BUDGET BABEL: The ongoing Babel of Social Security!

WEDNESDAY, DECEMBER 5, 2012

Part 2—Krauthammer strikes: Is it our imagination, or is the New York Times’ Jackie Calmes one of our clearest-thinking reporters?

It often seems that way to us. In today’s News Analysis piece, Calmes does a nice job describing the various Rube Goldberg schemes which are being advanced by the GOP in the loopholes-versus-tax rates debate.

How does the GOP want to raise new federal revenues? Calmes riddles it out as shown below. We will highlight a relevant statement by tax guru Roberton Williams:
CALMES (12/5/12): The first option among the three proposed by the Committee for a Responsible Federal Budget that Republicans are considering would put a $25,000 cap on the deductions that high-income taxpayers could claim. Mr. Williams said that many upper-income taxpayers would hit a $25,000 threshold by adding up their mortgage interest or state and local taxes alone. “So there’s no tax benefit at all to giving money away with charitable contributions,” he added.

Under the second proposal, a taxpayer would compute the value of all tax breaks, based on the individual’s top marginal tax rate, and cap it at a percentage of the filer’s adjusted gross income. “It’s just really complicated,” Mr. Williams said.

A third option is similar to Mr. Obama’s own proposal for limiting deductions, but it would add additional restrictions for higher levels of income. Though details have changed, Mr. Obama has proposed since his first year to allow deductions at rates up to 28 percent, in effect reducing the tax advantages for higher income brackets.

Last week the White House released an analysis showing that a $25,000 deductions limit could raise about $650 billion in the first decade, and $450 billion if charitable contributions were exempted from the limit.
Whatever happened to simplification? Republicans are working very hard to avoid the need for higher tax rates. Why is the GOP doing this, since high earners would end up paying more in taxes in either case?

We’ll address that question in our next post. We were struck this morning by Calmes’ clear work—and by the massive complexity involved in the current discussion.

Last week, an ancient source of confusion re-entered this Babel. Senator Durbin said that Social Security shouldn’t be part of our current discussions since it “doesn’t add a penny to our deficit.” Just like that, Charles Krauthammer struck, bringing the eternal note of complete confusion in:
KRAUTHAMMER (11/30/12): Where is the other part of President Obama's vaunted "balanced approach"? Where are the spending cuts, both discretionary and entitlement: Medicare, Medicaid and now Obamacare (the health-care trio) and Social Security?

Social Security is the easiest to solve. So you get a sense of the Democrats' inclination to reform entitlements when Dick Durbin, the Senate Democrats' No. 2, says Social Security is off the table because it "does not add a penny to our deficit."

This is absurd. In 2012, Social Security adds $165 billion to the deficit. Democrats pretend that Social Security is covered through 2033 by its trust fund. Except that the trust fund is a fiction, a mere "bookkeeping" device, as the Office of Management and Budget itself has written. The trust fund's IOUs "do not consist of real economic assets that can be drawn down in the future to fund benefits." Future benefits "will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures."

And draining the Treasury, as 10,000 baby boomers retire every day. Yet that's off the table.
Charles went on to propose that the GOP should agree to go over the cliff with Obama. In the absence of a grand bargain, they should allow all tax rates to rise on January 1—and they should refuse to make any adjustments in the new year unless they achieve a grand bargain.

Whatever. In the main, we were struck by Charles’ treatment of Social Security. In the days which followed, we were struck by the way two other major figures reacted to Durbin and Charles.

Do you live in a banana republic? Do you live in a type of Babel—in a society whose elites are unable to explain its most basic policy questions?

Do you live in a type of Babel? No topic produces more confusion than the topic of Social Security—and it’s been that way for decades. And yet, Social Security is one of our most important social programs.

How is it possible that our public discourse works in such a peculiar way? Before we attempt to answer that question, let’s examine the basic things Durbin and Krauthammer said.

Like dueling voices inside Babel, the gentlemen speak past one another. Durbin says that Social Security doesn’t add a penny to the deficit. Krauthammer almost seems to agree:

It doesn’t add a penny, he says. It adds $165 billion, just this year alone!

Inside our modern Babel, both men get to be right. It all depends on what the meaning of “adds to the deficit” is! Krauthammer never bothers explaining this point. But he does link to Mr. Biggs, and Mr. Biggs does explain:
BIGGS (10/3/12): Budget wonks use two main measures of the budget deficit: the "on-budget" balance, which includes everything except Social Security and the postal service, and the "unified budget," which merges the on- and off-budgets together. If, for example, the on-budget was running a deficit of $100 billion while the off-budget ran a surplus of $100 billion, the unified budget would be in balance.

The unified budget approach is by far the most common for both budget wonks and the media. As a 2005 AARP policy analysis stated, "The [Congressional Budget Office], the U.S. General Accounting Office, and other agencies that produce budget documents and analyses think that the unified budget concept gives the most complete picture of total federal revenues, spending, surpluses, and deficits." When you read that the Obama White House projects a 2013 budget deficit of $901 billion, that's the unified budget deficit they're referring to.
Charles was citing the unified budget; Senator Durbin wasn’t. As tribal division spreads through our culture, our two warring tribes have different ways of discussing every topic. In this instance, we have different ways of deciding whether Social Security “adds to the deficit.”

One tribe gets to quote what Charles said, the other tribe gets to quote Durbin. But as you can see in all comment threads, complete confusion characterizes almost all public discussion of this central topic.

