Monday, December 20, 2004

Social Security Funding

Sorry to be back with another Social Security post, but it's important, really, that the Democrats get ahead and stay ahead of the Republicans on this. Bush is resolutely avoiding putting forth any actual details of a reform package so far, though that hasn't kept Republicans from doing so and engaging Democrats in something of a debate of the merits of those details. What Bush is doing is harping on the notion that the system is in a crisis and will go bankrupt unless drastic reforms are undertaken.

What the Democrats need to do is acknowledge that the system is not in crisis but that there may be a shortfall of funds four decades down the road if nothing is done in the interim to prevent that. Then, in the next breath, we need to explain the something we have in mind to prevent that. It's already too late to say nothing has to be done; the Republicans have pushed things along too far in the press (which is even more clueless and compliant to the Administration's line on this than they were on WMDs), and to a lesser extent the public mind, to make this work, even if it's essentially true.

One other point about the nature of the "crisis." One of the Republican lines about SS is that the only thing that will keep SS from insolvency is "IOUs" from the government to the system. This is where it gets interesting and the dishonesty or disingenousness of the Republicans comes into play. Social Security is set up to be funded by taxes that come out of our paychecks that are specifically withheld for that purpose. That there is a set aside funding mechanism for SS distinguishes it from other government programs. Because there is and has been more money currently being taken in that is going out, there is and has been a surplus in the SS fund. This money is invested by buying bonds from the US Treasury. These bonds are the IOUs you hear about. They are no different from bonds (or, if you prefer, IOUs) purchased from the US Treasury by you or me or the governments of China or Japan. The US Treasury has no less obligation to make good on them.

Let's take this a step farther. Faced with a similar "crisis" in SS under Ronald Reagan, payroll withholding taxes were increased. We've been paying these increased taxes for twenty years now and it is that money that the government has borrowed from Social Security. This borrowed money has been used to finance the deficit. In other words, other government expenses, such as Defense spending, which have no earmarked income sources, have been paid for over the years by the money withheld from working people for Social Security. When the bill comes due, when it's time to pay back the people from whom this money has been borrowed, we are now being told, the government will be unable to pay it, because to do so would mean the government would have to borrow the money from some other source. That's absurd, though. We already borrow money from other sources on a daily basis and, although it causes the deficit and the National debt to soar, it doesn't affect the daily operations of the government. We will have to borrow more money to pay back China and Japan when the notes they hold become due. Why is it a burden to do the same when the notes held by the American people come due?
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