The American Spectator : The Spectacle Blog : Kevin Drum on Social Security

Text Size

Kevin Drum on Social Security

By Joseph Lawler on 8.19.10 @ 6:12PM

Kevin Drum's defense of Social Security from the Deficit Commission is making the rounds. His argument, intended to be as simple as possible, goes like this:

In 1983, when we last reformed Social Security, we made an implicit deal between two groups of American taxpayers. Call them Groups A and B. For about 30 years, Group A would pay higher taxes than necessary, thus allowing Group B to reduce their tax rates. Then, for about 30 years after that, Group A would pay lower taxes than necessary and Group B would make up for this with higher tax rates.

This might have been a squirrelly deal to make. But it doesn't matter. It's the deal we made. And it's obviously unfair to change it halfway through.

So who is Group A? It's people who pay Social Security payroll taxes, which mostly means working and middle class taxpayers. And who is Group B? It's people who pay federal income taxes, which mostly means the well-off and the rich. For nearly 30 years, Group A has been overpaying payroll taxes, and that's allowed the government to lower income tax rates. The implicit promise of the 1983 deal is that sometime in the next few years, this is going to flip. Group A will begin underpaying payroll taxes, and the rich, who have reaped the benefits of their overpayment for 30 years, will make good on their half of the deal by paying higher income tax rates to make up the difference.

The physical embodiment of this deal is the Social Security trust fund. Group A overpaid and built up a pile of bonds in the trust fund. Those bonds are a promise by Group B to repay the money. That promise is going to start coming due in a few years, and it's hardly surprising that Group B isn't as excited about the deal now as it was in 1983. It's never as much fun paying off a loan as it is to spend the money in the first place.

But pay it off they must.

I can't speak to the accuracy of Drum's history of the Greenspan Commission. But overall, it seems as though Drum's argument reduces to the claim that Social Security is part of the federal budget and federal tax policy has not been progressive enough over the past 30 years.

Maybe so, but the problem I see here is that the federal budget is in trouble, deal or no deal. Even making tax policy more progressive from here on out won't solve the looming problem.

View all comments (11) | Leave a comment

John - TMF| 8.19.10 @ 10:41PM

Um. The problem is that there is no there.... there. There is no money in the til, just fancy little pieces of paper that say "I O U - Your loving Uncle Sugar - sucker..."

Within the next few years the Ponzi scheme that is Social Security will begin to unwind. It will take lots of folks' dreams and schemes with it. There is now more money going out than coming in. Bernie Madoff is in jail for less.

At some point, as the system is so fundamentally bankrupt, and there is no money other than current federal tax revenues to make up the short fall (where that will come from given The One's current Great-Grandchildren tax is anybody's guess.) . Some judge, somewhere, probably a Justice or two of the Supreme Court, will have to end the entire charade.

It was never Constitutional to begin with, and the "contract" was certainly not agreed to voluntarily by many Americans (my self-employed grandfather was forced into the "system" under threat.) I certainly would have never voluntarily "paid into" such a fraud.

Well, eventually a high enough bankruptcy proceeding will have to vitiate the "contract", and replace it with some sort of pennies on the dollar pay-off.

What else is there? The "many" who never wanted to play the FDR Ponzi scheme are still not the "most" who got snookered. Social "Security" also appealed to our sloth and laziness in our desires to ditch our familial responsibilities to care for our elderly.

The piper is playing his tune, and calling the bill due.

I don't expect to make a dime out of the Social Security System. The annual statements are lies just like all of the other Progressive promises made over the last century.

Lots to think about before November.

Regards,

The Mighty Fahvaag

Larry| 8.20.10 @ 1:42AM

Social Security is and has been a fraud for many years. And so is Kevin Drum's assumption that there was an implicit "deal" cut in 1983. The only "deal" that was cut was to put the Social Security trust fund (which was still in "surplus" back then, only because of the many IOU's issued by the Federal treasury) back into the Federal budget, particularly because it made it look like it reduced the Federal budget deficit that was in existence back then. The fact is that this so-called "deal" was only a band-aid designed to keep the system from going into insolvency early, since Social Security had become the "third rail" of American presidential politics.

Reagan was not in a position to be able to do anything fundamental or meaningful about Social Security because the Democrats were just waiting to pounce and put his head on a pike if he tried anything that looked to them like "cutting Social Security" (remember the "there you go again" remarks in the debates between Reagan and both Carter and Mondale?).

The truth is, the day of reckoning is coming. And no amount of taxes is going to save the system. You couldn't tax the rich enough to save Social Security and finance the other mad schemes for entitlements the Democrats have either implemented or proposed over the years.

darudz| 8.20.10 @ 1:11PM

Larry,
Why are you up so late? don't you have to go to work later in the morning?