(To peruse the definitive text on the "unified budget," you know what to do: Just click here.)

In the passage we’ve quoted above, Charles rattles some of the famous talking-points which have driven our public discussion over the past forty years. Social Security’s trust fund is “a fiction,” he says. Its assets are (worthless) "IOUs." For that reason, the trust fund itself is “a mere book-keeping device.”

Charles spares us further mandated imagery involving the left hand borrowing from the right. But his images, insinuations and claims have driven the discourse for a great many years.

Progressives want to reject those insinuations and claims. But after forty years of total confusion, the lazy elites of the mainstream and the left have failed to create a discussion in which the nation’s warring tribes are driven toward a unified understanding of the way this program works.

On cable, pseudo-liberals have enjoyed themselves in recent weeks by mocking Grover Norquist. But Norquist has worked very hard, and very effectively, in pursuit of his agenda down through the years.

If our own tribe had featured a few Grover Norquists, this ridiculous state of affairs—this Social Security Babel—wouldn’t exist. But the liberal world has largely slept in the woods over the course of the past several decades. Liberal elites have never created a clear explanation of the Babel surrounding this vital program.

We liberals enjoy calling the other tribe dumb. What should we call the slackers in our own vaunted tribe, the vaunted pseudo-elites who have let this Babel develop?

Despite the things we liberals say, we liberals are lazy and not all that bright. For that reason, this ongoing Babel exists. The analysts groaned when they saw Charles present that brace of familiar old claims.

They sobbed and complained when two major figures set out to clean up this mess.

Tomorrow: Two (bright) men walk into a Babel...

11 comments:

  1. Unfortunately, the Social Security Trust Fund is technically part of the General Revenue stream to the Federal Government. As someone who spent 30 years in local government, this is just crazy. I always thought it was a legally separate fund that had to remain segregated from other funds even though excess funds were to be invested. I think this is how the trust fund has been so easily raided in the past. I think this is what Al Gore meant back in 2000 about creating a lock box for Social Security.

    By saying this I don't mean to imply that Congress is not morally obligated to pay back the trust funds "borrowed", but I don't think the certificates have the same legal weight as other Treasury obligations.

    I also think that Conservative Republicans don't want to pay it all back because it just accentuates their shameless profligacy during the Bush administration. I wish someone would back them in a corner to get them to admit that if they don't want to pay back the trust fund then the Reagan/Greenspan Social Security increase in the 80's was just a con.

    MGO

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    Replies
    1. For some reason, I have a suspicion that back in the 1980s the Republicans already had prepared the talking points that when it came time to deplete the trust fund they could argue that the trust fund was a "fiction," and use that to continue their argument that Social Security isn't solvent.

      Jon

      Delete
  2. Quaker in a BasementDecember 5, 2012 at 11:57 AM

    Is the trust fund full of IOUs? In a sense, yes. Let's be clear about who is the I and who is the U.

    Every single American worker who has drawn a paycheck at any time since 1983 has loaned money to the federal government so income tax rates for rich people could be kept low.

    Now it is time for those loans to be repaid.

    ReplyDelete
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    1. Conservatives don't want to pay it all back. That's the problem. That's why they keep acting like Social Security is in dire straits rather than simply needing a course correction. Between the Bush tax cuts, two wars, and Medicare Part D, the Conservatives have added to the deficit by trillions of dollars. They don't want people to see the tab for all that. They'd rather talk about the fiction of near term Social Security insolvency and the total Federal debt. I don't hear any Conservative talking honestly about preserving what was promised.

      MGO

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  3. "Every single American worker who has drawn a paycheck at any time since 1983 has loaned money to the federal government so income tax rates for rich people could be kept low."

    !!!

    That is an extraordinarily accurate characterization of the unified budget reality.

    Thank you.

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    1. Quaker in a BasementDecember 5, 2012 at 5:05 PM

      I know! I've been practicing.

      Delete
  4. Under the law, there is no such thing as a "Unified Budget." As a matter of law, Social Security revenues may not be diverted into the general revenue fund, and except for the amount necessary to cover for the current tax holiday, and general revenue may not be put into the Social Security Trust Fund. As a matter of law, the revenue received under the FICA tax is invested in special Treasury bonds that, as a matter of law, earn interest. It is the safest investment in the world. By definition, that is lending money just as investing in any just about any other fixed income investment would be. In this case, however, the money is lent, not diverted, to the U.S. Government general fund. That obligation of the government to pay the Social Security Treasury bond when it comes due (when it is needed to pay benefits) is backed by the Full Faith and Credit of the United States Government.

    Law matters, and that's why people like Krauthammer who talk about "mere IOUs" and "fiction" are wrong -- and so are the people who say the Trust Fund has been "raided." As a matter of law, the Trust Fund is completely separate from the on-budget funds. It would take an Act of Congress signed into law by the President to undo that law. Any obligation in the form of a Treasury Bond or Treasury note is subject to repayment and payment of interest only because the law says so.

    Let's say it again. Law matters. Under the law, it is the so-called "Unified Budget" that is a fiction. It's a convenience, and maybe not a good one, for those, mostly economists but also derivatively for gullible business journalists, who want to analyze tax revenue and spending AS IF there were a unified budget. But that doesn't make it real. Durbin's statement is correct. The Krauthammers of the country need to learn to respect the law.

    ReplyDelete
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