Robert Reich Blasts Hillary

Now Robert Reich is blasting Hillary and defending Obama as being more credible on Social Security and health care.

On Social Security:

HRC wants to refer Social Security to a commission. That's avoiding the issue, and it's irresponsible: A commission will likely call either for raising the retirement age (that’s what Greenspan’s Social Security commission came up with in the 1980s) or increasing the payroll tax on all Americans. So when HRC charges that Obama’s plan would “raise taxes” and her plan wouldn’t, she’s simply not telling the truth.

And on health care, Reich picks up the mandate theme with which Obama has been hammering Hillary:

I’m equally concerned about her attack on his health care plan. She says his would insure fewer people than hers. I’ve compared the two plans in detail. Both of them are big advances over what we have now. But in my view Obama’s would insure more people, not fewer, than HRC’s. That’s because Obama’s puts more money up front and contains sufficient subsidies to insure everyone who’s likely to need help – including all children and young adults up to 25 years old. Hers requires that everyone insure themselves. Yet we know from experience with mandated auto insurance – and we’re learning from what’s happening in Massachusetts where health insurance is now being mandated – that mandates still leave out a lot of people at the lower end who can’t afford to insure themselves even when they’re required to do so. HRC doesn’t indicate how she’d enforce her mandate, and I can’t find enough money in HRC’s plan to help all those who won’t be able to afford to buy it.

This puts Reich on the opposite side from Krugman, not for the first time.

A QUICK QUIP QUIBBLE:  As a former trustee of the Social Security Trust Fund Robert Reich is surely sufficiently well-informed to know that this quip he tosses in is false and misleading:

That [Social Security payroll tax] cap is now close to $98,000 (it’s indexed), and the result is highly regressive. (Bill Gates satisfies his yearly Social Security obligations a few minutes past midnight on January 1 every year.)

C'mon - Mr. Gates' dividends and capital gains are not subject to the *payroll* tax, and it is wildly misleading to suggest they are; why overstate the taxes to which the rich are subject when populist Dems are trying to raise them?

And as a matter of fact, back when Bill Gates ran the company his annual salary was quite modest - at $600,00 per annum base salary he would have only reached the Social Security cap in late February.  And no, the bonus wasn't much either - dividends and capital gains drove his income.

MANDATE MATH:  From Jonathon Cohn at The New Republic.

Comments

[PaulL]

Isn't "simply not telling the truth" the same thing as "lying"?

It would have been better if Reich had bluntly called Mrs. Clinton a liar. But this is still pretty darned good.

[jimmyk]

C'mon - Mr. Gates' dividends and capital gains are not subject to the *payroll* tax...

More to the point, Mr. Gates's S.S. benefit is also related (and likely not even in proportion) to his contribution. So it is misleading to call the S.S. tax regressive. In fact, the benefit structure is progressive, so that if Gates lives no longer than someone earning the minimum wage, his benefit will be smaller in relation to his contributions. (The only thing working the other way is that poor people tend not to live as long.) The point is that calling S.S. regressive by narrowly looking at the payroll tax is bogus.

[Appalled Moderate]

TM:

Do wisecracks really require factchecking?

[Appalled Moderate]

jimmyk:

The progressivity of SS is limited to the first 100K of income. Calling it "regressive" may be not quite accurate, but let's just say the Robin Hood effect of social security affects the middle class far more than it does the wealthy.

[Neo]

It was always said that there is a cap to Social Security withholding because there is a limited return.

If the federal government, or Robert Reich, or anybody wants to insure the Bill Gates will get yearly, at retirement, 10% of his average annual lifetime earnings (most current SS payouts are larger) in exchange for removal of the cap, my bets are that the cap would be gone.

But what politician would be willing to explain why Bill (or anybody) would be getting 10's of millions yearly from Social Security when it came time to pay ?

[clarice]

Since we know live in an age where--at least in the West--the grasshopper is regularly looked after at the expense of the ant,AM, why should SS be the exception?
Live. love, laugh and be happy--enter into stupid mortgage agreements, spend the money you should have saved for your old age and children's education--someone else will take care of it--and that someone will be the ant , not the Ketchip King or the Kennedy Tahitian trust beneficiaries or the Edwards' offshore account padders.

[PeterUK]

"HRC wants to refer Social Security to a commission."

HRC - Her Royal Clintoness?

[clarice]

**Ketchup**(I'm trying to quit smoking and it seems to have made my typing even worse than usual).Sorry.

[Appalled Moderate]

clarice:

You have my encouragement on quitting. You'll save me some taxpayer dollars on Medicare, and I don't want the countervailing savings on Social Security at your expense.

