Reports are being floated that even Social Security – for some unfathomable reason – might be on the table in the ongoing debt ceiling and deficit negotiations. On its face, it is impossible that Social Security has anything to do with either the debt ceiling or the deficit. Social Security is funded by a dedicated revenue stream (our payroll taxes), and its trust fund is “off-budget” and treated separately from the rest of federal spending.
Social Security is a defined benefit pension plan sponsored by the federal government, financed primarily with dedicated contributions of workers matched by their employers. Social Security has no borrowing authority and so does not and cannot contribute to the federal deficit. And it will be in balance for the next 26 years, even with no policy changes. (emphasis added).
The American Prospect
But, of course, that isn’t the whole story. The rest of the story is that after 30 years of subsidizing the wealthiest Americans with the payroll taxes paid by the poor and the middle class, the bill is about to be presented and wealthy Americans don’t really want to pay that bill. Of course, if they are allowed to skate on this it will be the greatest transfer of wealth from the poor and the middle class to the rich in the history of . . . well, forever, but is there any doubt that the odds are with the wealthy on this one?
As long cons go, this one isn’t even difficult to follow. Back in 1982, Ronald Reagan created the National Commission on Social Security Reform, chaired by everybody’s (least) favorite myopic Maestro, Alan Greenspan, to investigate ways to shore up Social Security. A number of changes were made to the Social Security system, but chief among them was a substantial increase in payroll taxes. Payroll taxes, of course, are capped and are highly regressive in that they impact the poor and the middle class much more than they do wealthier Americans.
As a result of this increase in the payroll tax, much more revenue came into the Social Security trust fund than was necessary to pay current beneficiaries. As noted, the trust fund is considered off-budget as a matter of law:
Notwithstanding any other provision of law, the receipts and disbursements of the [Social Security Trust Fund] shall not be counted as new budget authority, outlays, receipts, or deficit or surplus for purposes of - (1) the budget of the United States Government as submitted by the President, (2) the congressional budget, or (3) the Balanced Budget and Emergency Deficit Control Act of 1985.
Pub. L. 101-508, title XIII, Sec. 13301(a), Nov 5, 1990, 104Stat. 1388-623 (emphasis added)
So for years the trust fund has continued to take in more revenue than it needs to spend and has racked up an impressive balance with its surpluses. As of the end of last year, the trust fund holds about $2.6 trillion.
The trust fund has been patiently amassing these monies because – as everyone is aware – the Baby Boomers are about to retire. This means that there will come a point where the amount of revenue paid into Social Security each year will be less than the expenditures paid out. When that happens, the Social Security Administration will begin to draw down on the trillions of dollars being saved in the trust fund to make up that difference.
Of course, the people running Social Security aren’t stupid; you can’t just park $2.6 trillion in cash under your mattress until you need to use it. Surplus monies always need to be invested in something that will earn a rate of return at least equal to the rate of inflation, or else the purchasing power of all that money will just be gobbled up over time. On the other hand, the SSA is responsible for the retirement security of millions of Americans. As events since 2008 have demonstrated, parking your retirement savings in the something like the stock market can be quite risky. Nobody wants to wake up to find out that their retirement fund disappeared overnight.
So Congress did something fairly smart: it required that Social Security trust funds be held in the form of U.S. Treasury Bonds backed by “the Full Faith and Credit of the United States government” – the rock-ribbed, safe-as-houses, safest investment in the world. The 14th Amendment to the U.S. Constitution prohibits even questioning of the validity of the United States’ debt. And Congress is constitutionally prohibited from voiding such debts. (See Perry v. United States (1935)). So everybody’s social security monies are safe.
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Unfortunately, that isn’t – in practice – how this may all end up playing out.
Requiring that the trust fund be held in the form of U.S. Treasury bonds effectively requires the SSA to lend trust fund money to the separate operating budget of the federal government. Of course, the more money the government’s operating budget receives from the SSA, the less it has to collect in taxes or borrow from somewhere else.
So for years the federal budget has been using the annual Social Security surplus revenues to effectively subsidize the other things it likes to do. Lately, these have included, just for example: launching at least two wars without paying for them, spending more on our military than the rest of the world combined, granting hundreds of millions of dollars in corporate giveaways to Big Pharma by way of an unpaid for prescription drug plan and – oh, yeah – cutting taxes for the wealthy.
The scary thing is that there is going to come a day when the U.S. operating budget is not going to be able to count on receiving any more funds from Social Security, but instead is going to have to start paying back the funds it has already borrowed. This will make a huge difference.
