social security

Social Security: Mitch Daniels and the Millionaires' "Means-Testing" Scam

Richard Eskow — Thu, 02 Feb 2012 14:56:06 -0500

Last week Republican Mitch Daniels once again pushed the "means testing" argument against Social Security, saying that we can no longer "afford to send millionaires pension checks" or "pay medical bills for even the wealthiest among us."

Daniels even appropriated the rhetoric of the 99 percent, arguing that we must "stop sending the wealthy benefits they do not need, and stop providing them so many tax preferences that distort our economy and do little or nothing to foster growth."

I kept waiting for Grover Norquist or Karl Rove to yell "mic check!" But behind Daniels' 99-percent rhetoric lies a means-testing scam designed to protect millionaires, not restore justice.

Means-Testing Sounds Reasonable

Daniels and his fellow Social Security attackers are able to draw on a very reasonable-sounding (but completely deceptive) argument, one that's been honed and promoted by billionaire-funded think tanks and other anti-government organizations. The "means testing" argument does sound fair - until you think about it.

After all, what could be more reasonable than saying we can't afford to send "pension checks" to millionaire retirees who don't need them?

There is something that's much more reasonable - and much easier to implement, too: Just tax them what they should have been paying in the first place.

So You Want to Be a Millionaire?

First of all, what's a "millionaire"? If you say that a millionaire is someone with $1 million or more in investable assets, past studies have showed that only about one American in one hundred meets that definition. After the collapse of the housing market and the decimation of private pension plans, the percentage of retirees who meet that definition is probably much smaller. And it's shrinking every year.

Besides, why punish people who were wise enough - and fortunate enough - to save for their retirement? Are we suddenly a nation that punishes thrift and investment? If one of these "millionaires" retires at 65 and has a life expectancy of 20 years, their million dollars will provide a comfortable but not lavish income.

If you define "millionaire" in a more reasonable way - say, as someone who earns at least a million dollars each year in investment and other income after retirement - the number of people who fit the definition becomes extremely small.

A Vast Conservative Bureaucracy

The Social Security Administration (SSA) is already cash-starved, especially by Republicans who have gutted its budget. These cuts have already delayed the processing of applications and appeals, and have threatened to slow the distribution of checks. These cuts hurt the disabled, children, and seniors.

How is the SSA expected to handle this new means-testing function? Right now its overhead is admirably low because it's a simple cash-in/cash-out program. Will it now be forced to process new paperwork on every applicant? Will it have to link its computer systems with those of the IRS, creating a new electronic database of information on every American? Will every retiring senior be grilled by government officials as part of a screening process?

The cost of means-testing could well be greater than the amount of money saved. After all, there are more than 38,000,000 people over the age of 65 in the United States today. And every one of them will need to be screened every year.

I thought Republicans wanted to cut bureaucracy, not increase it.

No Cost/Benefit to Cutting Benefits

And let's consider how much money would - or wouldn't be saved. The very maximum anybody receives from Social Security at today's rates is roughly $39,000, and almost nobody gets that much. To receive that much in benefit you'd have to have earned above the payroll tax cap limit - which is about $106,000 today - every single year of your working life from the age of 21 or so.

A more typical benefit for high earners would be somewhere in the high $20,000's. So we'd be building an enormous new bureaucracy just to reduce benefits for less than one person in 100, and probably much less. That just doesn't make sense.

Pension My You-Know-What

Here's what would make sense: Tax those high earners so that they're contributing their fair share to the economy. And if you're concerned about paying benefits to the wealthy retired, that can be solved with a tax-based program too.

But it shouldn't be solved that way. Why? Because Social Security benefits aren't "pension checks," despite Daniels' rhetoric. They're benefits from a fund that every working person in this country contributes to with every paycheck. If a millionaire's receiving Social Security, they paid for it throughout their working life.

In fact, Social Security was designed that way for a reason: So that politicians like Mitch Daniels - and any Democrat that wants to strike a "Grand Bargain" with them - weren't able to pretend they were doing anything other than violating an agreement that working Americans honor with every payroll tax deduction. They've kept their part of the bargain. Now it's time for the government to keep its part.

The Horse

Why would conservatives propose a vast new Federal bureaucracy when it isn't needed, and when it would only be focused on a tiny minority of people? One possible answer could lie in reports from groups like the right-wing Concord Coalition, which proposed cutting benefits for 'high-income' Americans - and then defined 'high-income' as anyone who earned more than $20,000 per year on average!

In other words, the means-testing proposal is a Trojan horse. It uses anti-millionaire rhetoric to create the machinery for denying benefits to rich people, but its backers will then use that machinery against most Americans.

Fuzzy Math

Daniels went on to say that "The mortal enemies of Social Security and Medicare are those who, in contempt of the plain arithmetic, continue to mislead Americans that we should change nothing. Listening to them much longer will mean that these proud programs implode, and take the American economy with them."

But its Daniels and his allies who are showing contempt for arithmetic - and for fairness, too. Even the most dire predictions don't say that Social Security will "implode." They say that, without changes, it will "only" be able to pay 75 percent of projected benefits - a quarter-century from now. That's now implosion, and it's easily fixed if we make the right adjustments today.

One simple adjustment would be to lift the payroll tax cap altogether. That would restore the program to 100-percent stability. Another would be to assess a financial transactions tax, which could help cover this long-term shortfall and slow down the risky bank speculation that's already crashed the economy once.

99-to-1: Fair Solutions

But are solutions like that fair? Yes, and here's why: Baby Boomers were hit with an increase in payments back in the 1980s, along with a higher retirement age to cover the "age wave" they represent. That brought the program back into balance. They're not why Social Security has this long-term shortfall.

As economist L. Josh Bivens and others have shown, the only reason Social Security has any problem at all is because the payroll tax cap is too low. It was designed to cover 90 percent of all income. But the top 1% of Americans has grabbed much more of than nation's wealth than anybody could have predicted back in the 1980s - even Alan Greenspan, who headed the redesign of Social Security back then.

Social Security's only problem is, at its root, the same problem so many corners of American life have: the ruthless hijacking of our national wealth by a tiny, greedy minority. Means-testing is just a distraction, a diversion, a way of redirecting people's justifiable outrage into a program that supposedly targets millionaires, but will really just rob them again so that millionaires don't have to pay their fair share.