[anduril]

clarice, I just read Spengler's latest. Yes, he makes perfect sense. God, in Islam, is pretty much an after thought: a Deus ex machina (pun intended) device to justify what Islam actually is: an ideological expression of a predatory way of life, that of the Bedouin. For Islam God is needed to explain nothing but the mandate to raid the world and bring it into submission--the literal meaning of Islam. To get into complicated theology and natural law theory would only detract from that ideology; far better to have the utterly irrational universe with the unknowable (even by analogy) God of the Koran.

[Sue]

Social security was set up so that it wouldn't be welfare. If we want another welfare system, then we tax Gates, and those like him, on all of his income, with the return to him remaining the same as someone who spends a lifetime of making 98k a year.

[Appalled Moderate]

Sue:

Under your logic, SS should be based on a set percentage of compensation. the system is not designed that way -- it provides a large percentage of pay for lower paid workers, and replaces much less of the annual pay for the guy making 97.5K.

[Sue]

My logic is the correct logic. SS was never intended to be a welfare system.

[Steve]

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[cathyf]

So I don't see that Bill Gates gets any more use out of the protection of the military than I do, or out of pork projects in Murtha's district, or out of the electric lights in the Capitol -- all the things that the "self-employment tax" (aka "social security and medicare tax") go to pay for. So why should Bill Gates pay taxes on any amounts that his income exceeds mine?

Progressive vs regressive vs flat is a simple mathematical description of the tax rates. Once you reach the social security "break" your marginal tax rate goes down. Depending on lots of complicated factors having to do with family size, ratio of incomes in a 2-income family, size of mortgage, local tax rates, child care expenses, etc., etc., etc., the marginal rates on the total payroll tax do start going up again after a bit. But there is no doubt that the "self-employment tax" is surely a regressive tax.

[GMax]

I think the distinction here is thus:

We have been told for many years by our betters that progressive tax rates are good and regressive tax rates are thus bad. So when using what has become a loaded term to describe whether a tax rate increases, stay the same or decreases, it galls to see a tax rate that is constant and pegged to stop at a set amount of income ( go to zero ) be described as something that is bad.

If it is nothing more than an income tax, why is there a separate tax? If it is in fact a government managed ( Mismanaged?) benefit plan, then the separate description is appropriate but then it should be described as a contribution and benefit system not a government tax that is merely redistributed to others.

In other words, pick a lane.

[MayBee]

He throws Bill Gates in there to let hardworking Americans know they needn't worry, it will be the rich that fix Social Security. It's a regressive tax - look! Bill Gates!- it can easily be made more progressive. And people like Bill Gates won't even miss the money.

[Jane]

(I'm trying to quit smoking

Clarice,

Oh you will just do anything to make sure the Schip fails!

I've gone back and forth on smoking since I quit in 1983 because I couldn't afford both cigarettes and law school. I've gone 10 years, 7 years, 5 years, and lately about 2 months. I never smoke for very long, just long enough to let it get it's iron grip back on me, and then I quit again. Mostly I'm addicted to nicotine gum more than cigarettes.

The best reward for quitting by far is getting rid of the smell. Oh and it makes the treadmill so much easier.

One day at a time.

[clarice]

Thnx,Jane--well; see how it works. And, yes, I'm sick of funding every cuckoo idea that comes down the pike with excessive cigarette taxes.Tax exercise! Tax granola!

[jimmyk]

So I don't see that Bill Gates gets any more use out of the protection of the military than I do...

I would argue that he does. He has more to lose if the U.S. is overrun by a foreign power, or hit by a nuclear attack. But suppose he doesn't. How does that support your argument? The point about the S.S. "tax" is that there is a connection (through the benefit formulas) between what you pay in and what you get out. That makes it different from taxes for general revenues.

Progressive vs regressive vs flat is a simple mathematical description of the tax rates.

No, I think GMax has it right. The S.S. "tax" is different, and probably shouldn't be called a tax. Then terms like "progressive" and "regressive" (which, by the way, are hardly neutral mathematical terms, but are politically loaded) don't apply.

[Other Tom]

"...the Robin Hood effect of social security affects the middle class far more than it does the wealthy."

So do the prices of bread, bananas, milk and orange juice. Here's a hint: it's good to be rich.

[cathyf]

The point about the S.S. "tax" is that there is a connection (through the benefit formulas) between what you pay in and what you get out. That makes it different from taxes for general revenues.

