thought, discussion, debate, and enquiry, so that you have a monopoly on thought and philosophy. This is insane and belies a totalitarian instinct. This isn’t even action; this is just harmless enquiry.
Will Allen Says:
April 25th, 2009 at 1:29 am
Yeah, Stupid, how “Darwinian” it is to question the wisdom of transaferring wealth from poor people to rich people.
Nat Says:
April 25th, 2009 at 2:51 am
I know this will just go over some heads, but this is how it works guys.

The last commission we had was in ‘83 and it was called the Greenspan commission (yeah, that guy). The deal to handle the boomers was essentially this: the wealthy income tax payers for a bit less than 2 generations would get a tax break. Payroll taxes would be increased to run a surplus that would cover the tax break for the wealthy in the day to day running of the government. In the future retirees would get paid a portion their Social Security via higher taxes for wealthy income tax payers because the demographics of payroll pay as you go will be insufficient.

This is the real Wimpy deal: the wealthy of America got the hamburger from ‘83 to somewhere around ‘17. Retirees are waiting to be repaid Tuesday from income taxes, ie. 2017 and beyond.

Here is the tricky bit: I want Warren Buffet and Bill Gates to get their Social Security check because I want them paying income taxes on their very large incomes, and thereby meeting the terms of the deal cut in ‘83. The truly wealthy are in the system. Opting the wealth out on the payment side gives them political leverage to bail on the payment side. They got trillions of dollars of benefits and it should be repaid.

This is the true nature of the controversy: the very wealthy of America (eg. the Walton family) do not want to pay off the trust fund.

And the whining about the trust fund not being real is a joke. Our government has dozens of trust funds. How about the one that has 3 billion in it ponied up by Nuclear power plant owners? I would imagine they think it is real. But no, it’s a debt to ourselves!! Well, no. Some number of Americans (stock holders in those corporations) but all income taxpayers (some of whom are those stock holders) will have to contribute the repayment of the debt.

The Social Security Trust Fund is essentially a debt to future retired Americans owed by future income tax payers. Yes, there will be some degree of overlap. Bill Gates and Warren Buffet will be on both sides of the repayment of the trust fund. They will be high income retirees. But the ‘debt to ourselves’ argument is just pathetic. It was George Bush’ argument, so pathetic was about all we could expect, I guess.
It’s a desert toping, it’s a floor cleaner - all things to all people « Not Your Sweetie Says:
April 25th, 2009 at 6:19 am
[...] benefit of “not being tied down to one perspective: Obama can be hip enough to privatize Social Security to mess around with Social Security. So you have a majority on hand to recommend some kind of [...]
It’s a dessert topping AND a floor wax - all things to all people « Not Your Sweetie Says:
April 25th, 2009 at 6:35 am
[...] benefit of “not being tied down to one perspective: Obama can be hip enough to privatize Social Security to mess around with Social Security. So you have a majority on hand to recommend some kind of [...]
Morning Widdershins: The Gambler « The Widdershins Says:
April 25th, 2009 at 7:03 am
[...] this point, Allen Boyd is on the conference committee from the House side. As Matt Yglesias notes, Boyd was the only Democrat to endorse Bush’s Social Security privatization scheme. That [...]
Ron Hardin Says:
April 25th, 2009 at 8:19 am
Raising the retirement age for benefits fixes the entire problem. Obviously if you raise it to 100, it’s over-solved. Somewhere between 67 and 100 is the spot where Social Security is self-supporting, with current workers (increased by the unretired) willing to support the retired (decreased by the age change). Just move it there.

If you want to retire earlier, do it on your own dime to bridge the gap.

The benefit of government social security is that it’s an inflation-adjusted annuity, insuring you against outliving your income.

Most people can save enough for a normal lifespan, but few can save enough to live to 100. That’s the risk that Social Security takes care of for them. It’s an insurance policy, paid for by the majority who don’t live a long time for those who do. Like fire insurance, what pays for those whose houses burn with those that don’t.

Private insurance can’t match the inflation protection – as we’ve seen, the company may not be around in 30 years when you need it, and inflation is not an insurable risk in any case.

On the Trust Fund: there cannot be a trust fund even if you wanted one. The government must instantly return to the economy all tax revenue collected, lest the money supply fall.
Collections have to go into general revenue one way or another. The trust fund is just the bookkeeping used to do that.