If the people who have enriched themselves at the expense of everyone else are asked to step up, Social Security's long-term imbalance disappears.

But you won't hear Mitch Daniels say that. Some Democrats will, but too many others have avoided making that argument for the American people.

They should. It's time to debunk the 'means-testing' hoax forever.

Do GOP Candidates and the Press Have a "Gentlemen's Agreement" Not to Discuss Social Security in Florida?

Richard Eskow — Mon, 30 Jan 2012 00:29:23 -0500

You'd think Social Security would top the list of subjects for a presidential debate in Florida. How many questions did Wolf Blitzer ask about it during Thursday night's Republican debate in Jacksonville?

Answer: None. The words "Social Security" never passed his lips.

It was almost as if there were a "gentlemen's agreement" among the five people on the stage. And we use that phrase advisedly, since Blitzer sealed the boy's club atmosphere by asking each of the candidates why his wife would make the best first lady.

The candidates did mention Social Security a couple of times, but only in passing and only in the most misleading ways possible. It's too bad there wasn't, oh, a journalist nearby -- one who was inclined to ask follow-up questions.

What was said that night? Rick Santorum and Ron Paul both attacked Newt Gingrich from the right on Social Security. Santorum suggested that the Speaker's proposals, which would cut benefits, were too expensive and would "create a brand new Social Security entitlement."

Not true.

Ron Paul said that Gingrich's claim to have helped cut the federal deficit was false -- which is true. But then he said that the reason it's untrue is because Gingrich "doesn't count the money he takes out of Social Security" -- which is false!

Confused yet? Stick around. The layers of artificial reality became as mind-bending as a Philip K. Dick novel when Gingrich responded.

Gingrich attacked Obama from the left on Social Security:

I propose that we take Social Security off budget so no president can ever again get threaten, as Obama did in August, that he would not send the check out, and you could set Social Security back up as a free-standing trust fund. It does have enough money and you could in fact pay the checks without regard to politics in Washington.

Those two sentences include five statements. Let's take a look:

"I propose that we take Social Security off-budget ..." It's already is off-budget, if by "off-budget" Gingrich meant that it's forbidden to contribute to the national deficit. It's required by law to be an entirely self-funded program.
"No president can ever threaten ... that he would not send the check out ..." Obama suggested that checks might not be delivered if the budget impasse closed the government, which would always remain a possibility unless Social Security were removed from the government and privatized - which is Gingrich's real (and extremely unpopular) proposal.
"It does have enough money ..." True, and it's projected to have enough until some time in the mid- to late 2030's, at which point it would pay 75 percent of benefits if nothing else was changed. Most GOP proposals to fix this "crisis" would cut benefits even more.
"... you could in fact pay the checks without regard to politics in Washington." That's why the program was designed to be self-funded -- so that, in Franklin D. Roosevelt's words, "no damn politician" could ever cut its benefits.

What Gingrich doesn't say is that he wants to privatize Social Security with a plan that would ultimately cut benefits and put what's left at risk for the next financial crisis, while making trillions of dollars for Wall Street. He also keeps pushing the widely disproved notions that it's a "Ponzi scheme" and "a fraud." (The best takedown of those ideas was done in 1958 by a bipartisan panel convened by Republican President Dwight D. Eisenhower.)

President Obama could have prevented these kinds of disingenuous attacks a lot more effectively if he had not done things like appoint two avowedly anti-Social Security figures to lead his "Deficit Commission," repeatedly offered to cut Social Security, and then used the payroll tax that funds Social Security for a "middle-class tax break" that also benefits millionaires.

He even repeated the offer to cut Social Security and Medicare in last week's "Occupy-themed" State of the Union message! Oy. Still, any one of the candidates onstage last Thursday would do even more to cut the program needlessly -- far more.

So why wasn't it a topic that Blitzer and CNN considered important enough to discuss? When Santorum first mentioned Social Security, Blitzer said, "We're going to get to that in a moment." Iit sounded like the "it" in question was Social Security, but Blitzer never mentioned it again.

I can certainly understand why the candidates didn't want the subject raised. More than three and a half million Republican voters rely on Social Security, including seniors, disabled people, and surviving spouses. In fact, the candidates in Tuesday's primary would be crazy not to hide their opinions on the topic:

Mitt Romney's been pushing to privatize Social Security for years. After the financial crisis of 2008, Americans understand how risky it would be to place their financial security in the hands of greedy, reckless, and irresponsible financiers -- or as Mitt probably thinks of them, "the fellas."

Ron Paul says Social Security is "unconstitutional."

All of the candidates would raise the retirement age -- except Paul, who presumably would end Social Security altogether.

With positions like these, who wouldn't want to keep the Sunshine State in the dark? An AARP survey showed that likely Republican voters in Florida oppose Social Security cuts by more than two to one. As the Christian Science Monitor reports, a slight majority would favor raising the retirement age, but more Republicans favor the solution that's typically called "progressive" -- lifting or raising the cap on payroll taxes so that higher income levels are subject to the tax. All four Republican candidates strongly oppose this idea, which is their voters' preferred option.

"We're afraid that (Social Security's) going to be cut," said one voter, "or that we're going to lose what we put into it." Those are precisely the kinds of options the candidates in Tuesday's primary are offering. No wonder they're zipping their lips on the subject.

Some voters noticed the omission. As USA Today reported on the morning before the debate, "people are frustrated that the Republican presidential candidates have largely avoided the issues of Medicare and Social Security." You'd think that would have made the subject even more important for CNN to raise. A news organization's job is to ask candidates the questions they don't want asked. Surely they could have squeezed one in, perhaps after asking the First Lady question? (Gingrich graciously said they'd all be wonderful at the job.)

Remember the movie Don't Tell Mom the Babysitter's Dead? This week's Florida primary should be renamed Don't Tell Grandma Social Security Will Be Dead -- and Medicare Too -- If We're Elected. Mitt Romney's already on record as saying income inequality shouldn't be discussed openly. Was there some sort of "gentleman's agreement" to ignore Social Security too?