Bullshit. Something like 90% of all woman social security recipients have taken benefits based upon their husband's earnings rather than their own. In other words, the rich stay-at-home moms who never paid a penny of "social security" tax whose husbands were high wage earners get more benefits than poor women with poor husbands who paid thousands and thousands of dollars in "social security" taxes over decades of hard work.

Middle class, too. Take Joe and Mary, a hypothetical husband and wife who each make exactly 1/2 of the social security "cut-off" wage every year of their working lives. Compare to Tom and Susan, where Susan never works, and Tom makes exactly the social security "cut-off" wage every year of his working life. Tom and Joe both die the same day. Susan will get a bigger social security check every month than Mary, even though the two families paid exactly the same in taxes.

Or look at the comparison between the two-income couple where both make the social security "cut-off" wage every year of their working lives, compared to the 1-income, 1-SAHP family where the one income earner makes twice the social security "cut-off" wage -- in that case the two couples would make exactly the same social security check in retirement, even though one family had "paid in" exactly twice as much as the other.

In other words, pick a lane.

Forget it, it's a one lane road. The money taken in is put in the same general fund as every other federal tax receipt, "user fee", and civil or criminal fine that the federal government collects. And it is all used for general government expenditures -- whether vital projects like needed roads which help generate economic activity which creates wealth, payroll for our military that protects our freedoms and prosperity, welfare payments, social security payments, fraud, waste, pork -- it all comes out of that same pot.

[MayBee]

Forget it, it's a one lane road. The money taken in is put in the same general fund as every other federal tax receipt, "user fee", and civil or criminal fine that the federal government collects

Then fund it with income tax. They should stop playing games.

Or look at the comparison between the two-income couple where both make the social security "cut-off" wage every year of their working lives, compared to the 1-income, 1-SAHP family where the one income earner makes twice the social security "cut-off" wage -- in that case the two couples would make exactly the same social security check in retirement, even though one family had "paid in" exactly twice as much as the other.

Are you sure about that?

[GMax]

Cathy

The benefit rules are bizare and have never made much sense to me. On that we can agree for sure.

But its suppose to be a benefit for a payments made overtime, and yes the socialists added diabilty payments to a system that was already unfunded and did not employ an actuary to figure out the appropriate level of benefits etc.

But if you think its just a tax, then you must believe benefits will continue at their current rate adjusted upwards for inflation. And you and I would differ greatly on that, as at some point I believe that the age of entitlement will be raised and future benefits will be curtailed ( although I doubt it will impact anyone currently drawing benefits, as it will phase in over a long enough time for congresscritters to retire in an entirely different retirement program! ).

As a fix for the system, I propose that we insist Congress adopt Soc Sec as their own retirement system. It will get fixed in a Long Island minute if that were to happen.

[Other Tom]

I would recommend to Joe and Mary that they get better jobs, or work harder.

You'll have to check with some spokesman for that regressive ol' fascist hyena Franklin Roosevelt as to why the benefits paid to the working husband increase when his wife reaches retirement age. I believe the mossbacked old fool proably entertained some quaint notion of encouraging wives to stay home and make a good household, and encouraging husbands to work hard so the wives could do just that.

But what did FDR know anyway?

[Other Tom]

"Or look at the comparison between the two-income couple where both make the social security 'cut-off' wage every year of their working lives, compared to the 1-income, 1-SAHP family where the one income earner makes twice the social security 'cut-off' wage -- in that case the two couples would make exactly the same social security check in retirement, even though one family had 'paid in' exactly twice as much as the other."

I'm quite sure that's incorrect. I meet the test of the 1-income guy in the example, and my wife never paid in enough to qualify for any benefits on her own. Later this year, when she turns 62, my benefits will increase--but they won't double. The last I checked with the SSA, they will increase by 3/8.

[Other Tom]

Why has no one whined and complained about the fact that those with shorter life expectancies--e.g. blacks and males--are subsidizing those who live longer, viz. all those white ladies?

[GMax]

I would whine except I dont really expect the program will be around in its current status in another 10-15 years. Big changes are coming and most of them look from this steely eyed squint to mean, dont plan on Soc Sec to pay for much more than an occasional lunch - with tip of course.

[cathyf]

But if you think its just a tax, then you must believe benefits will continue at their current rate adjusted upwards for inflation.

