There was another salvo in the shock and awe campaign to cure the deficit by cutting Social Security in the New York Times on Monday. The article claims that even before his inauguration President Obama wanted to “signal seriousness” on Social Security, by making the hard decisions on his watch. That’s easy to translate now: the President hasn’t alienated a huge section of the people who voted for him, and this is a great way to do it.
Another salvo came Thursday. The Congressional Budget Office told the NYT that revenues from FICA will not be sufficient to pay the entire cost of Social Security this year. No matter that the amount is small, and covered by interest on the securities held by the Social Security Trust Fund. Something must be done. Steny Hoyer shows the path:
… the moderate Democrat who is the House majority leader, gave a speech this month in which he called for the two parties to compromise on a mix of tax increases and benefit reductions to avert fiscal chaos. Among his options were proposals to gradually raise the retirement age for future Social Security recipients and to reduce benefits for those with high incomes.
That is just ludicrous. Why should average workers pay?
Alan Greenspan and others engineered a revision to the Social Security system in the mid-80s to meet the shortfall between revenues and payouts. The idea was that all of us would pay increased FICA and the money would be saved in a trust fund for this very day, when it is needed to fund the system. That created an immediate influx of money to the general fund of the Treasury. It was used to buy a special form of treasury bonds. The Trust Fund now holds something like $2.5 trillion of this unmarketable security.
The money was not invested into productive business or research and development or infrastructure. Those were left to languish into the current state of decrepitude. Instead, the money was used to hide the size of the deficits created by the Reagan and Bush tax cuts for the wealthy. Under the guise of protecting Social Security, Reagan and Bush and the complicit Congress raised taxes on average Americans and reduced taxes on the richest Americans.
The justification for these enormous tax cuts for the rich was the crazy “trickle-down” theory, that the rich would invest the money wisely and productively, and the entire nation would benefit from new production. The reality is that the rich didn’t invest in productive activities. They exported jobs to cheaper labor markets, and used their tax cuts and profits to speculate in financial markets. By 2008, hedge funds had some $2.5 trillion under management by one estimate [pdf]. Hedge funds make money by speculating, not investing.
Hundreds of billions more, and more hundreds of billions in bank loans, went into private equity funds. The point of these funds is to pile debt on companies, cut costs and let the company sink or swim. This money didn’t benefit anyone except the rich, and the failed loans contributed to the cost of the Great Crash.
Trickle-down is a failed conservative talking point. Now we get the equally noxious conservative solution for Social Security: cut benefits and raise FICA taxes.
There is exactly one fair solution. We raise income taxes on the richest Americans, and use the money to buy back the treasury securities that are held by the Social Security Trust Fund. There is no other fair solution. Every American, including the rich, pays into the trust fund on an equal basis. Everyone should be treated equally on account of our equal contributions.
It’s a tough decision for this President. There is no way to triangulate against us liberals, the dirty hippies. He can’t try to cut some middle and call it a compromise. He can side with the rich, and balance the Social Security problem on the backs of working Americans now and when they are too old and broken to work. Or he can side with the people who overpaid for years so the rich could have tax cuts without wrecking the budget.
It isn’t a hard decision for a Democrat.