UPDATE: Ron Paul supporters note that I've left out other statements he's made about Social Security, especially that he would allow people under 25 to "opt out." Paul's website fails to provide a position statement on Social Security. It does mention - in passing - that he "believes younger American citizens should be permitted to opt-out of Medicare and Social Security." That statement's a little hard to find, since it appears on a page entitled "Ron Paul is the Only Candidate Who Will Cut Spending."

So we know that Ron Paul a) believes Social Security is unconstitutional, b) supports an unpopular 'opt-out' plan that would be an economic disaster, and c) wants to cut spending on it. That is, however, something of an incoherent position: How can you offer citizens the option of continuing to participate in an unconstitutional program?

Paul, like the other candidates, has a very unpopular set of proposals regarding Social Security. In fairness to him, however, I didn't describe it fully. (In my defense, I did so because it's self-contradictory and confusing.) Unlike the others, however, it's very possible that Paul wouldn't be coy about telling voters what he thinks. Unfortunately nobody asked him.

For a State of the Union Home Run, the President Should Stand Up For Social Security

Richard Eskow — Sun, 22 Jan 2012 17:23:18 -0500

Like a lot of former Obama voters, I've had my issues with the President. Sure, it helped when he sang that Al Green song at the Apollo Theater last week. (Good job, Mr. President! Good pitch and an appropriately understated delivery.)

But in a time of uncertainty people are looking for certitude. In a time of great battles people are looking for strength. They don't just need to hear the words when they listen to their leaders. They need to feel the music.

The State of the Union Address is scheduled for this Tuesday night. The President can go a lot further toward winning over voters who are disappointed, doubtful, or just unenthusiastic, if he chooses an issue that's vitally important to them and offers a clear, strong and unequivocal defense.

Social Security is the ideal issue. It's one of many, according to polls, where both parties are out of step with voters. After seeing their savings, pension plans, and housing values destroyed, people are frightened about their retirement security. They don't hear anybody in Washington offering to protect their benefits.

And to borrow a phrase from Rev. Al, they're tired of being alone.

People's Choice

Last year the President narrowly averted political disaster in his State of the Union address. He bowed to outside pressure and abandoned an ill-conceived plan to propose cutting Social Security benefits and a partial lifting of cap on payroll taxes that fund them. But a form letter from the White House illustrates the Administration's still-squishy position on both Social Security and Medicare.

The White House is clearly preparing for an economically-themed, pro-99 percent speech this week. A chart is clearly visible on its SOTU website, although its still just a preview, showing the difference in pay between the average worker and the average CEO. In a short video, Presidential advisor David Plouffe tells viewers that charts and other information will be available there after the speech.

As President Obama continues his electoral-year pivot toward populism, Tuesday night's offers the perfect chance for a home run. There's no better way for the President to start the year than with a vigorous, unambiguous defense of Social Security - and Medicare, too.

Poll after poll has shown that Americans - including most Republican voters and Tea Party members - oppose cutting Social Security to balance the Federal deficit. So it's a good thing that the President scrubbed that proposal from last January's SOTU. Republicans would have rejected it and then spent the next two years running as the defenders of Social Security, much the same way they ran as defenders of Medicare in 2010.

(Sure, that's insanely hypocritical from the party of the radical Ryan proposal to dismantle Medicare. But that's never stopped them before, and it won't stop them this year either.)

Evasive Maneuvers

Yet for some reason - perhaps because they believe Republicans will have a change of heart and cut a deal on Social Security, and don't realize how hated such a deal would be - the President and his team continue to equivocate on Social Security. They continue to say only that they won't "slash" the program - although the proposals they've considered are pretty slashing for recipients.

A recent form letter, received by a friend who expressed concern about proposed Social Security cuts, shows that the equivocation and evasion hasn't stopped. "Dear Friend," the letter said, "I have heard from many Americans who are concerned about their retirement savings ... Retiring with dignity is a promise we must keep to all Americans, and I am working hard to strengthen our retirement system."

The letter goes on to say:

"That is why I am committed to protecting Social Security and addressing Americans' concerns. Social Security cannot be subjected to risky privatization plans because the future of hard-working Americans should not be left to the fluctuations of financial markets."

To better secure their retirement and prepare for unforeseen circumstances, Americans must also save for their future in other ways. We are laying the foundation for all individuals to participate in workplace retirement accounts. Employees would be automatically enrolled in pension plans and could opt out if they choose. Simple and automatic enrollment makes it easier for people to plan for retirement. This would assist the 75 million working Americans-about half the workforce-who lack access to retirement plans through their employers ...

Thank you, again, for writing.

Sincerely,

Barack Obama"

Anger Management

My friend's reaction wasn't what they were looking for. She was furious. She hadn't written to express her concern about her "retirement savings," but to ask for the President's reassurance that he won't cut Social Security.

The GOP privatization plan is off the table and she knows it. And the paragraph about opt-out pension plans confused her. "Isn't that the Republican privatization plan?" she asked.

She's paid her Social Security contributions all her life, and she was asking if her benefits would be there when she retired. Instead she felt she'd gotten the runaround, with an evasive run of double-talk, with a little lecture about her own moral failings ("Americans must also save ...") thrown in for good measure.

Real Bipartisanship

This is a problem but it can be fixed, and the State of the Union is the perfect place to do it. People are anxious to hear a rigorous defense of Social Security and Medicare. Here's why this issue is a winner for the President:

Social Security isn't in danger. He can explain why during Tuesday's speech, and then back it up with information on graphics on his SOTU website. He can use the work of Ronald Reagan's chief Social Security actuary to reinforce his point.

The President can push his favored bipartisanship theme, but this time he'll have a truly bipartisan position. Most Republicans want Social Security preserved. He can link to this report, prepared by a bipartisan panel of experts under Republican President Dwight D. Eisenhower, to rebut the most common (and completely false) anti-Social Security talking points. (They were around in 1958, and in 1935 too.)

President Obama can also use this as an opportunity reinforce the fact that government has a vital role to play in our society, and that there are some things it can do better than private businesses can. He can point to the military, the police, public health, education - and to private benefits like Medicare and Social Security.

