tag:blogger.com,1999:blog-7334408760351487944.post8304452581263549261..comments2023-11-12T06:43:00.060-05:00Comments on Notes on Social Security Reform: What does it mean to “save the surplus”?Andrew G. Biggshttp://www.blogger.com/profile/16617460431856611873noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-7334408760351487944.post-73489067860777607282008-03-19T13:38:00.000-04:002008-03-19T13:38:00.000-04:00Biggsyou are just obscuring the facts.you have no ...Biggs<BR/><BR/>you are just obscuring the facts.<BR/><BR/>you have no more idea what the "marginal propensity to save" means to the real economy than i do.<BR/><BR/>how much "saving" is going on right now with the stock market and the housing markets?<BR/><BR/>the very simple fact that you are trying to bury with your expertise is that Social Security allows people to put aside a small part of their own income in order to spend it later, when they need it, guaranteed against inflation by "pay as you go" with wage indexing.<BR/><BR/>sure looks like "savings" to me.<BR/><BR/>it may not look like "investment" to you, but then i haven't seen much of a case that diverting money from social security will result in any real investment that will make a real difference to any reall people.<BR/><BR/>coberlyAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-7334408760351487944.post-58926596905694650202008-03-19T08:59:00.000-04:002008-03-19T08:59:00.000-04:00Coberly said: "you seem to ignore that the money b...Coberly said: "you seem to ignore that the money borrowed from Social Security in principle paid for either part of the tax cuts, or part of the government spending. Either of these could translate into "investment" if in fact the economy had any demand for more investment."<BR/><BR/>An interesting point: even if the government "spends" the Social Security surplus on new projects or tax cuts, that could still translate into investment.<BR/><BR/>To get on top of this question, you'd need to know a couple things:<BR/>The public's marginal propensity to save: How much of a tax cut gets invested rather than consumed.<BR/>The government's marginal propensity to invest: How much of an extra dollar of revenue goes to capital projects.<BR/>And the average return on government investment.<BR/><BR/>This is a reasonable sized research project, but let me put it this way: So long as government and the public fail to invest 100% of the marginal dollar, and so long as government investment yields lower average returns than private investment (which, with the exception of education, it very likely does) then the stated balance of the trust fund will overstate the amount of true saving. My guess is that it would overstate it by a lot.Andrew G. Biggshttps://www.blogger.com/profile/16617460431856611873noreply@blogger.comtag:blogger.com,1999:blog-7334408760351487944.post-52610424949508222712008-03-18T23:52:00.000-04:002008-03-18T23:52:00.000-04:00difficult, but unecessary.in the first place you ...difficult, but unecessary.<BR/><BR/>in the first place you seem to ignore that the money borrowed from Social Security in principle paid for either part of the tax cuts, or part of the government spending.<BR/><BR/>either of these could translate into "investment" if in fact the economy had any demand for more investment<BR/><BR/>which the current state of the stock market suggests it does not.<BR/><BR/>but the reason none of it matters is that if Social Security stays just as it is, pay off the Trust Fund or not... it doens't really matter... goes back to pay as you go in 2017 if necessary or in 2040 when projected or some other time when convenient.. <BR/><BR/>all that happens is that workers have a secure place to "defer" (save) their spending for a time until they need it (when they retire).<BR/><BR/>the rest of the economy can and will adapt to that. and all the theoretical strainings one way or the other will make no difference to any human being who does not make his living straining theoretical gnats.<BR/><BR/>coberlyAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-7334408760351487944.post-22199786372810352552008-03-15T16:38:00.000-04:002008-03-15T16:38:00.000-04:00Good points. On your first, there is the issue tha...Good points. <BR/><BR/>On your first, there is the issue that, even if Social Security surpluses weren't saved, the incidence of the consumption of those surpluses probably wasn't the same as the incidence of the payroll tax itself. In other words, it's possible that the payroll tax surpluses - funded by taxes on low earners -- made possible income tax reductions that primarily benefited high earners. Of course, the surpluses probably also allowed greater government spending, at least some of which may have gone to lower earners. But a valid point nonetheless.