JP| 8.20.10 @ 7:36AM

It goes beyond the obvious fact that the US Government is broke. If the Congress was to confiscate every last nickel of assets in this nation -that is, cash, savings, stocks, bonds, IRAs, Annuities, real estate, mines, oil, gold, etc... and liquidate them, we would still be in the hole. The unfunded liability of Social Security is about $55 trillion. The total net assets of our nation statnds at $49 trillion. And we haven't even touched Medicare, Medicaid and the interest on our debt (total of those 3 is over $50 trillion).

So, it isn't a revenue problem for the simple fact that there was never going to be enough revenue. Government actuaries have known this for a few decades. They knew that there was simply not going to be enough younger people with the income and assets needed to fund our future liabilities. So they kicked the can down the road. As late as 2005 our Democratic Masters (and a few in the GOP) lectured the President that Social Security would remain in the black until 2037 - no reforms were needed in its funding they snarked. Well, they were off by 27 years.

No matter who will be running our government, the plain fact remains that the 3 major entitlement programs that have sustained the careers of an entire segment of our society will have to be cut to the bone. It is obvious our current crop of politicians are not up to the task. They want no part in reducing future spending by such large amounts. That is why I predict that not only will there be a record number of congressional retirements come 2012-2014, but that President Obama will jump ship. That is, he will not seek relection.

Already, large numbers of Baby Boomers (those who can afford it) are leaving the US. Visa applications for the UK are so large that there is a back log through March of 2011 at the US Embassies in London and Ireland.

Jim Griffin| 8.20.10 @ 7:53AM

Although the concept of a Ponzi scheme fits ... the American people need to be told of the LIE their government perpetrated. Two court cases - Helvering v. Davis 1937 and Nestor v. Flemming 1963? established the precedent ... that Social Security was nothing more than a tax, like any other tax, not bound to be some sort of "insurance" or "pension" or "saved" in your account. But, FDR "sold" the concept that way, at the same time his lawyers argued in the Supreme Court that Social Security was just a tax. The periodic "Fix" is always the same - raise the tax rate, raise the amount subject to tax, and raise the retirement age. Until the LIE is fully exposed, the public will still consider this program as their "right". It is worth noting, that Obama is following the same "game plan" with Obama-care - arguing in court that it is a TAX, and not a mandate or a program. They know the legal precedents set up in 1937 and 1963. You cannot cleanse a LIE until it is exposed and understood as being a LIE.

Curly Smith| 8.20.10 @ 9:45AM

If Drum's argument that lower taxes led to the robust economic growth and wealth creation over the last 30 years is true, and it is, then his proposal to raise taxes would stifle economic growth and destroy wealth creation. Take a look at the *success* of Obamanomics.

The question is then -- why does Team Obama want to destroy the greatest engine of freedom that the world has ever known? Oh, yeah, it's the freedom...

RWinks| 8.20.10 @ 2:23PM

Having lived through the period in question, I have no recall of any such "deal" ever being discussed at the time. It would have caused an enormous amount of outrage if it had been discussed. It appears to be a figment of Drum's imagination to attempt to justify tax increases.

Even if it were true, it makes no sense. Those paying the highest payroll taxes were also those paying the highest income taxes. The two groups would have been comprised of many of the same people. Moreover in the 27 intervening years many of both groups would have expired or switched places. This is just an attempt by a leftist to justify class warfare.

sre| 8.20.10 @ 2:54PM

The premise is ridiculous in two respects.

First, it continues the notion that the rich are just rich through some sort of genetic chance. No, they got rich by working hard their whole life.

Second, it ignores the generational shift that puts the same person in Group A for awhile, then Group B later in life after working hard. So, let me get this straight. In 1983 someone said, "Yeah, I'll pay payroll taxes now, then if I'm lucky enough to get to "Group B", I'll pay federal taxes so I'm the lucky generation that gets to pay all the freight while the generation ahead and the generation behind get a free ride"?! Makes no sense.

It's hard to have a rational argument with folks who use lazy facts.

Texas Mom| 8.21.10 @ 11:54AM

My husband and I knew back in the mid-80s that Social Security would not be viable when we retire. We did not want to be dependent on it; so we have been saving since then for our retirement. If the federal government decides to raid our 401K funds in order to give $ to those who did not save, they will have to pry it out of our cold dead hands. The feds have floated this idea several times over the last few years. We will take the penalty fees and withdraw all of it before the feds get another dime of our $. My husband has worked hard all these years and is going to be rewarded soon by hitting the top tax bracket which will be even worse after Jan 2011. The idea of paying ever higher taxes and simultaniously losing our savings really chaps my hide!

Roy| 8.23.10 @ 3:10AM

It's also not the case that people who paid more payroll taxes than were needed at the time to pay the beneficiaries THEN "overpaid".

They would only have "overpaid" if they had paid more than would ultimately be needed for THEIR benefits. And if that had happened there'd be no issue.