There's no immediate SS crisis. But there IS a SS SCAM that has been going on since 1983,

[ProgressiveEconomist]

when Reagan's Greenspan Commission set in motion the generation of massive positive FICA cash flows, ostensibly to be used to pay Baby Boomer pensions.

And this SCAM will have to change when the FICA cash flow turns negative in a few years.

Trouble is, Greenspan saw to it that there would be no assurance that the FICA surplus actually WOULD be used for Baby Boomer pensions. He could have set up a Sovereign Wealth Fund, like state employee pension funds, that could pay out the money only for pensions. Alternatively, he could have ensured that FICA surpluses would be used to buy publicly tradeable Treasury bonds, that Congress would have to repay with interest on dates certain or endanger the full faith and credit of the US Treasury worldwide.

But he did neither of these things. Greenspan always had thought that the poor paid too little in taxes. So he set up a system where Reagan and all his successors but Clinton and Obama used FICA surpluses just as if they were just another form of general revenue, paying for big tax cuts for the rich, wars, and "defense" waste. FICA payroll taxes grew to outstrip federal income taxes for most workers.

But, just as the Greenspan Commission predicted, the FICA cash flow is slated to turn negative in a few years. The "trust fund" game will have to change. Congress will have to engage in combined strategies of--

(1) appropriating funds each year to repay Trust Fund bonds--or
(2) legislating lower payouts to pensioners than they are expecting, letting the Trust Fund grow fatter and fatter to no avail for Boomers.

Which strategy will be the dominant one is a matter of politics. Clinton tried to ensure that (1) would be the dominant strategy, by reducing deficits to free up future borrowing power that would let Treasury swap trust fund bonds for tradeable Tresury bonds. Dubya irresponsibly reversed this strategy and ensured that implementing strategy (1) would be painful.

But things still could go either way.

That's my opinion. WHAT'S YOUR OPINION?

[valerief]

1. Cut the military budget, eliminate free trade, and ensure people get jobs.

But what do I know? That would only help "the lesser people" as Alan Simpson calls us.

[Raster]

2. Alam Simpson should be horsewhipped on the Capitol steps with national live coverage.

[Hawkowl]

20. I prefer waterboarding

It is not considered torture--by rethuglicans.

[ThomCat]

3. You know far more than Alan Simpson.

That's for damned sure.

[ProgressiveEconomist]

4. Simpson doesn't mention that, if SS payouts are cut, TRILLIONS collected in FICA

surpluses since '83 will have gone to tax cuts for the wealthy, "defense" waste, and corporate welfare, rather than to what they were supposed to pay for.

Greenspan's Commission made accurate forecasts about how much money would be needed to fund Boomers' retirements. But they didn't ensure that money from "the little people" wouldn't just be used for Reagan's and the Bushes' largesse for what a Citibank strategist called "the plutonomy".

[dkf]

5. Yes yes yes. It was a complete scam perpetrated to raise taxes on the little guy to cut taxes for

The top! Instead of acknowledging that we keep believing that these bonds are like any other when they are not. What an outrage.

Yet how do we fix this? Maybe we should use the estate tax to buy assets that are placed in the trust fund. Taxing estates is the only way to recapture income that should have been held for the fund. I would even suggest buying physical gold.

[ProgressiveEconomist]

6. 'How do we fix this'? Clinton tried to set up a centrally-managed Sovereign Wealth Fund

for Social Security. That was when there still were fifteen years of surpluses to redirect. But the Rs were adamant--that would have been 'Socialism". Only privatization of Social Security would provide the "right incentives" rather than allow government to--heaven help us--exert political influence on market decisions.

See http://www.brookings.edu/papers/2005/04saving_diamond.aspx .

IMO, time is running out for strategies other than (1) and (2) listed in the OP.

[dkf]

7. That is why you buy gold. No impact on corporate governance.

We already have the worlds largest reserves.

As we accumulate the gold we use it to replace the bonds. It's kind of a twist on your idea to pay down the bonds. I would prefer gold over anything else we could store value in.

