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Bruce Webb asked “Does Social Security contribute to the Debt? To the Deficit?” in "Deficits, Debt, Social Security: Building your Conceptual Toolkit" (here). My response to this question was a resounding “NO”. The reason I feel strongly this is the case is that Social Security is not government spending.

You can find out why after the squiggle.

In my response I made the following points:

(1) Social Security and Medicare are not government spending. They are transfer payments, made within the private sector by employers to pay for the cost of labor.
(2) These programs are there to require businesses to pay the complete costs of labor, so that they can't externalize it onto the government or the charity of others. They are a part of the minimum wage system.
(3) They prevent employers from exploiting workers.
(4) The revenue should come from a fee levied on each hour worked so that it is directly related to the quantity of labor used.
(5) Funding has been slashed for these programs.
(6) Workers are making literally one-half what we should be making, and the percentage of business revenue going to workers has declined from 60% to 50%.
(7) The way to strengthen retirement plans (that is, to increase funding for Social Security and Medicare) is to increase the number of jobs and their compensation.
I’m going to define terms. If you disagree with my definitions, your mileage may vary, but at least you’ll know my assumptions.

Social Security Is Not Government Spending

By “government spending” I don’t just mean that the government collects the money and then writes a check. I mean that the money is spent on government items. For example, if the government collects a dollar and spends it on the military, it is no longer spent on a consumer item. In economic terms, taxing and spending that money on the military changes the guns-to-butter ratio of spending in the economy.

Social Security spending does not change the nature of the money. The money passes through the government but it is still spent on consumer items. This is a transfer payment. It takes the money from one group (at one time in their lives) and gives it back to that group (at a different time in their lives), but what those people spend it on isn’t changed from consumer items to government items.

In my view, Social Security is fully within the private sector. It is a requirement for businesses, in the aggregate, to pay the natural costs of labor. It can therefore not add to the federal deficit because it isn’t part of government spending. (Lyndon Johnson was reported to have added Social Security to the federal budget, in part to hide the federal deficit, since Social Security was running a surplus. The fact that it wasn’t even a part of the federal budget until the 1960s suggests that when it was set up it was not considered government spending.)

Requiring Business to Pay for Labor

Social Security is part of our minimum wage system. For most workers, especially low-wage workers and any worker without a union to represent them, it is very difficult to get an employer to pay enough for that worker to put away money for retirement. The labor market makes that an economic impossibility. The only practical way to make employers, in the aggregate, pay this part of what the worker needs to live on is for the government to take that money when the worker is working and give it to them when they are retired. That system of transferring money from actively working workers to retired workers is called Social Security. As a requirement to pay the minimum necessary for the lifetime living wage of the worker it is a form of minimum wage.

Beyond that, it’s very difficult for workers to know how much to put away for retirement. So, there’s an additional benefit of making this a broad program for all workers. Each worker would have to put away more than they actually needed when they retire to cover the risk that they may need vastly more than they estimate. By spreading the risk among all workers, not nearly as much has to be put aside. This creates a huge economic benefit that is often hidden in discussions of Social Security.

Preventing Employers From Exploiting Workers

A minimum wage is intended to prevent employers from exploiting workers. Without a minimum wage, employers would be free to get people to work while paying them less than is required for them to live (except when they are actually working). To see this you have to think about the law of supply and demand. Wages are the price of labor. They are therefore subject to this law, which states (among other things) that as supply goes up the price drops. For most jobs there is a larger supply of workers than the demand for them. If the supply goes up enough (or the demand drops off enough), the price point will decline. There’s nothing in the law of supply and demand that says that a worker can actually live on the wages offered.

If an employer offers a wage too low, no one will take it because they would starve to death on that wage. However, if the wage goes up enough that they can cover their necessities while they continue to work, then they will take the job and hope that in the future they can make more. But this does not pay them enough for them to live when they can’t work.

This is what I mean by “exploiting workers”. An employer can offer enough to keep the employee alive while they are able to work and then discard them when they can’t. This exploits the worker because it does not satisfy their lifetime living wage needs. A job is only valid in a moral sense if it pays enough for the worker to live on the wages for both when they are working and when they can’t work. In particular, the wage needs to be high enough for them to live on when they are too old to work or if they are disabled. The Social Security program provides this added wage requirement that prevents employers from exploiting workers using simple market forces to extract their labor but not pay for all the real costs of it.

