Special Report
It’s A Raid!
How Barack Obama will shortchange the Social Security system.
“The only way to fix the (Social Security) system is to bring more money in or send less money out,” Barack Obama said at a Quincy, Illinois town hall meeting on April 18, 2005, according to the Quincy Herald-Whig.
At the time, the state’s newly minted U.S. Senator was making one of the most prevalent Democratic arguments against President Bush’s proposal to give workers the option of investing a portion of their payroll taxes in personal accounts. As the Herald-Whig article (linked to on Obama’s U.S. Senate website) put it, “Obama said President Bush’s plan to create private retirement accounts by siphoning away money from Social Security would cause the very crisis that Bush and his allies say they’re fighting to avoid.”
More than three years later, Obama still remains fiercely opposed to personal accounts — but he’s no longer concerned with siphoning away money from the nation’s retirement system. Lost in all the controversy surrounding Obama’s pledge to cut taxes on 95 percent of Americans is the fact that his proposals would drain hundreds of billions of dollars from government coffers that would otherwise be available to pay out benefits to retirees.
Last week, I asked Brian Deese, an Obama economic adviser, to explain the rationale behind the campaign’s claim to cut taxes on 95 percent of Americans. As critics of the plan have pointed out, more than a third of Americans pay no income taxes, and thus his tax credits can easily be described as government handouts.
Deese responded to me by email, arguing that it was important to differentiate between income taxes that many people escape, and payroll taxes, which nearly every worker pays to fund Social Security and other entitlements.
“Obama’s Making Work Pay Tax Credit will directly cut taxes for 95% of all workers,” he wrote, insisting that it would benefit all those with incomes under $150,000. The plan would “offset” the 6.2 percent employee payroll tax on the first $8,100 of income earned, according to the campaign, translating into as much as a $500 payment per individual and $1,000 payment per couple.
There’s a persistent myth that the federal government actually has two bank accounts — one that stores the payroll tax revenue left over after it makes payments to current Social Security beneficiaries, and a general bank account that funds remaining government services, mainly through income tax revenue. But practically speaking, since the federal government borrows from the Social Security system to help finance its deficit, all the money ends up in the same pot.
In other words, the smoke and mirrors routine surrounding Obama’s tax proposal has been conjured up just so that the Obama campaign can make the dubious claim that its plan would “still preserv[e] the important principle of a dedicated revenue source for Social Security.”
Of course, “principle” is the operative word.
Here’s the problem. If the Obama campaign wants to pretend that it would preserve the idea of having two bank accounts, it means that workers will pay their payroll taxes throughout the year and their money will be deposited in the Social Security system. Only after the fact will they receive “tax credits,” but those will be paid out of income tax revenue — and thus, to paraphrase Obama, they’d be spreading the wealth around. (Again, because more than a third of Americans do not pay income tax, but 95 percent would be receiving checks from the Obama administration.)
However, if we accept the Obama campaign’s argument that it is actually cutting payroll taxes, then it has to bear responsibility for the fact that it will be hemorrhaging money from the Social Security system as a result. Over 10 years, the “Making Work Pay” credit will cost $710 billion, according to a Tax Policy Center analysis that has been cited by the Obama campaign. Whatever happened to the Obama who said that “the only way to fix the (Social Security) system is to bring more money in or send less money out”?
It’s true that Obama has also proposed raising payroll taxes on those making over $250,000 a year. But those changes, which wouldn’t make up for the $710 billion, are already supposed to help deal with the looming crisis caused by the retirement of Baby Boomers (although they wouldn’t be enough to make a serious dent in that, either). To top it off, such changes would not be enacted for 10 years, according to Obama — well after he’d be out of office even were he to serve two terms.
When President Bush proposed allowing individuals to divert some of their payroll tax contributions into private accounts, liberals blasted the plan as a fiscally reckless idea that would bankrupt Social Security, and they frightened senior citizens into believing that it meant their benefits would be taken away. Obama has been engaging in the same type of dishonest fear mongering on Social Security during the presidential race.
But while the creation of personal accounts would lead to a revenue shortfall in the immediate term, over time, it would reduce obligations to future retirees who opted out of the current Social Security system. Obama’s plan would produce a revenue shortfall as well, but it wouldn’t do anything to reduce the nation’s long-term entitlement obligations.
Obama has benefitted from the fact that an esoteric debate on his tax plan is beyond the attention span of most voters. But if his disingenuous claims do one thing, they should expose liberal hypocrisy on the Social Security issue once and for all.