Soul of a New Machine

The Administration's SOTU website displays its mastery of form, which now needs to be matched by a mastery of content. That means simple, direct and clear statements like "We will not tolerate any cut to Social Security - not on my watch." And "We won't let them be cut directly - or indirectly, by raising the retirement age or lowering the already-inadequate cost of living increases people receive."

The President's team has a truly impressive mastery of political technology. Now they need to infuse that technology with a simple, forceful message that resonates in the heart.

David Plouffe tells viewers that the speech will be about a government that "works for the middle class," around the themes of "a fair share, a fair shake, and fair play." Social Security is a perfect fit for that message:

A "fair share" is asking the wealthy to pay a more proportional contribution for Social Security and Medicare.

A "fair shake" means not cutting benefits for people who have worked all their lives.

And "fair play" means not punishing the rest of the nation because a radical upward distribution of income has created an easily fixed long-term imbalance in Social Security.

The President has a great opportunity on Tuesday night. By defending Social Security - and making a firm commitment to ensuring that benefits aren't cut - he can tell voters that, in Al Green's words, "You ought to be with me."

If he does, come November they'll be more likely to say "Let's Stay Together."

(Now it's time for Rev. Al - in his decidedly pre-Reverend days - to remind us what we're all really looking for.)

This post was produced as part of the Strengthen Social Security campaign.

Another Washington Post Social Security Mistake

Dave Johnson — Fri, 30 Dec 2011 11:33:35 -0500

See if you can spot the big mistake (giving them the benefit of the doubt) in this Washington Post story: Payroll tax cut raises worries about Social Security’s future funding:

This year, the Social Security system projects that it will pay out $46 billion more in benefits than it will collect in cash. It made up for the shortfall by redeeming Treasury bonds bought in years when there were cash surpluses.

Here is the mistake, thanks to Dean Baker: Social Security Is NOT Selling Government Bonds,

This is not true. The Social Security trust fund is projected to earn $114.9 billion in interest on the bonds it holds. It will use a portion of these earnings to pay current benefits. It will not be redeeming its bonds.

Social Security has a huge trust fund -- if you think $2.6 trillion is huge. That trust fund is invested in US Treasury Bonds, and earns interest.

When you hear that Social Security is "in trouble' or "going broke" you are hearing from people who ignore this huge, huge trust fund and the interest it earns. This trust fund, along with the money people pay in, means that Social Security has enough to pay full benefits until 2037. Even then it will still be able to pay everyone more than they receive today. (Yes, more, because of cost-of-living adjustments.)

One of the problems with Social Security is that the "cap" -- the top income that is taxed to pay into the fund -- was calculated in the 80's, and they didn't foresee that all income gains after the 80s would only go to those at the top, where the income isn't taxed to pay into the fund. So, since the 80s, as more and more of the income gains went to the top few, the Social Security fund started to not have quite enough to go on forever. So now it it projected to only last until 2037. This is, of course, easily fixed -- as are so many of our country's problems -- by asking those at the top to pay in a little more.

So ... will I be attacked with pepper spray and batons for suggesting that the rich should pay back a bit more?

Republicans Try to Convert America into Pottersville

Leo Gerard — Tue, 27 Dec 2011 08:20:41 -0500

In the iconic Christmas film, “It’s a Wonderful Life,” an angel offers the beleaguered main character, George Bailey, the stark choice between a hometown named for a cruel banker or one created by and for the middle class.

The banker’s town, Pottersville, is filled with bars, gambling dens and despair. The people’s town of Bedford Falls is made of hope, hard working middle class families, and their homes financed by the Bailey Brothers Building & Loan.

The film’s happy ending is the people of Bedford Falls banding together to rescue George Bailey and the Bailey Brothers Building & Loan that had given so many of them a leg up over the years. Republicans seek a different conclusion. They find middle class cooperation and community intolerable. They want the banker, Henry Potter, with his “every man for himself” philosophy to triumph. In the spirit of their self-centered mentor Ayn Rand, Republicans are trying to disfigure America so she resembles Pottersville.

A building and loan association, like the Bailey Brothers’, uses the savings of its members to provide mortgages to the depositors. Members essentially pool their money to give each other the opportunity to buy cars and homes. At one point in the film, George Bailey explains this concept to frightened depositors who are trying to withdraw their savings during the panic that led to bank runs in 1929.

Bailey urges the townspeople who had crowded into the building and loan office to withdraw only what they need, not empty their accounts. “We have got to stick together,” he tells them, “We have to do this together.” A building and loan doesn’t function without trust and cooperation.

It works well for Bedford Falls. The mortgages it provides help working people move out of the Potters Field slums and into Bailey Park, where homes well kept by their owners increase in value. Despite the success, Potter condemned this practice, saying it was based on “high ideals without common sense.” He criticized the Bailey Brothers Building & Loan for granting a taxi driver a mortgage after Potter’s bank had rejected his application. Potter scoffed at such practices, asking if the building and loan was a “business or a charity ward.”

This is exactly what Republicans do. They describe beloved American programs like Medicare and Social Security as charities – using the euphemism “entitlements.” Like mortgages from the Bailey Building & Loan, Medicare and Social Security are not charities. They’re the American people depositing and pooling their money for the benefit of the American community.

The GOP tries to destroy programs like these that aid the middle class, the vast majority of Americans – the 99 percent – while Republicans protect tax breaks and special perks for the rich – the one percent, the Henry Potters.

This time last year, Republicans demanded extension of tax breaks for the 1 percent, contending tax breaks stimulate the economy.

For the past three months, however, Republicans have fought extension of payroll tax cuts, contending a break benefiting 160 million middle class Americans did not stimulate the economy.

All year, Republicans have demanded an end to programs the middle class created to aid the majority, the 99 percent. The GOP wants to reverse the new banking regulations that were passed in an attempt to prevent another economic collapse caused by risky Wall Street practices. The GOP tried to to rescind the healthcare reform law that prevents insurance companies from terminating coverage when beneficiaries get sick and prohibits the practice of refusing coverage to people with pre-existing conditions.

Influential Republicans this year have called for repealing laws forbidding child labor, laws guaranteeing minimum wage and laws protecting the environment. They’ve demanded elimination of federal funding for organizations like the Public Broadcasting System that educates preschoolers, Head Start, which provides opportunity to poor children, and Planned Parenthood, which uses 97 percent of its funds to provide general, obstetrical and gynecological medical care to women, many of whom are rural and poor.

