The Week Magazine published an excellent article titled, “Social Security’s looming crisis is political, not economic,” by Jeff Spross.
It begins by agreeing with much of what we have been saying for the past 20 years.
Here are excerpts:
There are few traditions in American politics as cherished as the semi-regular panic over Social Security. There are equally few that are such utter balderdash on the economic merits.
The latest example of this time-honored practice comes to us courtesy of The New York Times. “Social Security’s so-called trust funds are expected to be depleted within about 15 years,” the outlet warned this week.
“Benefit checks for retirees would be cut by about 20 percent across the board.” The cuts could potentially rise to 25 percent in later years.
The question is whether the cuts, at the basic structural level, are actually necessary at all.
It’s widely assumed the federal government is just like a private household or business; it can run out of money if it doesn’t manage its spending and revenue properly.
Indeed, Social Security’s trust funds are designed on this premise.
But that’s actually not how it works at all. The federal government can never “run out” of money, nor can it ever suffer an involuntary debt crisis.
The implications for Social Security should be obvious.
As far as the federal government’s ability to procure dollars is concerned, the depletion of the trust funds is a meaningless event.
It can keep right on paying every last Social Security benefit it has promised in perpetuity.
Absolutely correct. So far, so good.
Unlike state and local governments, and unlike businesses, you and me, the federal government uniquely is Monetarily Sovereign.
It created the very first dollars at will –from thin air — and arbitrarily gave them a value.
Today continues to create dollars at will, from thin air, and still controls the value.
Even if the federal government didn’t collect a single dollar in taxes, it could continue spending, forever.
[There are two why the federal government levies taxes, and neither reason has anything to do with funding federal spending:
Reason 1. To control the economy be encouraging certain kinds of private spending and discouraging other kinds. (Tax breaks for home ownership are an example of the former. “Sin” taxes are examples of the latter.)
Reason 2. To create the illusion that the federal government’s spending ability is limited without sufficient taxes. (This is the method used by the government’s leaders — i.e. the rich — to justify cuts to benefits for the poor and middle classes and to increase their taxes.)]
The very first Social Security beneficiary, Ida May Fuller, got her initial benefits check in 1939, after paying into the system for just three years — hardly enough time to build up the necessary “savings” to fund her retirement.
The very fact that benefit cuts would reduce Social Security to a cashflow basis demonstrates that current workers finance the benefits for current retirees, as opposed to payroll taxes being stored up for the future retirement of the citizens who payed them.
Oops! Now, Mr. Spross begins to slide off the rails, a bit.
Current workers pay FICA, but FICA does not finance benefits. Federal taxes do not fund federal spending.
Remember, Spross said it himself:
“As far as the federal government’s ability to procure dollars is concerned, the depletion of the trust funds is a meaningless event.
It can keep right on paying every last Social Security benefit it has promised in perpetuity.”
The actual function of the payroll taxes is to remove demand from the economy, thus making room for the demand that Social Security’s spending injects into the economy.
Which is what keeps inflation on an even keel.
The above is the old, “federal money printing causes inflation” myth.
Think about why the price of, say apples, would go up. Because people have too much money?
No, the price of apples or of any other products or services is caused by one thing: Shortages.
The price of apples goes up when there is an apple tree disease, or a drought, not because your salary went up and you have more money to spend.
The notion that money creation (erroneously called, “money printing”) causes inflation, may stem from a misreading of hyperinflation.
Governments often respond to hyperinflation by printing currency.
But all hyperinflations begin and continue with shortages — usually, shortages of food — and they end only when the shortages are alleviated.
In short: the system is fine.
Of course, Congress still faces the fact that it made a rule for itself that benefits must be cut when the trust funds run dry.
If it wants to maintain the fiction, Congress could do what previous reforms have done, and bring spending and revenue back into line through some combination of benefit cuts and payroll tax hikes.
The above is exactly what the rich want you to believe: The benefits for the poor and middle classes must be cut, while their taxes are increased.
At some point, however, you’d think the better move would be to acknowledge the trust funds are a political gimmick, and just spend whatever benefits our elected representatives deem appropriate.
Social Security may face a very interesting political crisis in the coming decade or two. But in hard economic terms, there is no crisis at all.
Amen, brother Spross. The invented danger that Social Security (and Medicare and all other federal programs) could run short of dollars is a myth.
Now, while we’re at it, let’s get rid of that inflation myth, too.
Rodger Malcolm Mitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell
The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.
Implementation of The Ten Steps To Prosperity can narrow the Gaps:
Ten Steps To Prosperity:
2. Federally funded Medicare — parts a, b & d, plus long-term care — for everyone
3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)
4. Free education (including post-grad) for everyone
5. Salary for attending school
6. Eliminate federal taxes on business
7. Increase the standard income tax deduction, annually.
8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
9. Federal ownership of all banks
10. Increase federal spending on the myriad initiatives that benefit America’s 99.9%
The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.