About the Author
Philip Klein is The American Spectator’s Washington correspondent. You can follow him on Twitter at: http://twitter.com/Philipaklein
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Tom| 10.24.08 @ 7:21AM
If I remember right it was during Eisenhower's administration that the trust fund was put in the general fund(too much money in it). That is when the borrowing started. Early in Johnson's administration, by execuative order the trust
fund actually became part of the general fund....meaning from that time on it was open for grabs by congress.
Raising the SS tax and extending the age for retirement only punishes the worker, giving them less benefits and lest time to enjoy it.
The only solution is to put the money back into the trust fund, lock it for SS use only. Then return the money they borrowed and spent.
Melvin| 10.24.08 @ 8:27AM
In the not so distant future, the only way that you could receive SS is to die, then the spouse has to fill out a form, pay a fee, and wait six months to one year to receive a replay that states, SS recipient cannot receive SS benefits because he is dead.
But the government being government tells the spouse that she can appeal, but has to hire a lawyer and pay another fee for the government to reconsider the original decision, but not likely because you have been dead for more than six months and it would be unlikely that you will come back to life.
Edward| 10.24.08 @ 10:00AM
My guess is they will fund all this by nationalizing the 401K accounts. I read this little gem yesterday:
http://www.usnews.com/blogs/capital-commerce/2008/10/23/would-obama-dems-kill-401k-plans.html
Patriot| 10.24.08 @ 10:41AM
There is always Gold! Oh Wait, the government could confiscate that as well - at gunpoint!
We long ago passed the point of no return and our liberty is now granted by the whim of the federal government. There is no constitution when every action by the government can be justified or rationalized as for the 'greater good'.
It's once again time to fertilize the tree of liberty...
pete kantor| 10.24.08 @ 11:23AM
1. I am a liberal Democrat soyou'll know where I'm coming from.
2. Remove SS from the general fund.
3. Make the SS deduction proportional to income. (It doesn't make sense for someone whose income is in the $300,000/year and up range to pay the same amount into SS as does someone earning $50,000/year.
5. Bring income tax rates back to 1960 levels.
6. Cut the military budget in half. Period. (Our military adventures have not brougt five cents into the economy.
Martin Owens| 10.24.08 @ 11:48AM
Is anyone really surprised? The plain fact is that when we add the national debt, the deficit, the bailout, the unfunded pensions and everything else this government has promised to cover, we get a total of $35 trillion in various obligations. There ain't that much money in the solar system.
But as the UFOlogists say, if the people knew the truth they would panic. Therefore it matters not whether Obama, McCain, or Joe the Plumber is the next President ( though Joe would probably be the best choice). Whoever runs this house of cards from now on has no choice but to keep on robbing Peter to pay Paul, then tax Paul to help subsidize Peter. Never mind Social Security. Any pot of money anywhere will soon be fair game for the "compassionate sharing" that is needed to keep the Ponzi going.
Everybody knows what's gonna happen, folks. What is behind all these bombastic fantasies of " fairness" and " spread the wealth" ? No more than each individual player's strategy to get out in time, so it doesn't happen to HIM.
Anthony| 10.24.08 @ 12:17PM
Edward is right, the Democrats seek to nationalize our 401K plans. Too much untaxed money for the liberals not to have their hands on, as Congressman McDermont's little Orwellian farce of a hearing demonstrated yesterday. So little press coverage, hmmm. As bank robber Willie Sutton said, "that's where the money is". Oh, and you folks living in Ohio, with a 7.5% unemployment rate, and rising, yesterday, your Congressman, Moonbat Kusinish held a hearing that the property that Yankee Stadium is being built on was under appraised by the State of New York. Got that? This guy really does know more about UFO's then he's letting on. But you guys keep electing him.
Tina| 10.24.08 @ 2:59PM
So Eisenhower and Johnson did the seniors and the disabled in!! It is a DISGRACE! It was PEOPLE's MONEY, OUR MONEY. What right does the government have to take OUR money that is meant for our retirement and the disabled! It should be IMMEDIATELY put back in the original trust fund and the government should give pay the money they took with the interest. And they have the gall to talk about the SS going bankrupt when they TOOK OUR MONEY!!!!!
sue| 10.24.08 @ 8:27PM
Watch IOUSA with David Walker, the former Comptroller of the US under three presidents. He gets it right; there is no way we can sustain our standard of living on this path. True reform has to be taken seriously by both parties. Sad to say, the Democrats have given up on any type of serious reform unless it's taking away more of our freedom. Social security is doomed as a retirement program and we are doomed if we let them take our private retirement programs. We'll all be eating beans and driving nowhere.
Patrick| 10.25.08 @ 12:44PM
Dear Tina,
It's not your money. Once the government has it, it can erect as many pretend barriers as it likes, but will inevitably rationalize some way of taking it for its own purposes.