Republicans have decided to be the party of Henry Potter, the “meanest man in the county,” a man about whom George Bailey’s father said: “he's a sick man, frustrated. Sick in his mind, sick in his soul, if he has one.”

Like Potter, Republicans deride compassion and community as character defects.

In the Republican world, where greed is good, it was appropriate for Henry Potter to keep the $8,000 in Bailey Building & Loan money that George Bailey’s uncle, Billy Bailey, accidently handed him.

Republicans are attempting to impose that selfish belief system on the selfless American people, people like the citizens of Bedford Falls who rush to the rescue of neighbors.

It won’t work, just like it didn’t in “It’s a Wonderful Life.” Republicans will fail in their attempt to make America Pottersville because the 99 percent believe avarice is a sin, not a value. The GOP will fail because greed is not the American way.

Myths, Scares, Lies, and Deadly Innocent Frauds, Updated: Part Two

Joseph M. Firestone — Thu, 22 Dec 2011 11:24:25 -0500

(Author's Note: This post updates Part Two of a series reviewing Warren Mosler's book: The 7 Deadly Innocent Frauds of Economic Policy. The updating is prompted by a post by Hannah at DailyKos offering a “. . . a Review Sort of” of Warren's book.

Hannah's post begins by stating Warren's “7 deadly innocent frauds” (DIFs), and then goes on to point out that they are not innocent and to make a number of claims about Warren's beliefs which clearly indicate that she neither read his book, nor researched his actual positions stated frequently on his web site, nor bothered to note Warren's economic truths that his book counterposes to his DIFs. So, in this series, and because of the importance of his easily accessible book, I'm presenting a more detailed discussion of the frauds and the corresponding truths.)

In Part One of the series I covered the first dif: the idea that in order to spend money, the Government must first raise it through taxation, or borrow it. and the first truth:

“Government Spending is NOT operationally limited or in any way constrained by taxing or borrowing.”

In this installment, I'll discuss Warren's next three difs.

What About Our Children and Grandchildren

Mosler's second dif is:

“With Government Deficits we are leaving our debt burden to our children.”

This, of course, has been a scary common sense belief that those who don't want to solve social problems have used forever to persuade people not to implement progressive solutions to their problems. The problem is that in fiat money systems the meaning of deficits is entirely different than in commodity money systems.

The deficit is just the annual difference between Government revenue, including income from transactions with non-Governmental entities, and income from coin seigniorage; and Government spending in the non-Government sector. Most Government income comes from tax collections, so generally speaking there is no deficit when tax collections match Government spending. But even when the two don't match, if revenue from other sources, such as fees, property sales, seigniorage, and Federal Reserve profits repatriated to the Treasury close the gap between tax revenues and spending there still may be no deficit, and if seigniorage profits are great enough, there might even be a surplus. But unlike one which comes from tax revenues, such a surplus could be used to repay debt, or spend appropriations without destroying net financial assets in the private sector.

In commodity money systems, when income falls short of expenditures, we have a deficit tied to a commodity, and when the deficit accumulates year after year we have a national debt also tied to a commodity. To finance the debt, Governments in such systems must raise taxes to increase income, or borrow money to finance expenditures through debt. If they borrow money, however, the debt can only be paid back through increased revenue collections at some future time, or by more borrowing to pay debt obligations.

But, in fiat monetary systems, the situation is different. When Government expenditures exceed revenues in those systems, a deficit doesn't have to be reduced by increased tax revenues, or other transactional income, nor does it have to financed by borrowing. Instead, since money isn't limited by its relationship to a material commodity, the money necessary to make Government expenditures can just be created at will by the Government. It need not be the product of either increased taxes or debt financing, as it must be in commodity systems.

The significance of this idea, which is just the counterpoint to the first dif, that “Government Spending is NOT operationally limited or in any way constrained by taxing or borrowing,” is that whatever Government deficits we leave to our children also need not be repaid by them through either further borrowing, or increased taxation. These deficits, just like our own can be negated by our children and grandchildren by creating whatever seigniorage profits or electronic money they need to negate them.

Of course, if they want to reduce their well-being, they can raise taxes or borrow money to handle those deficits. But what they do, and the precise size of the burden they choose to assume is up to them and has nothing to do with us, so long as they retain our fiat monetary system.

Warren Mosler expresses the counterpoint to the second dif in this way:

"Collectively, in real terms, there is no such burden. Debt or no debt, our children get to consume whatever they can produce."

That is, unless they choose not to produce it, because they raise taxes and cripple economic productivity, in a vain and misguided attempt to pay down a fiat money debt by destroying net financial assets in the private sector that might otherwise be used in more productive ways.

As Mosler points out: it is impossible for our children and Grandchildren to send any of the goods and services they produce back into the past to pay down the deficits we incur today. And he also points out that paying off the national debt in a fiat monetary system is merely a matter of accounting. As he says:

"Even briefer - to pay off the national debt the government changes two entries in its own spreadsheet - a number that says how many securities are owned by the private sector is changed down, and another number that says how many $US are being kept at the Fed is changed up. . . ."

Now, even though they should be, and could be, things aren't quite as simple as this in the US. It does work this way when a particular debt instrument is redeemed. But if the Treasury wanted to lower the level of the national debt, it cannot do this if the present pattern of laws, customs, policies, and practices related to dealing with debt instruments don't change. These amount to the "requirement" that the Government pay down debt by collecting more tax revenue than it spends. But if this "requirement" is followed, it will be impossible to pay down the debt, if that's what people want to do.

On the other hand, one of the implications of the 7 difs, is that whether or not the Government repays the debt subject to the limit doesn't matter for solvency. The Government has an equal capacity to deficit spend whether or not it pays off its debt. It's just a matter of Congressional Appropriations and continuing debt issuance to satisfy the current "requirement." There's no question of affordability either way, even though there are political and psychological issues involved in debt issuance, one of them being paying interest primarily to rich people and foreign nations, when there is no real need to do so.