What happens if we don’t have this kind of minimum wage built into their wages? The employer discards the worker when they can’t work and then society has to pick up their cost or let them die. This allows businesses to externalize the cost of labor to government programs (like food stamps), to charities, or to the worker’s families. This is why I say that Social Security prevents employers from exploiting workers.

Revenues Should Be Directly Related to Hours Worked

It is important that revenues be directly related to hours worked. Otherwise it causes a distortion in the economy because the employer is not then paying in proportion to the labor used.

From a business perspective, this is part of the cost of labor. So, if it isn’t directly related to hours worked business will change how they use labor to reduce this cost. This results in inefficiency in the labor market. (The current system also makes it proportional to the base wage rate, up to a cap. I frankly don’t know whether this is a good idea or not, economically, but I think it’s fair for the worker. Someone smarter and with better information than me will need to address that issue.)

What’s not a good idea is paying any part of this out of the general fund. That’s why I opposed the “payroll tax holiday”. Yes, we needed to pump money into the working part of the economy. Yes, this was an expedient way to do it. But, it comes at the cost of separating Social Security a little bit from its basic funding. Now we have the precedent that we can change the funding, which makes the situation that much more political.

Is a payroll tax regressive? Does it discourage the creation of jobs?

I don’t think the system is regressive. The system would be regressive except for the fact that benefits are limited and only those paying in are eligible to draw on Social Security. So, if you get all your income from investments and never pay in then you are not eligible for payments when you retire. And if you pay in but are very rich, the payments you get are strictly limited when you do get them, so they are not proportional to what you’ve earned. If there were no limit on payments then the fact that the rate is flat would be very regressive, but since payments are not simply proportional to income the difference is negligible.

And, yes, tying the fees to hours worked with a payroll tax does discourage the creation of some jobs. However, the jobs it discourages are the ones that would exploit workers. It does not discourage any job where the value of the work exceeds the lifetime living wage for that work. If the job can’t pay enough for the worker to get a lifetime living wage, then it isn’t really a job. It’s a form of charity that the worker is giving to the employer.

When you think of Social Security as being part of the minimum wage it is clear that funding for it should be directly related to hours worked.

Funding Has Been Slashed for Social Security and Medicare

By this I don’t mean that current payments to retirees have gone down or that the rates have been lowered. What I mean is that revenue for these programs has been cut because wages and work hours have not kept pace with economic expansion. This is because (1) workers make less than they did, (2) they should be making far more, and (3) unemployment rates have risen.

To understand why, you have to know a few basic facts.

(1) Throughout the early twentieth century, until the 1970s, wages rose at the same rate as worker productivity.
(2) From 1880 to 1980 the percentage of money taken in by businesses that went to workers was about 60%, but since then it has declined to 50%.
(3) Wages for non-supervisory workers have declined.
(4) Worker productivity has gone up dramatically since the 1970s.
(5) Since the 1970s the U.S. has indulged in increasing levels of “free trade”.
(6) Manufacturing peaked in the U.S. in the late 1970s.
Since the late 1970s, wages for typical workers have gone down over 8% but worker productivity has gone up 83%. (This information is readily available from the Bureau of Labor Statistics. I am using their inflation-adjusted numbers for worker productivity and non-supervisory wages.) As I say in point #6, “workers are making literally one-half what we should be making”. This is based on the fact that wages would be twice what they are today if we had continued to see wages rise in lockstep with worker productivity.

There are two caveats to that, of course. One is that prices would also be higher. The other is that if we had maintained this relationship, worker productivity might have not climbed as much. However, what it also means is that Social Security has been robbed of the additional revenue. The revenue going into Social Security has been radically slashed because wages have been suppressed. If they had actually gone to twice what they are today (other things being equal) the amount of money coming into the Social Security fund this year would be double what it is.

This is another way of saying that Social Security funding is a marker for wages (and jobs). The fact that it is down compared to our needs is a reflection of the fact that wages are down and unemployment is up. (By my calculations, our trade policies have added almost 1% to the unemployment rate since the 1970s.) That Social Security funding seems to be inadequate to meet long-term needs is a sign that workers have been, in a word, screwed, for thirty years or more.

The other fact here is that manufacturing has declined. This isn’t just an interesting factoid. Manufacturing represents production. It is where goods are produced. Production is where wealth is created. The product “produced” has a higher utility than the resources that go into it. This increase in utility is what creates wealth.