[ProgressiveEconomist]

Nice idea, but too late. When the FICA cash flow turns negative, current obligations

to current pensioners will exhaust all of FICA, and more. You'd need to have a FICA surplus with which to buy gold, index ETFs, publicly tradeable T-bonds, or any other asset.

Too bad you didn't suggest this twenty years ago!

[dkf]

11. No not from surplus. Dedicate extra estate tax revenues to recapture taxes that were reduced under

Reagan, Bush, etc. Then take those estate taxes, buy gold, and replace fake bonds.

[ProgressiveEconomist]

14. Diamond and Orszag suggest something like that at the link in post #6, but

they make it an option, rather than a main strategy.

They point out that the proportion of total earnings escaping Social Security payroll taxation because of the earnings cap has risen more than 50 percent since 1983. Since all of this tax-free income is at the top of the income distribution, it only makes sense to try to recapture it through estate taxes and income tax rates on the very wealthy.

But I doubt many Republicans would see things that way.

[dkf]

15. This would be specifically to recapture the surplus funds they spent earlier.

It doesn't solve the basic problem of what happens when retirees outnumber workers. It's just an idea.

[BeFree]

8. So

The IOU's of the SS are in non-public, non-negotiable bonds?

They are a 'special' kind of bond that is unique only to SS?

And:

Is what Gore said about putting SS into a 'lock box' similar to the Sovereign Fund?


I like this idea of appropriating funds each year to repay Trust Fund bonds.
If we raise taxes on the ultra rich for the revenue, I don't see a problem.

[ProgressiveEconomist]

13. IMO the kind of asset held by the Trust Fund is far less important than Congress's

ability at any time to cut benefits, raise retirement ages, or redefine cost-of-living adjustments.

Congress in principle could NEVER actually have to repay pensioners a dime of the accumulated positive cash flow, if they cut payouts by the right amount every year.

If they did that, non-tradeable Trust Fund bonds would "roll over" rather than be defaulted upon, just as publicly-traded T-bonds would have.

With the current system, though, Congress does not have to act on benefits even if they don't pony up the money. Bond markets worldwide definitely would notice a default on a tradeable treasury bond, but not necessarily a default on an accounting gimmick like a Trust Fund bond.

[dkf]

16. I don't think the gimmick bonds have a maturity date.

They don't even need to roll it over nor pay cash interest payments as it is currently paid in more bonds.

[Faryn Balyncd]

9. Using the SS trust fund for general revenues instead of the income tax is higher REGRESSIVE....FICA

...taxes are for SS for those who paid in to the system, and should not be raided so that wars, corporate welfare etc are paid from regressive payroll taxes.

[ProgressiveEconomist]

10. You've got to appreciate Greenspan's far-seeing evil genius. The poor suckers

having more and more deducted from their paychecks for FICA thought that Social Security had nothing to do with the rest of the Federal Budget.

Tens of millions of them, inclluding, tens of millions of middle-class Democratis, actually voted for Reagan--twice--and still regard him as a saint. They still don't realize that their hard-earned wages were the source of Reagan's largesse to the rich, and that getting the SS pensions they expect and paid for will entail a big political fight every year until they die.

What really makes me appreciate Greenspan's genius is the fact that--if Congress doesn't pay what's required one year--the "Trust Fund" actually declines LESS than expected, generating a false sense of security indeed.

[dkf]

12. You are right...that is a twisted evil genius.

And so wrong. This pisses me off.

[Mnpaul]

17. It gets worse than that

They are not even paying interest on that money



Instead of paying the interest(intragovernmental debt) they are using more treasury notes to pay the interest. Treasury notes issued to pay the interest on treasury notes. 873 billion 2003-2007 and it continues today.

[ProgressiveEconomist]

18. Have you seen this USA Today article about Trust Fund mechanics?

http://www.usatoday.com/news/washington/2005-02-28-trust-fund_x.htm?csp= .

It was a real eye-opener for me five years ago. I remember it well, and am glad usatoday.com still archives it online for anyone to Google.

[Enthusiast]

19. Your opinion is solid and mirrors

my own.

[Wednesdays]

21. K&R

:kick:

[scarletwoman]

22. I rec'd your excellent OP yesterday, here's a kick. (nt)