Government, by its very nature is a parasite. It cannot make anything from itself. It cannot earn, it cannot create, it exists by virtue of taking from those who do earn and create.
Secondly, our government, by virtue of career politics and human nature, is a prostitute. Our politicians will do anything to get elected, then demand a massive sum for selling out their dignity. Sure, they'll turn some tricks for a while, make the citizenry feel good for a brief moment, and as is often the case, steal from us while still charging us.
As for me, I'll perform my moral obligation at the polling place, regardless of the fact that my vote is essentially worthless in Soviet Wisconsin, then go to the bar down the block to forget what I just voted for John McCain.
Sure, it'll all burn down soon enough, so buy some sunglasses and watch. Better yet, buy some guns and ammo while you still can, because stainless steel is sometimes more valuable than gold.
talgus| 10.25.08 @ 6:27PM
There is a SS trust fund. It is papered with IOUs from Congress.
Veritas| 10.25.08 @ 7:03PM
Ref: to Tom | 10.24.08 @ 6:21AM
"If I remember right it was during Eisenhower's administration that the trust fund was put in the general fund". Answer to your IF.you do not remember right..............Try Kennedy admin... Congress could have corrected this mess incrementaly starting in the 80's . Nice try.........
Scrapiron| 10.25.08 @ 11:10PM
LBJ took the SS money out of the lock box and let congress start spending it.
The democrat party eleminated the income tax deduction fo FICA withholdings.
The democrat party started taxing SS benefits. Al Gore cast the vote to break the tie.
Dimmy Carter started paying immigrans who had never paid a dime into the system SS benefits.
Now the democrats accuse republicans of wanting to take your SS.
Hussein O has proposed to start taking half the SS paid in and sending it to the worthless sh**s who never worked a day in their life. More welfare but from the SS withholding pot.
The same congress critters who do this to us made themselves eligable for a 100% pension and free medical care for life after one term.
Must be nice to vote yourself a raise anytime you please.
But the democrats support the working people, not.
Scrapiron| 10.25.08 @ 11:16PM
The poor have been voting democrat for 50 years and they're still poor. Charles Barkley
When I left home and went to work the friends I grew up with were hanging on the street corner and pumping gas for spending money. I worked, paid my taxes and retired. The friends I grew up with are still hanging on the street corner, smoking and selling pot. No progress in 40 years.
Drudge Ette Obama (a blog)| 10.26.08 @ 10:20AM
So, Obama believes that the only way to save Social Security is to take less money out or put more in? And the tax break Obama is promising to 95% includes the silent SSI tax? So he sends people who pay no income tax "tax break" checks because they still are paying taxes in the form of SSI, etc.
Let's call Obama's plan what it is: Social Security Tax Reduction for the percentage of the 95% of the U.S. people who will get the break but don't actually pay taxes. We are really going to subsidize the SSI taxes using general funds.
What this smells and looks like, and I am not afraid to use the word despite the focus on it during this election, is a Pig.
Diane Smith| 10.26.08 @ 3:56PM
When FDR invented the welfare program, Social Security, he had no idea we were going to live forever. This gigantic Ponzi scheme had a built-in assumptin that we would pay $3.00 a paycheck into it, retire at 65 and die at 67.
I worked from age 18 to 27, paying peanuts into SS. Stayed home with children until I was 39. Returned to work. Worked to age 56. Quit short of retirement to do charity work as a grandma.
My point is, if most people are brutally honest, they have to shave a few years off that "all my life" they have paid into Social Security.
At 81, having been a Social Security recipient for 19 years, if I bothered to figure it out - and once I did - I have been commiting petty theft for at least 15 years, just by cashing the check.
And don't talk to me about what my contributions would have earned me in simple interest, because the fact is, I would not have banked a like amount and neither would anyone else who brays about it.
We should not have had it in the first place, but we do. We should not have had so many other hand-out programs built into it over the years, but we have. Those programs have a cost. And that cost is being borne by workers of today.
Warren Buffet is eligible for Social Security. Does he take it? I recall years ago an item in Herb Caen's gossip column where he asked Bing Crosby on the occasion of Crosby's 65th birthday, "Are you going to apply for Social Security?" Bing answered, "Hell, yes, I've paid for it."
Maybe His Offelness, Obama will solve the Social Security problem by separating the needy from the greedy.
Vicki| 10.28.08 @ 5:20PM
We can bail out Fannie and Freddie but we can't afford Social Security and must cut payments, means test or raise age of retirement. Ultimately, they hope you will die before you can collect.
peo | 1.19.09 @ 7:13PM
Ipissed on my sister.AAARRRRAAAAHAHAHAHA!