In addition, even though the present pattern of laws, customs, policies, and practices related to dealing with debt instruments won't allow paying off the debt unless there is change. The good news is that the laws and the Constitution allow the debt subject to the limit to be paid, if we want to do that. This can be done by using Proof Platinum Coin Seigniorage (PPCS) to create the revenues needed to pay down debt without tanking the economy. The details are here, here, here, and in related posts.

In short, folks, there is no debt burden for our children and grandchildren. That there is, is a myth, a fairy tale, a dif, as Mosler terms it. It is not reality, and we ought not to make it reality by believing it and acting accordingly.

What About Our Savings?

The third Mosler dif is: “Government budget deficits take away savings.” And the counterpoint to it is: “Government budget deficits ADD to savings.” Warren points out that this is just Economics 101, when the Government spends dollars it transfers dollar credits to non-governmental sector entities. That is the nature of such transactions.

So it is just an accounting identity, true by definition, that an increase in the Government deficit, increases the dollars in the non-governmental accounts that have received the Government transfer. So, “Government deficits = increased 'monetary savings' for the rest of us. To the penny. This is accounting fact, not theory. . . .” It's also equally true, that Government surpluses = decreased monetary savings for the rest of us. This too, is accounting fact, and not theory.

The relationships between increased deficits and increased savings, and increased surpluses and decreased savings, are important because misunderstanding them, and accepting this third dif, is widespread, and very harmful. Because people believe that Government deficits take away from non-governmental savings and also investment, they also believe that Government deficits must be avoided and that Government surpluses are good.

So, this dif reinforces the doctrine that Government programs should be revenue neutral or even produce Governmental savings, a doctrine that if implemented will actually, in the absence of a positive balance of trade, which the US hasn't had in many years, immediately result in reduced non-governmental savings and investment, a deadly effect in recessionary times, when non-governmental savings that may be used for investment are sorely needed. Surpluses, because they detract from nongovernmental savings and investment, often cause recessions. Our most recent experience of this is with the Clinton surpluses which were followed by the recession in the waning days of the Clinton Administration that greeted George W. Bush when he took office.

Will Social Security Go Broke?

Mosler's fourth dif is one that is much in the News right now. It is that “Social Security is broken” and will, one day in the foreseeable future, run out of funding. This claim is used to persuade people to consider the idea that Social Security must be reformed, before the “trust fund” runs out of money. However, the truth is that there is no trust fund in the sense of a bank account at the Federal Reserve Bank containing SS funds. There are only social security accounts and entitlements accompanying these accounts guaranteed by the Federal Government.

Whether, or not the “trust fund” runs out of money or not, the Federal Government will still have to make payments to those entitled to receive Social Security payments or default on its legal obligations to pay SS retirees, a prospect in conflict with the 14th Amendment of the Constitution. And since Government money is, at bottom, “fiat money,” the counterpoint to this dif is that “Government checks don't bounce,” and that includes Social Security checks.

So, why is everyone so excited about the plight of Social Security? Why are they so sure that we need Social Security and, more broadly, entitlement reform? I think the answer, for people of good will, is their failure to understand the fiat monetary system, how it works, and what really makes money more or less valuable in such a system.

The source of value is not money itself. It is the valuable goods and services that are produced by the economy. As long as the economy keeps producing valued goods and services, the fiat money used for paying taxes, and as the medium of exchange will have value. And as long as it has value, the Government can keep making and spending it to increase economic activity when it flags, and using its taxing power and control over interest rates to dampen activity in case demand outstrips supply, and inflation occurs.

The function of Government in an economy with a fiat money system is to maintain economic activity at a level sufficient to produce the valued goods and services citizens want. When the Government doesn't spend enough to do that, it is failing to prevent or end economic downturns. When it spends so much that its spending exceeds the productive capacity of the economy, it is failing to prevent or end inflation.

Social Security and other safety net entitlements are one way of ensuring that demand will be high enough to maintain productive capacity. In recession and depression, they have a counter-cyclical function. They benefit the economy much more than they cost it. Entitlement reform that undermines the function of the safety net in keeping demand at a high level, for the sake of cutting Government spending, on the assumption that Government money is somehow limited, is dangerous to the health of the economy.

It is a fool's path! Or a path for those looking to re-institute serfdom! It undermines the very mechanisms that help to protect us against depressions. And it does so based on a misunderstanding of our fiat monetary system, and the false belief that the Government can run out of money, if we don't reform social security and other entitlements.

The ideas that Government deficits create a debt burden for future generations, take away non-governmental sector saving, and that Social Security is broken, are all “deadly innocent frauds,” supporting the idea that deficits must be avoided, even if we have to suffer through extreme economic downturns to avoid them. These frauds, like the conclusion that Government spending is operationally limited by the need to tax and borrow, all serve to reinforce the idea that Government can't do anything about a bad economy without doing more harm than good.

The contrapuntal ideas that: Government can create money, and is not operationally limited by the need to tax and borrow, there is no debt burden on future generations that limits production or consumption, deficits don't subtract from, but add to non-governmental savings, and Government checks including Social Security checks don't bounce, all reinforce the idea that Government deficit spending is not to be avoided, but, on the contrary is something we can and need to do to avoid the economic and human waste of unnecessary economic recessions and depressions.

Some years ago now, during the post-WWII period, Democrats tried to make the Government the guarantor of full employment. But the drive to do this was blunted by the decline of Keynesian macroeconomics, the new ascendancy of neoliberal free market ideology, and the call for deficit neutrality, the idea that we must “pay for” everything the Government spends with tax revenue. We now see however, that at least four of the arguments against deficit spending are based on deadly innocent frauds whose application is damaging to our economy, to our children, to our grandchildren and to all of our futures. In Part Three of this series, I'll continue the discussion of Warren Mosler's 7 difs and their implications.

Among GOP Candidates, Not a Single Friend of Social Security

Daniel Marans — Mon, 19 Dec 2011 11:58:42 -0500

The Strengthen Social Security Campaign has created a guide evaluating the “friendliness” of six Republican candidates, “Among Republican Candidates, Not a Single Friend of Social Security.” The Campaign has also produced longer individual profiles of Mitt Romney, Rick Perry and Newt Gingrich’s particular records on Social Security.