So, if you take production (manufacturing, for example) and you ship it overseas then you also ship wealth production overseas. This impoverishes the country. That’s why we are faced with a fiscal crisis and an economic crisis. We moved our wealth production overseas. And now the people in the capital are standing around asking “How do we deal with the deficit? Should we raise revenue or cut spending?” Well, you wouldn’t have to do either if you hadn’t impoverished the country with “free trade”. You shipped the wealth production elsewhere. Now you have to pay the piper.

Which leads us to point #7.

Increasing Jobs and Compensation

If the fundamental problem is, as I say, that wages are down and there are not enough jobs, then how do you solve that problem? I assert that the fundamental cause of this is our trade policy. (There are other factors, of course, such as automation. Chrystia Freeland has a good discussion of this in her book, Plutocrats. But I think the dominant factor is trade.)

For one thing, we can see that the decline in wages relative to worker productivity basically started at the same time we started devaluing jobs. Jobs were first moved to “non-union states” and then to non-states to lower wages. This moved wealth production out of the country. It put pressure on wages. Over a period of only a couple decades the number of competitors each American saw for their job increased twenty-fold. Remember the law of supply and demand? If the supply doubles, the price will drop. If it goes to 20 times as much, it will plummet. There’s no practical difference between 20 times and an infinite number of times. If the number of workers available for a job doubles, the price will go down a bit. If it goes up twenty-fold the price will go to zero.

This is why, in my opinion, we see the percentage of business revenue going to wages drop from 60% to 50%. This is why we see workers earning one-half what they should be. The only reason it hasn’t gone to zero for everyone is that it is physically impossible to move all jobs out of the U.S., even all production jobs. Frying a burger at McDonalds is a production job, and it isn’t going to move to another county, because your burger would be cold by the time you got it.

I have made a number of proposals here on Daily Kos for how to address this. One is to establish an international minimum wage. Another is to institute higher and uniform tariffs.

But more broadly we need to link the Social Security debate to jobs generally and demand that our government take action on increasing the number of jobs, the number of production jobs, and the remuneration for those jobs. So, for example, a counter proposal to the Republican call for cutting social spending should be to increase the domestic minimum wage. If Republicans want people off government assistance then there’s a very easy and efficient way to get them off assistance: Make it unnecessary for them to go to the government to meet their needs. Raise the minimum wage and fewer people will need SNAP. Fewer people will need basic assistance.

Or, pass the Employee Free Choice Act. That will increase the number of people covered by unions, and therefore raise wages generally, and get more people off assistance.

Every additional dollar paid to workers in this country results in over 10 cents going into Social Security. If you want to strengthen retirement plans for workers in this country then the most effective way to do that is to increase aggregate wages paid.

A side note on Medicare: What I say here about Social Security generally applies to Medicare. However, Medicare has additional complications. A larger share of it has been covered by transfers from the general fund than for Social Security. One big reason for this is that medical costs are out of control in this country. I’ve discussed this extensively in comments and diaries on Daily Kos, especially concerning healthcare issues. To put it briefly, we pay about 50% more than our primary competitors in Europe (Germany, France and the UK) and about three times more than our primary competitors in Asia (China and India). That rate of overpaying must end to balance our trade. The only feasible way to get costs down to near-European levels is to end private, for-profit health insurance, which sucks up hundreds of billions of dollars each year in unnecessary costs. Increasing wages in the U.S. would go a long way toward solving the Medicare crisis, but a full fix requires making public the one-half of the U.S. healthcare system currently handled by for-profit healthcare payers and rolling them into a comprehensive, publicly-funded healthcare system.

Summary

Social Security is part of the minimum wage system. It forces employers, in the aggregate, to pay the lifetime living wage costs of labor. It is not government spending because it does not change the nature of the money used—it simply transfers it from one set of workers to another set, where they spend it on the same kinds of things.

Social Security is underfunded because we’ve let wages radically decline in the U.S. This is primarily the effect of unmanaged trade on our economy, which has reduced the percentage of money going to workers and depressed wages, as well as causing a higher level of unemployment.

To correct the chronic underfunding of Social Security and Medicare we need to focus on increasing wealth-production in the U.S. and bringing production back to this country. Doing so will automatically increase funding because funding is (and should be) directly related to wages paid.

I appreciate feedback on what I’ve presented here.

Also, please read and contribute to the Social Security framing page on Dkosopedia. Dkosopedia is the wiki for Daily Kos. This is part of a larger framing project intended to provide progressives with ongoing thinking about how to frame political topics to our advantage. You can learn about that project here and specifically about the mechanics of doing it here.