<BR/><BR/>That said, it's not clear how this plays out over time. For instance, since earnings tend to rise over the life cycle, you could have a person who was young during the Trust Fund build-up -- and therefore primarily paid payroll taxes, which subsidized others -- but who in the post-2017 period primarily paid income taxes, which would be used to repay the fund. <BR/><BR/>To get on top of this, you would need a separate analysis that examined not simply how Social Security surpluses affected the non-Social Security budget balance, but how it affected the incidence of non-Social Security taxing and spending. Not impossible, but difficult.Andrew G. Biggshttps://www.blogger.com/profile/16617460431856611873noreply@blogger.comtag:blogger.com,1999:blog-7334408760351487944.post-11739432723292170302008-03-15T16:03:00.000-04:002008-03-15T16:03:00.000-04:00"However, if Social Security surpluses were "spent..."However, if Social Security surpluses were "spent" this implies that taxpayers since the 1980s enjoyed a higher level of government services or lower level of government taxes than would otherwise have been the case. Given this, their moral claim that benefits cannot be changed prior to the trust fund's exhaustion appears weaker."<BR/><BR/>Well there are two problems with this argument, one based in equity, the other in equity coupled with policy preferences.<BR/><BR/>If Social Security surpluses since the 1980s had been financed by the entire spectrum of people who benefited by those higher services or lower taxes then it would be one thing. But they were not. Instead a subset of workers, specifically wage workers, were told that if they paid more in now that the money plus accrued interest would be used to backfill as much of the future gap between Social Security income and cost as possible for as long as possible. That the money was used in the interim to provide services to the entire country including those who were not in fact paying this particular surtax doesn't erase the moral claim, ignoring it would make every non-wage worker or earner over the cap something of a free rider on the backs of the working class. Nothing historically new but hardly fitting into anyone's definition of 'equity'. Instead it is more akin to Taxation without Representation.<BR/><BR/>Second there is built in the assumption that the benefits of those extra services and lower taxes themselves were distributed equitably, that even if the tax was falling on wage workers in an inequitable way that at least they were getting an equitable benefit. Well that does not seem to be the case, most of the tax cuts since the 1980s went to the upper quintiles, while some of the extra services like 'Star Wars' really were not much of a benefit to any worker not directly employed in defense industries. (Because if I am a stockholder in a defense contractor there really is no such thing as a wasted program, even a failed weapons system means money in the pocket if you are operating under a Cost-Plus basis, as most of these contracts are.) So we are looking at a worker financed tax most of whose direct benefits flowed in the form of profits to holders of capital. Once again not a new historical phenomenon, but not one that workers will greet with glee. If it looks like a rip off, and sounds like a rip off, I am willing to call it a rip-off.<BR/><BR/>On a final note. Though people on my side of the aisle (left) like to claim that Reagan raided Social Security to finance Star Wars and while people on the other side like to claim that Johnson raided it to pay for the Great Society neither is true. Congress and the President are tasked with maintain a prudent reserve in the Trust Fund to guard against temporary fluctuations in tax income through changes in employment. This reserve is defined as a Trust Fund ratio of at least 100. Johnson inherited a $21 billion TF and a 122 ratio, he kept the ratio pretty steady with a low of 95 and a high of 110 but did hand off the TF with a 101 ratio and a $34 bn balance. Thus he didn't really borrow anything and the dollars even then were not particularly significant in context.<BR/><BR/>When we turn to Reagan we see that he was handed a hand grenade. He inherited a TF ratio of 25 coming off six straight years of actual losses and cooperated in applying a fix that put the ratio back on path. By 1988 the ratio was back to 41, by 1992 it was back to 96. From this perspective neither Reagan or Bush I 'looted' anything. Instead they steadily built the Trust Fund to where it legally was supposed to be. The earliest date that you could possibly classify these borrowings as untoward would be 1994 and even then the big money didn't roll in until 1999 and after.<BR/><A HREF="http://www.ssa.gov/OACT/TR/TR07/VI_cyoper_history.html#wp96419" REL="nofollow">Table VI.A4.-Historical Operations of the Combined OASI and DI Trust Funds,Calendar Years 1957-2006</A> Basically both the 'looting' and 'pre-funding' narratives are inoperative for any year the TF ratio is under 100 which is to say every year from 1971 to 1992.Bruce Webbhttps://www.blogger.com/profile/13222670342780912788noreply@blogger.com