Some key take-aways that may have slipped by casual observers of the 2012 race can be found in the Strengthen Social Security Campaign’s guide to the Republican candidates (click link for version with supporting quotes not included below):

Every candidate except for Rick Santorum has smeared Social Security a Ponzi scheme, fraud or unconstitutional.
Although Ron Paul and Newt Gingrich have never explicitly endorsed raising the retirement age, it is almost beside the point, because they both are outspoken advocates of much more radical changes. Paul thinks Social Security is unconstitutional and should therefore be dismantled. Gingrich would like to privatize the program along the lines of the Chilean or Galveston model. (Unfortunately both approaches failed their participants. See Economic Opportunity Institute on Chile, and Michael Hiltzik of the LA Times on the Galveston plan.)
Despite Romney's early claim to be a defender of Social Security, he supported George Bush’s attempt to privatize the program.

Here is the Strengthen Social Security Campaign’s guide to the Republican candidates (click here for a pdf with supporting quotes not included below):

Click here to download this chart with supporting quotes as a PDF.

Additional Detailed Fact Sheets:

Newt Gingrich

Rick Perry

Mitt Romney

Speaker Boehner: Just a Regular Guy Who Only Backs Millionaires and Billionaires

Josh Rosenblum — Wed, 14 Dec 2011 15:14:08 -0500

This morning at the Newseum House Speaker John Boehner was asked by Politico's Mike Allen if he could produce any small business owner whose lives would face an impact if a millionaire surtax became law. Allen cited NPR’s Tamara Keith who couldn't find anyone in America who fit the bill.

Among others, former Playbook colleague and Washington Post star journalist Bob Woodward sat observant and stone faced in the front row with no visible notepad in his hand.

Allen asked Boehner “An objection on your side to the proposal on the millionaire surtax has been that it would hurt small businesses. NPR went out and they went to the House Republican Leadership, to the Senate Republican Leadership, they went to business groups that were lobbying. They couldn’t find a small businessman hurt by the surtax. Have you found one?”

Boehner, in his only real stumble during the 45 minute conversation, first went in to how he had been a small businessman but didn’t say it would have hurt him. Then Boehner said he “could rattle off half a dozen names right here and now” —small business owners that he knew but whose tax returns he didn’t have access to.

Allen, to his great credit, pushed. “Name just a couple,” he said. But Boehner didn’t or couldn’t name a single person in the country, let alone in Ohio, or his district who might have suffered from a millionaire or billionaire surtax increase. He just rambled some more about small business owners and they moved on.

The Speaker of the House, whose ornate offices in the U.S. Capitol have been occupied by just 52 others before Boehner in the history of the United States also hit a main talking point twice during the free-wheeling conversation that veered from tough questions to softballs throughout. “I’m just a regular guy with a regular job,” he said.

Allen also asked Speaker Boehner about the deficit talks he had with the President and asked if he bore any responsibility for the failure of the talks. Boehner said he told the President “I’ll put revenues on the table only if you’re willing to make serious changes to your entitlement programs and he didn’t.”

When Allen pushed again, Boehner went back to the regular guy shtick and Boehner also said that “Our debt hangs over the economy and hangs over the American people like a wet blanket." Allen wouldn’t have had much time, even if he wanted to, to push regular guy John Boehner further under his wet blanky, even though he was a voting member of the body that created massive deficits under President Bush, and now refuses to take any responsibility for them. Boehner’s claims have also been refuted by the President and the media, who widely reported that “President Obama said he had put $650 billion in reductions over 10 years on the table.”

Boehner also gave advice to the young politicos in the room at the behest of Allen. He recommended hard work and not to burn any bridges in your career. Some might say that although Boehner said he’s grown closer to the President, he’s burning bridges by telling blatant lies about their negotiations.

After the Playbook breakfast Mike Allen and Bob Woodward hopped in a taxi outside the Newseum on Pennsylvania Ave. headed in the direction on the Capitol. They may have had a secret source in a garage near the Capitol who could tell them where to find Boehner meeting with his fellow regular guys and small businessmen who couldn’t tolerate a millionaire’s or billionaire’s surtax.

Elder Poverty and a GOP Sucker Punch - NOW Will Democrats Pledge to Defend Social Security?

Richard Eskow — Fri, 09 Dec 2011 00:20:39 -0500

Here are three things to consider:

Nearly one American in six over the age of 65 lives in poverty. A newly progressivized Barack Obama is rocking the populist bandwagon from Osawatomie to the Oval Office. And the Republicans have started attacking Democrats on Social Security - from the left.

This would be a good time for the President and other 'centrist' Democrats to offer the country a firm pledge not to cut Social Security benefits in any way, now or in the future.

Seniors in Poverty

Research teams working with the U.S. Census Bureau recently improved the government's approach to tracking poverty. They began including income from government programs - a request made by conservatives, but not an unreasonable one - adjusting for regional cost differences, and including medical care and other items that often get overlooked into their calculations.

The revised figures showed that poverty in this country is greater than previously believed. And they showed that nearly twice as many Americans over 65 live in poverty than earlier figures had suggested - more than 15%, rather than the previously reported figure of 9%.

Seniors are especially hard-hit by medical costs, despite the existence of Medicare. A study conducted by the Center for Retirement Research at Boston College showed that the average couple reaching age 65 in 2009 could expect to pay nearly $197,000 in out-of-pocket medical expenses.

Medical care costs are rising much faster than general inflation. So are other costs, like transportation, that affect seniors and the disabled, Social Security's biggest pools of beneficiaries. That means elder poverty figures are likely to keep rising as these costs soar - and as the current cost of living adjustment for Social Security lags behind their actual living expenses.

The Cut of a Thousand Deaths

So why would so many Democrats, from Barack Obama to Dick Durbin, push a Social Security benefit reduction that would lower that cost of living adjustment even more? The " chained-CPI" is a terrible idea, a back-door cut to Social Security that would be both economically tragic for seniors and politically disastrous for anyone who supported it.

Social Security Works calculated that under the chained-CPI "the average earner at age 45 who begins receiving disability benefits would get a $333 benefit cut at age 55, and a nearly $700 cut by age 65. By age 75 ... that person faces a loss of over $1,000, an 8.1 percent cut." The President said of this change, "Most folks would hardly notice."

(You can get a sense of how much you'd lose under this proposal here, and then decide whether you'd notice.)