That doesn't follow at all. If you believe that it is just a tax (as I do), then Demography Is Destiny -- like the generations before us got to divvy up whatever their political clout could expropriate from taxing the generations after them, we Boomers will be divvying up exactly what our clout can get us. There are a lot more of us Boomers than in any generation that retired before us, so the only hope that we have of getting the same sorts of benefits that previous generations got is if the succeeding generations are filthy rich and can afford for us to have comfortable retirements, too.

That actually goes for private retirement investing, too. Lots of wealth was destroyed in people's bad investments in the tech bubble (online pet food sales? what were they thinking?!?!?) and now this subprime mortgage fiasco. The only way that we can use our incomes today to fund retirements in the future is to find some productive use for our money that will be generating wealth when we are retired. This goes for both private and public investments -- for example, take my social security taxes and use them to build a road in the right place where it helps to create real and productive economic activity that wouldn't have happened without the road, and then collect taxes on that economic activity 30 years from now to pay my social security benefits. Or spend my social security taxes on a bridge to nowhere, and it's just pissed down a rat hole.

In order to create the wealth needed to fund the Boomers' retirements in the future, we need to use Boomers' incomes in wealth-creating investments now. The tech bubble followed by the housing bubble, alongside the ever-accelerating replacement of "regular" budgetting with pork is going in exactly the wrong direction.

[cathyf]

I'm quite sure that's incorrect. I meet the test of the 1-income guy in the example, and my wife never paid in enough to qualify for any benefits on her own. Later this year, when she turns 62, my benefits will increase--but they won't double. The last I checked with the SSA, they will increase by 3/8.

You are misunderstanding the examples.

Variation 1) You are the 1 wage earner, and your wife never works, and you always make at or below the "cut off" earning. Your next-door neighbors are absolutely identical in income-tax deductions (same mortgage, same taxes, same number of kids, etc.) and exactly equal in income, except that next door each of the 2 wage earners makes exactly 75% (husband) and 25% (wife) what you make every single year. Your two families pay exactly the same taxes -- for every dollar of income tax that you pay, the couple next door pays a dollar of income tax; for every dollar of "social security" tax that you pay, the husband next door pays 75 cents of "social security" tax and the wife pays 25 cents of "social security" tax. All three workers retire on the same day. Each family will receive benefits based upon the husband's salary, which are going to be lower in the 2-earner family than the 1-earner family, because the husband in the 2-income family only made 75% of the income that the husband in the 1-income family made. I'm not claiming that it will be a 75% ratio -- as has been pointed out the benefits are somewhat progressive.

variation 2) In this variation the husband in the 1-earner family always makes exactly twice the social security cut-off, while the next-door neighbors in the 2-income family each make exactly the cut-off. Again in this case, income taxes, which are by family, are identical, but the 2-earner family pays twice the social-security taxes than the 1-earner family. Then both wives die. The two widowers get exactly the same benefit, even though the 2-earner family paid in twice as much "social security" "contributions" than the 1-earner family.

[Other Tom]

Cathy, my response concerned the example I quoted. If you are talking about how much is paid by those people in social security taxes, for the single-payer family I don't understand the signgicance of his making twice the cutoff--once you hit the cutoff, you pay no more social security tax. When you say the two-worker couple "both" make the cutoff, I understand you to mean "each" of them, because you say that they will have paid in twice as much as the other guy.

And if that's the case, it's my understanding that each of them draws a full benefit check based on his/her own contributions, meaning they get more than the single-earner family, in which they jointly get 1 3/8 the benefit of a single contributor.

The quoted example makes no mention of the death of any of the earners or their spouses, and my response did not address what would happen in the event of anyone's death.

[glasater]

Does anyone remember back in the eighties when congress was trying to fix Medicare--and was asking wealthy retirees to help out their less fortunate bretheren? Well congress was absolutely hammered for daring to suggest such a thing. The term "greedy geezer" took on a whole new meaning in my mind.
Since we can't take over Mexico where half the population is under the age of twentyfive and use those young folks to solve social security, my alternative idea is to not allow anyone receiving SS the ability to vote. To be at the mercy of those footing the bill.

[BarbaraS]

Or look at the comparison between the two-income couple where both make the social security "cut-off" wage every year of their working lives, compared to the 1-income, 1-SAHP family where the one income earner makes twice the social security "cut-off" wage -- in that case the two couples would make exactly the same social security check in retirement, even though one family had "paid in" exactly twice as much as the other.

That's true if both husbands died. But on the other hand if both husbands lived the wife's benefit of the two income family would equal her husband's benefit but the the wife of the one income family would get about a fourth of her husband's benefit.

Social security was meant to be an insurance plan to supplement savings. It was never meant to be total income and anyone who bought that theory is having financial problems right now.