5 thoughts on “An excellent article about Social Security, except for one small detail”
NEWSWEEK, 6/14/19: “The IRS reported that audits are down 10 percent from last year, and down 42 percent since 2010.
The decrease in audits mainly helped high-earning filers, as data shows that those who made less than $25,000 had a higher chance of being audited last year than those making between $200,000 and $500,000.
LikeLiked by 1 person
One canard that the austerians and privatizers luuurrrrve to shill is that Social Security is a Ponzi scheme or pyramid scheme. But in reality, the only Ponzi scheme here is FICA itself and the fictitious “trust fund” that is linked to it. FICA is a totally unnecessary construct that exists only to mislead, misdirect, and obfuscate, and not only will Social Security do just fine without it, but will actually be *better* off *without* the pretense of FICA paying for it. Once the charade has been dropped and the truth is fully revealed, there would no longer be any justification for cutting Social Security, and all the more reason to expand this highly successful and very important program.
End FICA, end the Ponzi scheme. Problem solved. Next.
As political leaders debate how best to fix Social Security, many policymakers are focusing on the wrong issue. Their sole concern seems to be the date when the Social Security retirement and survivor’s trust fund will run out of its paper assets. This mistaken emphasis misses the fundamental point about Social Security’s problems: There is no cash in the Social Security trust fund, and there never has been any.
The Social Security trust fund is merely an accounting device.
FICA is a tax—All taxes go tp the treasury see DAILY TREASURY STATEMENT
TABLE II – Deposits and Withdrawals of Operating Cash on the Deposits Side it shows
Cash FTD’s Received (FTD’s Federal Tax Deposit) which includes FICA and all payroll taxes
On Withdraw side it shows all payments paid out—(Social Security, Medicare, Medicaid.ect
The most popular Social Security fix: Tax the rich.
In 2019, all earned income (salary and wages) between $0.01 and $132,900 is subject to the 12.4% payroll tax. Mind you, only the self-employed and self-proprietors are paying this 12.4%, with employees of businesses splitting their payroll tax obligation with their employer (6.2% each). However, earned income above $132,900 is completely exempt from the payroll tax.
In 2016, the Social Security Administration notes that $1.2 trillion in earned income escaped the payroll tax this way, thereby denying the program close to $150 billion in taxable revenue. The amount of earned income exempt from the payroll tax has risen considerably over the past three decades from a little over $300 billion to the noted $1.2 trillion.
The solution would simply be to increase the earnings cap, thereby capturing more of this earned income via the payroll tax. Some proposals from lawmakers have suggested implementing a doughnut hole between the cap of $132,900 and an arbitrary figure, such as $250,000 or $400,000, where earned income would remain exempt from the payroll tax. Once above this arbitrary level, though, the payroll tax would be reinstated to supply added revenue to the program.
The reason the idea of raising the payroll tax cap is so popular among the general public is because it would have no impact on most workers. Since more than nine out of 10 workers is already paying into the program on every dollar they earn (i.e., won’t make $132,900 in 2019), raising the cap would only affect a single-digit percentage of well-to-do and rich workers.
But does the most popular Social Security fix hold water? Let’s take a closer look at a solid argument in favor of taxing the rich to save Social Security, as well as a valid argument why taxing the rich isn’t the appropriate solution.
And here’s why taxing the rich doesn’t make sense.
However, there’s another side to this coin.
As with the idea above, there are plenty of ancillary reasons not to tax the rich that make sense, but they aren’t the primary reasons not to do so. For instance, a couple of reasons I’ve previously suggested as to why the wealthy aren’t being taxed more include the lack of support from Republicans in the Senate for such a measure, as well as the possibility that the wealthy may reduce political campaign donations in response to such a move.
Yet, neither of these ideas gets to the crux of the matter: that the rich are already paying their fair share into the program.
Even if the well-to-do don’t plan to rely on Social Security income during retirement, one fundamental fact that most folks overlook is that the payroll tax cap exists because a cap also exists on the amount a beneficiary can be paid monthly at full retirement age. In 2019, this figure is $2,861 a month. If a person averaged $150,000 a year in lifetime earnings or $50 million a year, the most they’d be able to receive each month in 2019 at full retirement age is $2,861 a month. The payroll tax cap makes sense because the cap on benefits exists, thereby validating the notion that the rich are, indeed, paying their fair share into Social Security.
Taxes do not fund noting
State taxes fund state spending. Local taxes fund local spending. Federal taxes do not fund federal spending. FICA does not fund Social Security. That is the fundamental truth of Monetary Sovereignty.