Worthless IOUs

The Republican claim that the Social Security Trust Fund consists only of "worthless IOUs" has angered a lot of us on the left, not least of all me, and many responses have been generated to challenge that claim. But I also have the following bits to add, not so much as high level reasoned debate points, but as ways to condense our position into a few words, for the purposes of 'framing' the debate. In particular I would like to try and tie the phrase "worthless IOUs" to the Republican party as their view of what any promise by them (or in their opinion) the USA is. Democrats, of course, feel that a promise is a firm commitment, upon which you can rely, especially those made by the USA.

Where sarcasm and irony will not go over everyone's head the following phrase seems to sum up our feelings to a good extent. It is to be used where some conservative is ridiculing you for believing in the Trust Fund.

Of course, I understand that to a conservative I'm an unpatriotic liberal with little faith in the United States of America in part because I believe that our financial obligations are rock solid and the USA is the most secure creditor ever to exist, and not a super patriotic conservative who believes that the US is little more than a banana republic which will default on its debt at the drop of a hat and whose financial commitments are no more than "worthless IOUs".

A possible television add.

George Bush describing the Trust fund as "worthless IOUs". This is followed by a voiceover saying that while Republicans clearly feel that the financial commitments of the USA, especially those to our Senior Citizens, may be "worthless IOUs" the Democratic Party believes that they are firm commitments and are not "worthless IOUs".
Tag line: Don't let the Republicans turn the promise of America into a "worthless IOU".

This can be extended into a general add campaign to describe the whole of the Republican agenda as a program to turn the promise of America into a "worthless IOU".

A related idea is to have an add or a campaign on the theme that the Democratic Party has been warning for years that the Republicans were out to destroy Social Security. They ridicules that notion during the past several decades, but once in power the moved quickly to try and destroy Social Security. If you want to keep Social Security return the Democrats to the House and Senate.

How do we count your payroll taxes?

One of the arguments about Social Security coming from the right is that the Trust Fund is just part of the regular budget, so there is no money owed to Americans from this fund. Essentially all of your payroll taxes are just like regular income taxes and in no way imply a promised benefit down the road.

It seems to me that this contradicts one of the insistent arguments the right wing was making only a few years ago. When tax cuts were being made one of the arguments was that the rich paid such a large fraction of taxes, that naturally they get the tax cut. However, the claim that the rich pay a disproportionate share of taxes must be based, on counting only income taxes not payroll taxes. If you count payroll taxes as part of the general budget then Americans pay very nearly the same rate across income levels. The payroll taxes were excluded by the conservatives at that time because the payroll taxes are deducted to fund social security and are held by the government for the payees. That is they form a separate part of the budget. And therefore the middle class doesn't get a large tax cut.

Move forward to today and the discussion turns to social security. Suddenly all those payroll taxes were for the general revenue after all and therefore the middle class will have to take large social security benefit cuts. Neat trick. Fundamentally dishonest, but neat trick.

Social Security Crisis

Bush and other proponents of eliminating Social Security have argued that the "crisis" in Social Security starts in 2018 because at that point the Social Security Administration will need to start selling off Treasury Notes in order to pay benefits. However, there seem to be only three possibilities with respect to this issue:

1. The US government will have no problem paying off the Social Security Administration's Notes. There is no problem starting in 2018.
2. The US government will be able to pay off Notes from the Bank of Japan, China, Citicorp and other such entities but the Social Security Administration and American Citizens will get shafted. I can think of no good reason for why this would be the case. Proponents of Social Security Elimination should explain why this would be, if this is the case.
3. The US government will not be able to pay off any Treasury Notes starting in 2018. In this case we have a bigger problem than Social Security and this Administration really needs to explain what is going on and why such a crisis is looming.

If there are any other possibilities, I'd very much like to know. The cases I've outlined either indicate no problem or are implausible.

Social Security Reform

So far there is no concrete proposal for SS reform, but some outline of the plan being proposed by President Bush gives reason to comment.

Most of the commentary calling for reform, especially coming from this administration and its supporters seems to me based on a lot of mistaken ideas about Social Security, what's its role is, and how it operates.

My view on the proper functioning of the system is that it should be an insurance policy against destitution in old age. It makes no sense, and is no proper role for government, to force it's citizens to meet some state mandated savings or investment requirement for one's retirement. However, if one becomes truly destitute in old age, that will place some burden upon the rest of society and thus on the state. In the absence of a social security program, whatever method we choose to handle the elderly destitute, no matter how callous or generous it might be, will place costs and burdens upon the state and society. Therefore, it seems to me, it is well within the proper authority of the state to require each citizen to take out insurance against destitution in old age.

The frequent claims from the right that Social Security is about to fail are false. The program can continue to run for decades certainly, and perhaps indefinitely, as currently funded. The ability of government to continue to raid the program for other functions is soon to come to an end, but that is not relevant to the health of Social Security.

Note to that any reform to the system will be expensive. Incoming revenues to the Social Security Trust Fund are already allocated for benefits. Any reallocation of that revenue will require a change in benefits or the raising of other sources of revenue. The cost to the system varies with the proposal for reform, but several trillion dollars at the least would be required over the next ten years.

Given the above no reform is absolutely needed. However, I feel that the current system is undesirable from a cost perspective. We citizens pay far more into the system than is actually beneficial to society as a whole. The problem is not that it is an inefficient system for retirement savings, but that it is a system for insurance against retirement itself. That is, one gets paid off on the insurance policy if one retires. Because retirement itself is so likely, nearly all get paid, therefore the premiums required are quite high. If we were to spend the money to reform the system, it would be far better to transform it to a system of insurance against destitution in retirement. Such a system could be run with much lower premiums. The problem would be political, in that many would pay into the system (although much less than is now the case) but never collect. I don't know if such a reform is politically possible, but it would make more sense to me financially and philosophically.

The proposals coming from the white house, however, to privatize the program are completely ill considered. Moving funds out of the current program will weaken the insurance aspect of it, thus increase potential costs to society and the state in the future. Then the program is expanded to be a forced savings plan run by the government. If money is to be taken out of the insurance program, it should simply be returned to the people to be used as they see fit. The proposals coming from the White House violate both conservative and liberal philosophy. These proposals serve only to funnel money into the financial markets. While they have every right to do well on their own merits, weakening the necessary insurance aspect of Social Security to provide a windfall for that narrow sector of society is not the proper role for government.