[BarbaraS]

Since we can't take over Mexico where half the population is under the age of twentyfive and use those young folks to solve social security, my alternative idea is to not allow anyone receiving SS the ability to vote. To be at the mercy of those footing the bill.

Oh, your theory is to disenfranchise a large segment of the population who worked all their lives, obeyed the law and collected on an insurance plan they paid into involuntarily? A large segment of society that actually pays attention to politics and world views? You remind me of a cousin years ago who as a teenager made the commet to his mother that everyone over 30 should be exterminated. 30 is old and useless to themselves and society. She replied that "Son, I'm over 30. Should I be exterminated?" He said "Oh, I didn't mean you, Mom". Think before you speak. You will be old one day also.

[glasater]

Lookit BarbaraS--there is much individual wisdom that I admire in the "drawing SS" crowd. But there is no getting around the fact that AARP is a powerful lobby that has no interest in changing the face of how SS now operates.

[MayBee]

But there is no getting around the fact that AARP is a powerful lobby that has no interest in changing the face of how SS now operates.

Don't conflate those drawing SS and the AARP.

[glasater]

Point well taken MayBee.

[BarbaraS]

AARP is an ultra liberal organization. Just read Modern Maturity and you will see it. And they follow the liberal mantra at all times. Notice all the stands they take on all issues. I for one can't stand them.

[glasater]

And I certainly agree with your points, BarbaraS.

[jimmyk]

Cathyf, there are two (at least) components to S.S., a forced savings/pension plan, and "insurance." The insurance aspect of it means that there is not going to be a simple one-to-one relationship between what someone (or what a household) pays in and what he or she gets back. In particular, there's a reward to living longer, or having a spouse that lives longer. That's true of any private pension system as well. It's also true of any other kind of insurance. That doesn't make it a tax. There still is a benefit formula that depends (up to a limit, and in a complicated way) on a household's contributions.

And the fact that the government takes the revenues from the S.S. "tax" and spends them on other things doesn't matter for this discussion. The liability for future benefits is still incurred; one part of the government is just borrowing from another part.

[Appalled Moderate]

jimmyk:

Social Security is not like a private pension plan or even a state government pension plan. For one thing, private employers (and soon, state and local governments) are required to carry their pension promises on their books. Second, there is an existing trust fund for promised benefits.

Social Security, on the other hand, is, for US budget purposes, funded on a pay as you go basis. Neither the deficit or the Federal debt reflect the value of those pension payments. Essentially, therefore, cathyf is entirely right on where payroll tax dollars are going. And, unlike the private system, you or I have no vested right to any particular level of benefit at retirement age. Congress and the President can change the level of benefits or retirement age at any time. Private pensions cannot be cut back in that way. Usually, state constitutions are even more protective of state and local pension systems.

[Ralph L]

Microsoft pays dividends now?

[cathyf]

And the fact that the government takes the revenues from the S.S. "tax" and spends them on other things doesn't matter for this discussion. The liability for future benefits is still incurred; one part of the government is just borrowing from another part.

You've hit on the key point, which AM has already picked up on. You are wrong, the government has no liability for future benefits. This is what private ownership of accounts is really about -- even if the government holds the money, if it is in a private account then it really is a liability, and if the government has borrowed it then you really own the government bond. (There are countries which have private ownership of retirement savings, even though the government still holds the money. The Swiss are an example. My husband worked in Switzerland for just under two years, and when he left the country the government cut him a check for his retirement account.)

[boris]

You are wrong, the government has no liability for future benefits.

Because political rhetoric is not enforcable? What about Ross Perot's gov bonds then? Guess what, his paper trail looks much better but the gov could stiff him as well. There is no "trust fund" for Ross' investments it's all just a taxpayer IOU.

The problem with both for the gov is the same. Why would people turn over money to the gov with the expectation of getting stiffed? Like it or not the gov made the promise and will have to pay out in a satisfactory fashion. When dimorats start saying they now have to raise taxes because Perot wants his investments back, AM logic on this point will be granted as valid.

[jimmyk]

AM,
The fact that the government has screwy accounting doesn't change the reality: Up to some limit, there is a connection between what I contribute and what I will ultimately obtain in benefits, even if the formula might change some day. No defined benefit pension is an ironclad guarantee of anything, as United Airlines employees have found out. And unlike most private pensions, SS even indexes for inflation. The real risk to my SS benefit is less than the real risk to any private defined benefit pension I might have.