Originally posted to Liberal Thinking on Sun Jan 06, 2013 at 09:51 AM PST.

Also republished by Social Security Defenders and Community Spotlight.

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Comment Preferences

  •  Spot-on! (15+ / 0-)

    particularly that which I have bolded here. But this whole paragraph is a winner!

    ...this is another way of saying that Social Security funding is a marker for wages (and jobs). The fact that it is down compared to our needs is a reflection of the fact that wages are down and unemployment is up. (By my calculations, our trade policies have added almost 1% to the unemployment rate since the 1970s.) That Social Security funding seems to be inadequate to meet long-term needs is a sign that workers have been, in a word, screwed, for thirty years or more.
    Thank you so much for fleshing this out, too. It would seem to me that simply raising the cap--to about 175k, give'r'take a few thousand--would do wonders. I fail to see why many are trying to make this so complicated. It's not like we haven't raised the cap before now.

    There are those who want to do away with the cap altogether--I just don't see how that can be done without changing the fundamental nature of the entire program at this point. To me, that's an invitation for "Death By A Thousand Knives", and in the end, the banksters will get their wish--those who they own in our Congress will find other legislative ways to destroy this critical New Deal.

    It is time to #Occupy Media.

    by lunachickie on Sun Jan 06, 2013 at 10:04:39 AM PST

  •  I've just been having this conversation (7+ / 0-)

    here:

    http://www.dailykos.com/...

    Thanks for this excellent Diary

    I hope that the quality of debate will improve,
    but I fear we will remain Democrats.

    by twigg on Sun Jan 06, 2013 at 11:23:10 AM PST

    •  I Looked at That (5+ / 0-)
      Recommended by:
      Odysseus, radarlady, wbr, FG, J M F

      But I kind of think it misses the point. We aren't going to default on the debt to the Social Security fund.

      In the first place, if we have to default on the Social Security trust fund then the U.S. has much bigger problems than funding retirement. That means the government simply can't function. It's like this ridiculous notion that T-bills aren't the safest investment. If the U.S. is defaulting on its obligations that implies our society is already collapsing. In that case, you'd better head to Canada.

      Second, it would have a lot of negative consequences. In my opinion, if we did this arbitrarily that would call into question the full faith and credit of the United States. This might not have any effect for us borrowing money from others, but it would mean that you would never be able to make a deal like we did during the Reagan Administration, where we made a promise to the Baby Boomers that if they paid more we would take care of them when it came time for them to retire.

      The other reason is because it's unnecessary. What we need is to fix the trade policy so that we start increasing wealth production here. Social Security doesn't have to be leaking billions every year due to the trade deficit. We need to get rid of that deficit for other reasons, and that will start to repair the damage to Social Security, in any case.

      We need to let wages rise until the share of business revenue going to labor is back at 60%. Fixing wages and jobs automatically fixes Social Security funding.

      My advice is to ask about wages and jobs. The key fact here is that over 10 cents of every dollar paid for an increase in wages goes to Social Security without us changing a thing. Increase the amount paid to U.S. workers and you automatically increase funding for Social Security. If someone tells you Social Security will be short of money tell them that this only means workers will be short of income. How do we get income up for American workers? That's the important question.

      •  I really don't need to be told (4+ / 0-)

        to think liberally.

        My point, which I don't think I missed, is that the deficit is not all it seems, which is why the GOP ignored it for so long.

        When you start looking at the components of the deficit, immediately $2.7 Trillion is fake, and doubtless much of the rest is too.

        For example .... the mighty fuss that is our debt to China. It's nonsense, we owe China about $800 Billion, which is a very small percentage of the deficit.

        Now I am not suggesting that we can run the country with a structural deficit, but most of that is being caused by unemployment, and allowing corporations to trade using welfare for their staff to support their habit of paying crap wages.

        Deal with that and there really is no deficit issue.