Some of these Dems have also suggested raising the retirement age even further than it's scheduled to be raised. That's a benefit cut, too.

Democratic Benefit Cutters

Daniel Marans has been keeping score. He tracked the Democratic Social Security benefit-cutting action that began with the presidentially-appointed Deficit Commission,and picked up speed when Co-Chairs Alan Simpson and Erskine Bowles proposed benefit cuts of up to 41.5%. Then Democratic Senator Dick Durbin backed those cuts, 14 Democratic Senators signed a letter backing Simpson and Bowles, and Democratic Sen. Mark Pryor demanded that Social Security reductions be "on the table" in deficit talks- even though Social Security is forbidden by law from contributing to the deficit.

No wonder Democrats lost nearly all of the 28-point polling advantage on Social Security they enjoyed in late 2006. These maneuvers created a situation where, at the beginning of this year, Obama was less trusted than Bush on this hot-button issue!

To be sure, there have been stalwart defenders of Social Security among the Democrats. Prominent among them are Sen. Majority Leader Harry Reid and the members of the House Progressive Caucus. They've emphatically rejected Social Security cuts of any kind, including these proposals. (Sen. Bernie Sanders is a champion of Social Security - but he's not a Democrat.)

Tinkering

Now the same Democrats who tried to cut Social Security are offering a stimulus tax break in the form of a highly flawed payroll tax 'holiday' that undermines the best arguments for protecting Social Security from millionaire-coddling government haters. Some even suspect it might be a backdoor strategy for reintroducing benefit cuts later.

Social Security currently keeps 20 million people out of poverty. Why tinker with it? These new poverty statistics offer would-be benefit cutting Dems the perfect out.

When more than 15% of Americans over 65 live in poverty and skyrocketing health care costs are likely to impoverish even more of them, we can't afford to cut any of theie financial lifelines.

Sucker Punched Again

Republicans actually managed to run to the left of Dems in 2010 by positioning themselves as Medicare's defenders. Now observers are shocked - shocked! - that they're is running to the left of the Democrats on Social Security too. They're claiming that the payroll tax 'holiday' would "cut contributions" to the program. (It would, but Democrats plan to replace them out of general revenues).They're also claiming the plan would "drive (Social Security's) Trust Fund into the red." (It wouldn't - but by mingling the trust fund with general revenues, the 'holiday' weakens Social Security's fiscal firewall and endangers its political security.)

So let's see: That means that Democrats who -

appointed and/or served on a Deficit Commission that tried to cut Social Security, and
are on record as proposing cuts to Social Security, and who then
decided to provide tax relief for the middle class by cutting Social Security's income stream when more progressive approaches were available, and who
promised to make up the difference from general revenue by drawing funds from general revenue, which
destroyed Social Security's financial firewall for the first time in 75 years -

- are now being attacked from the left by Republicans who are positioning themselves as defenders of Social Security! Who could have seen it coming? Nobody, that's who!

Oh, sure, this guy did. Back in January he said that if Democrats make any direct or indirect moves against Social Security, "Republicans will run a replay of their successful 2010 campaign, when they spent $71.1 million on ads claiming they were defending Medicare (a program they've always opposed) from Democrats." But he's a freakin' genius! Nobody else could have known, right?

Doesn't matter. Here we are. Social Security needs protecting, and elected officials need to prove they're committed to defending a popular and successful program. Fortunately, there is a solution.

A Pledge for the 99-ized Dems

The Dems are on fire with progressive passion from the White House on down. We're loving the new, tough, populist rhetoric: First the Teddy Roosevelt speech, now today's fiery press conference. Great stuff. Now all the Democrats need to do is put this newfound populist spirit into action. Teddy' Roosevelt's commitment to economic justice and Franklin Roosevelt's vision of Social Security are both urgently needed right now.

Polls show that Social Security cuts are enormously unpopular, even among Republicans and Tea Party members. So why not take a stand on the subject, once and for all? We propose a simple pledge which the President and all Democrats could sign, and which they could urge Republicans to sign too (they won't, which will help them at the polls.) The pledge would go something like this:

"I, _________________, do solemnly swear that I will not support any cuts to Social Security, now or in the future; that I will refuse to vote for or sign any bill that raises the retirement age, lowers the cost of living adjustment, or decreases benefits in any other way; that I will veto any such bill that reaches my desk; that all revenues lost from Social Security due to the "payroll tax holiday" will be replaced in full; and that I will work to replace the "payroll tax holiday" with a more progressive tax break that protects the firewall around the Social Security Trust Fund.

Furthermore, I solemnly affirm that the Social Security program is a hallmark of our country's ability to meet its promises to its citizens, one which people have paid for and deserve to receive after a lifetime of hard work. Signed proudly, this day of __________, by ____________."

We look forward to the first signing ceremony, and trust that the Roosevelts would be proud.

Decoding the Payroll Tax Debate [radio interview - KPFK]

Richard Eskow — Wed, 07 Dec 2011 14:15:44 -0500

This morning I appeared on KPFK's Uprising program with Sonali Kolhatkar to discuss the "payroll tax holiday" debate now going in the Senate.

There's a lot of confusion around this issue. For one thing, the general public always struggles to understand numbers, finance, and taxation. In this case the confusion's even worse because the Democrats chose to use this tax, rather than other options, as the mechanism for their tax break. That creates some unfairness, makes it a less efficient form of stimulus, and endangers Social Security politically.

Cutting the payroll tax helps people earning under $106,000 or so, but it offers the biggest savings to those on the upper end of that spectrum. That tax break can come to more than $4,000 for a two-earner couple if both spouses earn a six-figure income. As a result, those savings are given to everyone above those earning levels as well. That means that, on average, the "1%" will get a much bigger tax break than the "99%" will.

And it's dangerous to target Social Security's funding source to provide any sort of tax "holiday," for reasons we outlined here. It would be disastrous for the middle class if this tax cut expired, but we need to keep a wary eye on the Dems while fighting the GOP's nihilistic approach. She quoted my line from an earlier post: "It's a choice between the inadequate and the insane."

We tried to explain this complex topic in a minute or two - let us know how we did! - and then had a good conversation with Sonali. The clip is below:

Play Uprising KPFK