[clarice]

I think perhaps a better way to put it--and which distinguishes this from the insurance analogy--is this:Insurance companies have to set aside reserves to meet their anticipated outlays, and we know there is no SS lockbox. Nothing has been set aside to meet the obligations and when they exceed the outflow we are relying on political pressure to meet them from other sources.

[boris]

relying on political pressure to meet them

While true there is also a trust factor involved. As soon as one generation gets stiffed the program gets dumped.

The right way to look at gov wealth is ability to pay. It has large marketable assets. Spending on things like the space program, infrastructure, and technologies results in wealth creation and increased tax revenue whereas spending on welfare or buying votes does not.

If they ever have to stiff a generation on SS it will be because they messed up the economy and in that situation private investments are going to be hurting too. If younger generations don't want heavy taxes they need to vote economic growth instead of dimorat. If they screw that up everybody suffers.

[jimmyk]

If they ever have to stiff a generation on SS it will be because they messed up the economy.

Yup. I think of SS as being "backed" by future earnings of U.S. workers, the growth of which depends on demographics and productivity.

[Other Tom]

As Al Gore once observed before he became an oafish doomsayer, the return on investment for a person (me, for instance) now drawing benefits is ridiculously low compared to what I would be enjoying had I been permitted to invest the same money privately. And although my future income stream is "backed" by the government, if it decides to reduce it I have no recourse of any kind. This actuarial oddity has always been justified on the grounds that, if left to their own devices, too many people wouldn't invest the money at all, they'd just piss it away on beer. (The Congress has never had any qualms, however, about exempting itself from the program entirely.)

Every sentient being knows that the Social Security system is as fucked up as Hogan's goat. But it has been with us for seventy-plus years, and it will always be with us in some form or another. It was in a certain sense a fraudulent scheme the day it was enacted, and would never survive a class action under today's securities laws but for the fact that the King cannot be sued.

[Appalled Moderate]

jimmyk:

Actually pensions are more like bank accounts than anything else -- insured to a set level by an equivalent of the FDIC called the PBGC. To the extent airline pensions have been cut back, they were either "nonqualified plans" subject first to the claims of corporate creditors in bankruptcy, or pension in excess of the limits insured by the PBGC. I know Delta pilots lost a lot of their retirement during their bankruptcy because a healthy portion of their pension was in a nonqualified plan.

[GMax]

Well allow the "beancounter" in me to quibble a bit with the spending the money on government's other ventures mime.

Social Security does not have a facade of a bank with the money being loaded up behind the backscreen and stolen by Congress. Social security does invest the proceeds. Unfortunately for its beneficiaries, solely in goverment bonds. Now these bonds are a liability of the government and must be repaid. I know of no instance where the US has ever defaulted on a bond. They will be repaid.

It is correct that Soc Security is a source of financing of the deficit of the government. In fact if it were not, the money collected from payors would earn nothing at all, as Congress in their infinite wisdom has declared Soc Security can only invest in these securities.

It is right to wonder who will fill in the gap once Soc Sec becomes unable to help finance the deficit. Perhaps we will run surpluses! Or the Chinese government will need to invest their substantial funds and start competing with the Saudis and drive the interest rates on these even lower. And maybe pigs will fly.

But to reinterate, we are not just spending social security funds on interstate highways and WIC programs. That is as big a fib as the lockbox one is.

[GMax]

The PBGC is more broke than FSLIC ever was. And JimmyK is correct that defined benefit pension plans are not ironclad. If the company goes broke and its underfunded, I would be in a very cold sweat about the ability of PBGC to keep my pension flowing. And it most certainly does not have the full faith and credit of the US government behind it.

[Appalled Moderate]

GMax:

First of all, the government does not lockbox Social Security in its budgeting. Meaning that the deficit we run each year is reduced by the payroll tax. So, yeah, as a practical matter, no matter where the payroll tax is going, it is effectively being used to buy Bridges to Nowhere and the tax cut de jour.

As a technical matter, the Federal Government is liable to the Social Security Administration. But the Social Security System has no liability to its pensioners that cannot be extinguished by an Act of Congress. This is entirely different than private sector pensions, where there is always an accrued liability that cannot be forfeited and a definite restriction on the pensions plan's sponsor from more than a specified percentage of the fund in the securities of the employer.

Seriously, I do not see Social Security being retroactively cut back across the board (though means testing is a possibility, which will be a cutback for some). Nevertheless, the idea that there is anything behind Social Security beyond an unsecured promise to pay offends my professional sensibilities.

As for PBGC? Well, let's just say that it is subject to the same pressures as Social Security.

