Short answer: No. But click here to read more from Politifact.
Monday, August 10, 2015
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Occasional comments on the economics and politics of Social Security policy by Andrew Biggs.
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August
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- Catching up on Social Security in the press
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About me
- Andrew G. Biggs
- I am a Resident Scholar at the American Enterprise Institute in Washington, where my work focuses on Social Security policy. Previously I held several positions within the Social Security Administration, including Deputy Commissioner for Policy and principal Deputy Commissioner. Prior to that I was a Social Security Analyst at the Cato Institute. In 2005 I worked on Social Security reform at the White House National Economic Council, and in 2001 I was on the staff of the President's Commission to Strengthen Social Security. My Bachelor's degree is from the Queen's University of Belfast, Northern Ireland. I have Master's degrees from Cambridge University and the University of London and a Ph.D. from the London School of Economics and Political Science. I can be contacted at andrew.biggs @ aei.org.
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9 comments:
"The bonds are worthless to the taxpayer as a way of actually paying for Social Security, since those bonds must be paid off by the taxpayer,"
Except they are not worthless to the payroll tax payer because they must be paid back by income tax payers and, when you look at the numbers, they are not really the same group.
That's true -- the distributional impact at any given time is different. But over time I'm not so sure: say, your wages would have been lower during the social security surplus period, meaning you paid more payroll taxes than income taxes, but during the payback period -- when you were older and had higher wages -- you may be predominately an income tax payer.
The social security surplus was a way to borrow money to fund the continual general budget deficits since 1958. They came up with the Unified budget which masked the true size of the general budget deficit.
When I look at all taxes, payroll and income tax, over time, I find that the overall tax burden has remained the same for many many decades. The difference is that as payroll taxes went up, we saw more general income tax exemptions, credits and some tax rate reductions. In my opinion we stopped funding the general budget with taxes and began borrowing. This borrowing became non stop year after year in 1958. We shifted the type of tax we paid from income to payroll tax. We put more emphasis on payroll to fund Medicare and Social security 100%+ while we began to borrow more heavily between 1958 and 2015.
Had social security and medicare never been passed, I believe the total income tax and payroll tax currently paid would have been equal to the income tax with no social security and medicare. The Earned Income Tax Credit is a prime example of payroll taxes squeezing out income tax. When the payroll tax was getting much higher in the early 70's the EIC was passed as a way to compensate low wage earners. Clearly this was the first indication that payroll taxes were affecting the standard of living. It is also clear that without the payroll taxes, the EIC would have never been passed.
I obtained the EIC cost for each year, the size of that years deficit and the interest paid on that borrowed money over time. The cost that has never been paid back (national debt) is well over $1.3 Trillion. I have not added in the past eight years plus interest and my guess the cost is now over $2 trillion.
Our country has never come to an agreement over Social Security and who should pay for it. Too many people look at all taxes instead of separating out what taxes fund what programs. 50% of all workers pay little to no federal income tax. The majority of workers pay more in payroll taxes than Income tax.
""Since all money is green, the cash that the Treasury received from the Social Security surplus was not earmarked for any specific government program,""
Actually this is an incorrect answer. All SS-OASI, SS-DI and medicare payroll taxes are earmarked for a specific program. The US Treasury is the government bank. IT has a few accounts; general budget, SS-OASI, SS-DI, Medicare, DOT and more. Like any normal bank it receives deposits and credits the accounts accordingly. It also borrows money for accounts that take out loans. The largest account that continues to borrow money is the General Fund based on the debt limit. When the debt limit is raised, the US treasury is tasked with borrowing money from any entity to fund appropriations that have been authorized (check).
SS-OASI has a surplus, but its surplus by law can only be used to fund SS-OASI. The same goes for SS-DI and other accounts with dedicated revenue sources.
Like any bank, each account holder has little say on who they loan our deposited money to. Do we really care as long as we are paid interest and principal?
SS-OASI trust fund has first dibs on any any federal revenue. It is first in line as a creditor. Its special US Treasuries are payable on demand unlike debt held by other entities.
To say that Bush spent the SS surplus is like saying Reagan did when there were negative cash flows under his terms.
Andrew,
95 percent of income tax is paid on income over $100K.
(pdf) https://www.jct.gov/publications.html?func=startdown&id=4568
Table A-6.−Distribution of Income and Taxes, and Average Tax Rates in 2014
Many workers double their relative income by the time they retire, but few of them get to $100K. Regardless of whether you think 95 percent is a fair amount, it is clear that borrowing from and paying back to the SSTF is not about simply moving money from one pocket to another.
"The social security surplus was a way to borrow money to fund the continual general budget deficits since 1958."
But the SS surplus has been around since 1938. As far as the GF goes, SS may have been coopted to kind of hide deficits (although still in plain sight), but from the SS side we do not "care as long as we are paid interest and principal".
"Our country has never come to an agreement over Social Security and who should pay for it."
I think we have. It is by workers, for workers. We take advantage of the reality that the GF has always been willing to borrow the surplus, but whether some people obscure the division between payroll taxes and income taxes does not change that SS has been independent.
SS is not independent of changes in demographics, so it does need to adjust. It is not the best retirement savings vehicle, but it is good insurance. It does get misrepresented often, but it does work.
Andrew, The bonds are not something that we owe ourselves. These bonds are held against obligations to existing retirees. The fact that we borrowed from the system is no different than if we had borrowed from China, private pensions, or the IRA of the stiffest critic of the Trust Funds. The system may have over promised these retirees, but you can't say that the bonds are worthless to the retirees.
The bonds held by China are worthless to the taxpayer because they must be repaid by taxpayers.
Pretty sure I said the bonds were assets to the program, but worthless to taxpayers in terms of paying for the program since they're the ones who must repay the bonds.
I realize that PolitiFact is not the best source, but the words that they seemed to attribute to you were "Biggs said the bonds are like money that we owe ourselves." So my apologizes.
The bonds are held by the program exactly. Just like China the program lent money to the government. The obligations to repay those bonds are identical, as are the burdens on the taxpayer. The government borrowed money that was raised to pay SS benefits. Now it must repay the money.
You see the program as part of the government, where as I see it as a program run by the government. The government collects revenue and pays expenses. It isn't money that we owe ourselves. It is money that tax payers owe to specific retirees as a pass through of the program.
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