        I hope that the quality of debate will improve,
        but I fear we will remain Democrats.

        by twigg on Sun Jan 06, 2013 at 05:04:12 PM PST

        [ Parent ]

  •  Because as you say, unemployment has increased (8+ / 0-)

    and wages are low, and I would add, many folks, mostly women, have worked all their lives, much of it at either "contract" jobs or low-paying waitress jobs or cleaning jobs, we need to do more for a system that has put too many older women on Social Security (10% of them) on poverty level benefits...and because wages (net) up to $400,000 have not had tax breaks locked in permanently...and because there is no justification, truly, for taking 15% of a self-employed person's income, if even only $400 per year, for we need to:

    **Explore ways to raise the floor of SS benefits for those currently at the low end

    **Reexamine the SS payroll tax cap and either raise it significantly or eliminate it entirely

    **Alter the COLA formula so that inequities are not perpetuated by the upper ends always getting more and the lower ends always getting less

    **Include food and fuel in cost of living calculations

    •  Food and fuel are included (3+ / 0-)
      Recommended by:
      Liberal Thinking, akmk, J M F

      The notion that they aren't is a myth apparently derived from some confusion between CPI and Core Inflation.

      In fact much of the substitution in Chained CPI is specifically within the food categories (the famed beef for chicken swap). The measure isn't THAT drastically contrasted with CPI-U or CPI-W by including food where they wern't

      socialsecuritydefender.blogspot.com - SocSec.Defender at gmail.com - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

      by Bruce Webb on Sun Jan 06, 2013 at 01:51:14 PM PST

      [ Parent ]

    •  Yes (3+ / 0-)
      Recommended by:
      akmk, wbr, J M F

      There are a lot of inequities in the system, especially for women. Correcting the low wage situation is my higher priority, but that doesn't mean I'd ignore any of this other part of the equation.

      If we got more money flowing to workers generally, then we might be able to drop the rates and still be able to maintain the critical elements of the system. Increasing the number of jobs and the compensation for them strengthens these retirement programs, but it also strengthens the economy generally and increases other federal revenues as well.

      Thanks for you comment!

  •  Thank you for this thoughful and informative. (7+ / 0-)

    diary.  I agree with your analysis, but I'm clueless as to how we can expect to see "wages rise," especially when we are likely only a couple of months away from major 'austerity' legislation being passed and enacted.

    A lot of folks forget that all the drastic domestic cuts from the 2010 Budget Control Act didn't 'kick in' until several days ago (Jan 1, 2013).  We haven't even begun to feel the effects of these cuts, much less the Trillion Dollar plus cuts being discussed now.

    I've heard on progressive radio that the average union automotive worker's wages have fallen drastically.  So I Googled, and came up with this from the UAW, at Wikipedia.

    . . . According to the 2007 GM Annual Report, typical autoworkers earn a base wage of approximately $28 per hour. Following the 2007 National Agreement, the base starting wage was lowered to about $15 per hour.[21] A second-tier wage of $14.50 an hour, which applies only to newly-hired workers, is lower than the average wage in non-union auto companies in the Deep South.[22] . . .
    Here's the link to Wikipedia.

    Now, "trade" is certainly not my topic.  But from what I've gathered reading at various progressive blogs, the "Asia-Pacific" trade pact makes NAFTA look like 'a piker.'  If this is true, considering the fact that unions, in general, have LOST ground during the past four years, how do we expect that wages can possibly rise?  (And I don't ask this to be contentious.  I am also very concerned about this issue.)

    IOW, the neoliberal agenda as I understand it, is the reason for the depressed (and further declining wages).  If further austerity measures are passed, many economists predict a spike upward in UE.  And historically, that further depresses wages.

    "Card-check" has all but been abandoned, as far as I can tell.  There was a brief period when I believe Durbin, Dorgan and Sherrod Brown were trying to work out a bill between the the unions, the White House, and Congress, but apparently, they didn't succeed.  And I've not seen it mentioned since their efforts failed 2-3 years ago.  [But maybe I missed it.]

    Again, thank you for bringing this topic to everyone's attention.  It is one of the most important of our time.

    [BTW, while we're at it, we need to push for a federal living wage, or maybe even a 'minimum ANNUAL income' which exists in some European countries.]

    Mollie

    “If a dog won’t come to you after having looked you in the face, you should go home and examine your conscience.” -- Woodrow Wilson

    by musiccitymollie on Sun Jan 06, 2013 at 12:23:50 PM PST

    •  Precisely the Question (4+ / 0-)
      Recommended by:
      ybruti, radarlady, wbr, antirove

      You are spot on. How do we get wages to rise, given that the pressure is really on now to do in the economy with austerity?

      The only way I can see is to change the terms of the conversation. That's why I have argued strongly that we should confront conservative memes head on by calling them out and establish our own talking point that the most important question right now is exactly this: how do we get jobs back and make them pay more?