[GMax]

First you say "pensions are like bank accounts" because of PBCG. Then when its pointed out that the PBGC is an emperor with no close and unlike the US Bonds that you are so derisive of, they do not have the "Full faith and credit of the US government behind it, you simply state not to worry its subject to the same pressures as Soc Sec?

WTF

On that I would offer that your "professional sensibilities are neither very professional and certain lack in sensibility.

And what budgeting has to do with our discussion is a major mystery so if you wanted to make a point by stating that Congress can change benefits in Soc Sec, I would merely bow to you as the newly crowned "Captain Obvious".

[GMax]

close = clothes

sheesh

[Appalled Moderate]

Gmax:

Where to begin?

First, I am not deriding government bonds. I am merely pointing out that the stakeholders of Social Security are not the one holding them. That "person" would be the Social Security Administration. They will be repaid in some fashion. Whether the fruits of that repayment are realized in unreduced Social Security benefits are another matter.

Second, as you choose not to concede, the payroll tax is treated in Federal budgeting as just another income source. When we are told the deficit is only x billion, x does not include a charge for the future value of accrued social security benefits nor a charge for the amount of the payroll tax being put into government bonds. Ah, if only FASB and the SEC would let GM treat their pensions that way...

Third, the deficits (and surpluses) of the PBGC are very, very, very small when compared to Social Security's issues, and could be resolved with an appropriation far less than a couple months in Iraq. Since the PBGC's problems increasingly tend to be the problems of union members, I would expect Democratic Congresses will see PBGC through any cash crunch.

Let's make one thing clear, Gmax. I really don't think Social Security is going to be reformed any time soon. There isn't enough money to resolve transition costs, and there is no percentage in it for politicians. The problem with that is that if things fet really bad, the things that will be done are likely to be drastic.

[GMax]

PBGC has its guaranty up against pension plans that are underfunded by so many billions in excess of its current assets that it is ludicrous to think of this guaranty as anything other than window dressing for the uninformed. If PBGC were to be viewed like a corporation, it would be declared astoundingly bankrupt. It has no surpluses ( your word ) and has not for many years. Take no comfort there on any point you are trying to make about private pensions.

You continue to pound a point about budgeting which has no relevance. So what I keep saying? You were big on the lack of security of Soc Sec. as if it had no assets other than whatever Congress budgeted for it next year. That is flat wrong. It has assets which have never even had a single payment delay let alone a default. The catastrophe in the financial markets that results from a Government default ( as Argentina did once upon a time ) will be reason enough that no default will occur on this. Whether or not the Treasury puts out a press release that includes Soc Sec surpluses in the overall calculation of the federal deficit is not something that is relevant to the discussion of how Soc Sec is or is not funded and works.

You continue to point at Congress as the key difference between Soc Sec and private pensions. Has it occurred to you that the same Congress enacted ERISA ( the law that regulates private pensions? And therefore could change it at a moments notice? I wonder why the Auto manufacturers were so keen to move the Private pensions off their books? Could it be the billions of unfunded liabilities that lie there? If you think that current accounting for corporations in the matter of defined benefit pensions, I really cant spend enough time to educate you. But the off the book liabilites are huge and in some cases growing.

[Appalled Moderate]

Gmax:

We've reached the point where continued talking is going to be talking past each other. Unfortunate, as these are not trivial issues, and it seems like you aren't an idiot on the point.

I think your concern is a belief I think Social Security is going down tomorrow. I didn't say that. But Social Security is certainly not subject to anything resembling ERISA's protections. (Their investment policy along would like generate a lwasuit from DoL). And, just like employers years ago killed off all those promised postretirement medical benefits when accounting rule changes made the cost of those benefits apparent, Congress will, once PAYGO consumes more and more of the budget, could well do some drastic things to Social Security.

When it comes to Congress and ERISA, my guess is that they will let themselves off the hook long before they let corporations off the hook. One of my fondest wishes is that they would subject Social Security to ERISA and the government budgeting process to Sarbanes. Then they might actually get what they do to employers, and the people might get a sense what a crock the US budget actually is.

[boris]

From Captain Obvious: and it seems like you aren't an idiot on the point

Congrats GMax!

once PAYGO consumes more and more of the budget, could well do some drastic things to Social Security

Like what, rolling Payroll and Income tax together into one rate and converting to means tested pension security and elder welfare?

It would have about the same effect as telling Bill Gates and Ross Perot that their government bond returns are going to be means tested. "Investments" would dry up.

