I’ve been dreading the moment when I would have to start addressing the hoopla about the Dubya Squad’s plans to muck around with Social Security. For a long time there were no plans to address — just a lot of hand-waving about an impending crisis, the importance of something called “ownership,” and so forth. Now that actual plans are starting to become fleshed out with details, it’s becoming clear that I won’t be able to avoid the issue here at The Picket Line as I’d hoped.
Most of what you’ll be hearing about “private accounts” (or whatever the media is convinced to call them) is just a smokescreen designed to take your attention away from what is really going on — the next phase in the great FICA robbery.
I’ll try to describe what’s been taking place:
The U.S. government gets the bulk of the money it spends from borrowing and taxing. Most of the taxes come from two sources: the federal income tax and FICA (a.k.a. the “payroll” or “Social Security” tax).
In some abstract universe that resembles our own, the federal income tax receipts go into the “general fund” that Congress taps to spend for all the things it likes to spend money on, and the FICA contributions go into a “trust fund” that is used to pay out Social Security and Medicare/Medicaid benefits.
To oversimplify a bit more: the federal income tax is paid mostly by the richer half of Americans. A large number of people (like me) don’t pay it at all. FICA, on the other hand, is paid by anyone who works for a living, and the richer you are the smaller a percentage of your income you have to pay. Most Americans pay more in FICA than they do in federal income tax.
For a long time, people also paid more into FICA than the government paid out in Social Security and Medicare/Medicaid benefits. This resulted in a surplus that Congress coveted. Congress has been borrowing this money by selling bonds to the Social Security “trust fund.”
A while back, someone foresaw the time when the trust fund would start paying out more money than it was bringing in, and its surplus would start to dry up. We must do something! Crisis! Crisis! What they decided to do at the time was to increase the FICA tax to raise more money. That kept the surplus coming, but Congress just kept borrowing from it, so the IOU kept getting bigger.
The Social Security “crisis” that you’re hearing about is not a crisis of the Social Security program itself (which could keep on doing what it’s doing for the foreseeable future without much change), but it’s a crisis about this debt that Congress owes and doesn’t want to have to start paying back. The government is acting like a guy who’s been on a bender all week and who, when the bartender tries to collect his tab, says “Don’t bother me with that right now — you’ve got to do something about our drinking problem!”
Congress has been pretending to believe in a marvelous myth: They don’t have to practice any fiscal discipline now because some day in the future a Congress of wise and brave politicians will appear who will look all this debt in the face and either a) cut spending to the bone and raise more money in the general fund so there’s enough to pay back the debt, b) default on the debt somehow and let Social Security wither, c) raise more money via FICA again so as to put off the day of reckoning even further, or d) cut Social Security and/or Medicare/Medicaid benefits so the IOUs don’t have to get cashed in any time soon.
So that’s cut spending, default on the debt, raise taxes, or cut benefits. All very unpopular choices for politicians to make. Each one is something that a politician will be attacked at election time for doing. But never fear, one day the wise and brave politicians will come and they’ll know what to do!
Alas, the day of reckoning has arrived, and this Congress is full of the same sort of scoundrels and cowards as all the others have been. The IOUs are starting to get cashed and the national debt is climbing like a rocket. Congress has tapped that rich uncle for a loan for the last time, but continues to insist on living beyond its means.
All of this talk of private accounts and who gets to put money in them and how much control you’ll have over them and whether it’s too risky and so forth is just a smokescreen. That’s the debate the politicians are hoping people have so it distracts ’em from what’s really going on. After all the smoke clears and the legislation gets to the president’s desk, it’s going to raise your taxes or cut your benefits or both (vaporizing the IOUs doesn’t seem like an option, and cutting spending enough to address the problem is laughably unlikely).
As Paul Krugman put it (paraphrasing Voltaire): “you can improve Social Security’s finances with privatization, as long as you also slash benefits — just as you can kill a flock of sheep with witchcraft, provided you also feed them arsenic.”
Note also: By engineering a system that allows for a perpetual loan from Social Security to the general fund, this also engineers a retroactive tax increase! The money you’ve been paying in FICA, that’s supposed to be going right back out again to recipients of Social Security, Medicare and Medicaid, has instead been siphoned into the general fund to pay for, you know, wars and stuff. Because this retroactive tax increase taps FICA, it is also a regressive tax increase that hits the poor harder than the rich.
But what about the libertarian argument about how the government shouldn’t even be in the social security and health insurance business in the first place? Isn’t there some benefit to replacing at least some of this with private accounts that belong to the person making the contribution? The answer is yes and that answer is also completely irrelevant to the debate, since the “personal accounts” under discussion do not belong to the person making the contribution but remain under the control of the government, which makes the rules about how much you can put in, where you can invest it, when you can take money out, how much you can take out, and so forth, and can change them at its whim.
Furthermore, the money that goes into these “private accounts” isn’t really your money at all — nope, the government will continue to take as much of your money as before (or more, if it boosts the FICA tax again), and then — get this — it will loan some of your money back to you to invest in these “private accounts” and expect you to pay that loan back with interest out of your Social Security benefits! (Yep, the more you look at it the dumber it looks. And, like Dubya’s crazy Medicare reform, it’ll probably start costing a lot more than advertised once the bills start coming due.)
So, in short, this becomes an issue here at The Picket Line because the proposed Social Security changes represent a new attempt by the government to take more money from us to spend on its wicked ways. It also makes my distress at paying FICA more acute.