If you get, say, $100 a week from a friend every week for 5 years then you tend to get used to receiving that money; it comes as something of a shock if one day that income suddenly isn’t there. But it comes as much more of a shock when suddenly not only is that income gone but now have to start paying it back. Your friend just went from subsidizing your lifestyle to draining your bank account. You might start finding yourself not feeling as friendly toward him as you did.
Something like this appears to be about to happen in 2015 when Social Security benefits will begin to permanently exceed revenues. Now, this doesn’t mean that Social Security is going to start “going broke” in 2015. Even if no action is taken the trust fund will still be able to make up the difference and provide 100% of promised social security benefits through at least 2037. And even then, operating only as a “pay as you go” system, incoming social security revenue is still expected to be able to cover at least 78% of promised benefits.
So the situation isn’t really all that scary for the American people. Certainly not scary enough that addressing Social Security – which doesn’t have a damned thing to do with either the deficit or our debt ceiling – is something that needs to be discussed right now.
But the situation must be terrifying for Congress, and I’d bet that this is something Congress does think needs to be addressed immediately. Because in only a few years Congress is going to have to start paying money from the operating budget back into the Social Security trust fund and it really, really isn’t looking forward to doing that.
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I’ve long believed that Congress has been looking for a way to stiff the trust fund on all the money it has been borrowing since the early 80’s when Alan Greenspan first presented Ronald Reagan with this scheme. I think this is why for years we’ve been hearing a steady drumbeat that “Social Security is broke” and something must be done “to fix Social Security.” The truth is that Social Security is just fine unless Congress doesn’t intend to pay back the money it took to do things like finance wars, indulge in corporate giveaways, and slash taxes on that percentage of the population that ended up with all the country’s money over the last 30 years:
An awful lot of time and effort has been invested in convincing the American people that there is no Social Security money left, that it is all gone. In April 2005, in the midst of his campaign to convince Americans to abandon Social Security to the whims of Wall Street, Bush the Dumber even made a big stunt out of traveling to the Office of Public Debt Accounting, asking to see the trust fund’s assets and then, after being shown the filing cabinet where records of the government’s bonds are kept, gave a speech declaring: “There is no trust ‘fund’ – just IOUs that I saw firsthand.” (To be sure this constitutes questioning the validity of the public debt and is unconstitutional under the 14th Amendment; chalk it up to yet another non-impeachable offense by President Junior.)
The only reason I can see for politicians investing so much time and effort to convince the American people that Social Security is broke is to prepare us all for the day when the government finally flat out tells us that it’s not going to pay back what it took from us. Maybe the hope is that we will all have become so inured to the fact we are getting screwed over that nobody will bother to ask where all the money went.
The funny thing is, while it seems quite clear that this is what is behind the push to convince us that “there is no trust fund,” I cannot for the life of me figure out how these politicians expect to pull this off. Congress can’t declare the debt void, and the Constitution requires that the debt be honored. More importantly, how can these political leaders possibly think the United States will be able to reconcile stiffing its own citizens while continuing to have its borrowing needs met by the rest of the world? Do they think they’ll be able to get by with sweet talk? (Hey, China, I know I just screwed over Grandma and Granpa, but don’t worry Big Guy, I’d never do that to you. Now give me some of that low, low-rate credit that I need. You know I’m good for it, Baby.)
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As many others have pointed out before, announcing that Social Security is being discussed at the debt ceiling and deficit negotiations is the same thing as announcing that cuts to Social Security benefits are on the table. All the Social Security Administration does is take money in and pay money out; there is no way to reduce Social Security expenses without cutting benefits. But it is almost impossible, politically, to cut Social Security benefits – unless, of course, you can pass it off as something that must be done in order to avoid an actual existential crisis. Coincidentally, trying to avoid the United States defaulting on its debts provides just such a crisis, and makes doable what previously would have been impossible.
Which is why I think that if it turns out these reports are accurate and we do see some attempt to “reform” Social Security, then what we really will be witnessing is maybe a perfect example of Naomi Klein’s “Shock Doctrine” in action. Social Security has nothing to do with either the deficit or the debt ceiling, but The Powers That Be desperately want to find a way to avoid our Social Security obligations and the current impasse over the debt ceiling conveniently provides them an opportunity to start doing so.
You can almost hear what they are thinking: “The Villagers are scaring the peasants with tales of Armageddon unless the debt ceiling is raised. Avoiding Armageddon by raising the debt ceiling will require a sacrifice. That sacrifice could be Social Security.”
And if this is what happens, then it is pretty clear it is happening not because only the Republicans want it, not because only the Conservatives want it, but because everybody (who actually matters) wants it. The Creditor Class wants it.