What's that ??? Ross and Bill can voluntarily choose not to invest in a risky scheme but taxpayers can't ??? Ha! The elected branches are accountable to voters and voters don't like taxes and welfare as much as they like SS. Again, the money would dry up.

[Walter]

Boris,

You know, the statutes are available online.

All you have to do to get a big fat apology (from me if not AM) is dig up the statute that allows this Congress to appropriate money to pay social security benefits for future fiscal years. It would be worth it if only to learn something that I've missed in the last couple decades of tax and pension work.

If you'd like, I'll first post the constitutional and statutory underpinnings which allow this Congress to obligate a future Congress to repay a bond issued to a specific entity. Like say, Bill Gates or Ross Perot.

Who knows? Could well be they are one and the same.

[Walter]

The statutes, that is, may be one and the same.

Not the tech executives whose companies get billions from the federal government.

[boris]

constitutional and statutory underpinnings which allow this Congress to obligate a future Congress to repay a bond issued to a specific entity

So you're saying that judges would make congress pay up for Ross and Bill but not for SS beneficiaries? Okay. My point was Ross and Bill won't put their investments anyplace where return or withdrawal is means tested. Taxpaying voters won't either.

It really doesn't matter what happens behind the facade. If the facade is pension contribution with insurance the voters will endorse more than for taxes and welfare.

As long as the gov can maintain either facade, it's in their interest to maintain the one voters are willing to subsidize. Willingness to subsidize is also negatively proportional to getting stiffed even once.

[GMax]

Well as much as it may pain some, I am going to try to correct something that gets screwed up by most reporters on the subject, with the notable exception of a few WSJ reporters ( not all of them either ).

Soc Sec current system raised two problems which are conflated but should not be. First off as SS is running a surplus which is invested in Treasury Bonds, it is helping to finance the accumulated debt and current budget deficit of the the US.

It is a certainly an issue to discuss who will finance the debt when the SS system ceases to run a surplus. I believe that interest rates that the US Treasury must pay may rise slightly to entice the investment but it seems that there is always plenty of folks who want the security of US securities so I really think this may be a minor issue that carries with it a slightly bigger drag on the government in the form of higher interest payments.

Secondly there is the issue of when there are insufficient assets available to SS to make benefit payments and Congress may have to allocate general fund revenues to make up the difference. As this may tend to crowd out other more popular pork spending by the porkers, this will lead to much jawboning by the only criminal class ( as Will Rogers is said to have described Congress ).

Perhaps benefits will be curtailed although I think that will happen with great reluctance and only to future retirees not any that are already receiving checks.

I think that we are currently seeing the truth to the statement that Congress does to two things exceedingly well. One is: NOTHING. The second is to OVERREACT. Currently we have the Congress showing us a virtuoso performance of the first. What we all dread is what they will do as an encore.

[Walter]

It really doesn't matter what happens behind the facade. If the facade is pension contribution with insurance the voters will endorse more than for taxes and welfare.

As long as the gov can maintain either facade, it's in their interest to maintain the one voters are willing to subsidize.

Couldn't have said it better myself.

My point is merely that it is a facade.

Like AM, I think that it is not in our country's best interest for our elected officials to continue to maintain that facade.

But that is a policy difference, not a disagreement on the substance of the program.

[GMax]

Walter your point about statues on obligating a future Congress is fascinating but I think it will never be reached and tested. The financial meltdown that would occur if we even hinted that we did not consider a Treasury obligation to have the "Full Faith and Credit" of the US behind it would be catastrophic. Not even Harry Reid levels of denseness are sufficient to lead me to believe the American people would stand for such a stunt. All credit and pricing of risk would be affected and the world economy might need to return to a barter system to even see low levels of commerce in the short run. A huge self inflicted depression. It will not happen.

[Walter]

GMax

(Aren't we due for an update soon? Game and broadcast schedules? Something?)

My point is that anticipated Social Security benefits differ from bonds in that they are not Treasury obligations.

That said, I agree that we'd be far better off to inflate our way out of a debt crisis than to default.

Of course, that only works so long as the US dollar remains the world's reserve currency. The problem faced by South American and African countries is that their debts were denominated in other currencies; the option of devaluing their currency to devalue their debt was not available. But that's another discussion entirely.

Oddly enough, the question of whether a past Congress could bind a current Congress has been tested in the courts, under several different scenarios, beginning with debts issued under the Articles of Confederation. Similar arguments still arise when fringe groups consider the Federal Reserve system.

[battery]

Hello, Mike.

[sophy]

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