You can’t privatize social security for the same reason : everybody can’t save at once. Somebody has to be consuming.
ThomasH Says:
April 25th, 2009 at 11:46 am
Social Security on the “Chopping block?” It should not be, but we should certainly be moving rapidly to raising the retirment age to reduce the number of years that we (I receive SS) receive social security payments and help move the private sector consensus about what a “retirement age” should be. We should also be looking at ways to finance SS with, say, the proceeds of the carbon tax/cap and trade proceeds. I hope Mat will address this.
Ron Hardin Says:
April 25th, 2009 at 8:44 pm
“Debt to ourselves”

It’s not as bad as it’s made out to be. The future generations inherit not only the obligations but the bonds with which to pay off the obligations, so it’s a wash.

What they lose is their inheritance, which is something the current generation produced and saved.

On a current basis, the current number of workers has to be sufficient to supply services to the current number of retirees. That has to be true at all times or it won’t work.

It has nothing to do with debt or bonds.

Fortunately you can always move the retirement age so it’s true.
Bruce Webb Says:
April 26th, 2009 at 5:59 pm
It is funny that one option to address a benefit gap three decades hence is NEVER discussed.

Raising the retirement age closes about one third of the gap. On the other hand the cost of a fix through payroll is 1.7%. Even if you think that the real incidence of the employer half really falls on the worker (which particularly for lower income employees I think is EMH bullshit) you are talking about $850 a year for a family earning $50,000 or about $16 per week.

A tax increase is not my preferred solution but why is the question not being asked at all even as a partial solution? A manual worker earning $12.50 and hour with two weeks of paid vacation (not at all a bad blue collar job most places these days) would be on the hook for $442 dollars a year or with the standard employee/employer split $221. Shouldn’t he even be ASKED whether he would prefer paying $4.25 a week rather than working for three or more extra years?

Bush took a payroll tax solution off the table because he didn’t want anyone to actually take a calculator and do some division.

There are any number of things which in combination would save Social Security benefits with no change in retirement age or scheduled benefits.

One we could simply use policy to target Real Wage of 1.5% and Real GDP of 3.0%

Two we could use immigration policy to keep the numbers up to the optimal rate for economic growth.

These two policy measures would be enough to close almost all of the gap.

Three we could realize that because initial benefits are adjusted for Real Wage over a workers lifetime that even after a 22% benefit cut in 2041 the average retiree still gets a better basket of good in 2042 than my mom gets today (78% of 160% = 125%)

And then four decide if we wanted to get closer to the scheduled 160% by adjusting taxes across the board or by adjusting the cap formula in a minor way.

Yet there is hardly ever any discussion of targeted economic policy to increase Real Wage and even more rarely introduction of the tax component. And there are reasons for that, reasons that are not a root economic arguments but instead ideological. Republicans and Blue Dogs don’t really want to mend Social Security, instead they want to end it. And cutting the benefit formula and increasing years needed to earn benefits are simply the ways they propose to undermine support for it.

This commission is simply the brainchild of a many decade movement funded by Pete G. Peterson, who has publically committed a $billion to destroy Social Security. If you look behind everyone of these ‘Bi-Partisan’ groups and proposals you will find one of Peterson’s organizations funding it from Concord to the PGP Foundation.

If you think this is paranoia just start Googling some combination of ‘Peter G Peterson’ ‘entitlements’ ’social security reform’. Believe me you will get relevant hits.
Rep. DeLauro: Budget Conference Committee Will Not Tinker With Social Security | No Bull. news service. Says:
April 28th, 2009 at 1:28 am
[...] Yglesias pointed out that Rep. Allen Boyd (D-FL) is also a confereee, and was the only Democrat to support President Bush’s plan to privatize Social Security in 2005. Klein added: That gives means five of eight conferees — Conrad, Boyd, Gregg, Ryan, and [...]
Matthew Yglesias » Rose DeLauro Says Budget Conference Won’t Tinker With Social Security Says:
April 28th, 2009 at 8:24 am
[...] noted late last week that there was some chance that the conference committee appointed for the 2010 budget was going to [...]

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Is Social Security on the Chopping Block?

34 Responses to “Is Social Security on the Chopping Block?”

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