      My goal is to put the facts to people so that they can see the truth about their wages and start linking that to all these problems. Specifically with regard to Social Security you can see here how depressing wages is what brings us to the point where Republicans can point at it and say, "It will go broke!"

      It doesn't have to do any such thing. But if the American people don't want that dark future then they are going to have to fight for better wages and more jobs.

      I think we should also put new agenda on the table. For example, Republicans just successfully extended the so-called right-to-work states to Indiana and Michigan. (I call them "non-collective-bargaining states", but it's not an ideal term.) I think we should put on the table the proposition that for those states where a union contract doesn't guarantee union workers at the company the union should not be required to negotiate for those non-union workers. This means that in those states where you don't have to join the union even if your company is a union shop you would not be paid the same if you didn't. This would put pressure on non-union workers in those states to join the union, thus raising union membership.

      I don't think the specifics of this proposal matter. What would matter is that the public would see liberals trying to move the ball in the other direction, instead of just defending rights we've already gained. We cannot continue to fight a defensive battle year after year. You see what it's brought us. A defensive strategy is a losing strategy. You can't hope to win all the battles, so if all you do is defend then eventually you lose everything.

      We have to go on the offensive.

      The easiest (and probably the most successful) way to do that is to change the discussion.

      Thanks for your thoughtful comment. I did not find it contentious. I think you are exactly right.

      •  I agree in general with everything you said, but (5+ / 0-)

        I believe that an important factor in the wage scandal is that actual production of wealth has been replaced by non-productive trading activities that garner the lions' share of income and wealth accumulation.

        The financial sector needs to be cut down to size. This would help re-establish some balance between what workers are paid and what executives collect for non-productive activities.

        •  Yes (3+ / 0-)
          Recommended by:
          radarlady, wbr, VigilantLiberal

          And when we try to do something about it, like Dodd-Frank, the Republicans howl and whine. They want to repeal Dodd-Frank and repeal Sarbanes-Oxley. These bills protect investors and they protect our economy (somewhat) from a financial meltdown.

          And if you said anything about a transaction tax, you'd be a Marxist, obviously.

  •  akmk, I can support all your suggestions. Getting (3+ / 0-)

    the 'political will' to do these things, will be a different matter (I'm afraid).

    Mollie

    “If a dog won’t come to you after having looked you in the face, you should go home and examine your conscience.” -- Woodrow Wilson

    by musiccitymollie on Sun Jan 06, 2013 at 12:37:14 PM PST

    •  Building Liberal Muscle (2+ / 0-)
      Recommended by:
      side pocket, wbr

      The political will has to come from the people. But I think people on our side have just begun to build liberal muscle after years of atrophy.

      Daily Kos is a key part of this. (That's one reason I contributed at the top of the year.) I think that our best hope is to build liberal community across the country. The Internet allows us to do that (in what I call "Al Gore's Revenge"). It's our way to counter the opposition because it allows us to do the equivalent of a think tank and a media outlet combined.

      One big advantage of community like this is that it allows the free exchange of ideas. That means that good ideas have the chance to get a fair hearing. In my opinion community always beats money. Once a community has decided something no amount of money will change that decision.

      Our goal should be to make the entire nation part of our liberal community. After that, we will have all the political will we need.

      Thanks for your comment!

      •  Thank you for both your replies. And I have no (1+ / 0-)
        Recommended by:
        Liberal Thinking

        argument with this, "Once a community has decided something no amount of money will change that decision."

        Mollie

        “If a dog won’t come to you after having looked you in the face, you should go home and examine your conscience.” -- Woodrow Wilson

        by musiccitymollie on Sun Jan 06, 2013 at 07:58:02 PM PST

        [ Parent ]

  •  Wonderful work. You nailed it. n/t (2+ / 0-)
    Recommended by:
    Liberal Thinking, wbr
  •  A quibble on framing (4+ / 0-)
    Recommended by:
    Liberal Thinking, ybruti, wbr, J M F

    I understand what you are trying to get across by saying it's not "government spending," but have you considered that going to these lengths to claim it is "fully within the private sector" feeds the Republican narrative that everything positive is "within the private sector" while everything corrupt and evil is "government spending"? One thing is certain--as long as the "private sector" controls everything, unemployment will stay high, wages will stay low, and Social Security and all other beneficial government programs will be under threat.

    "All governments lie, but disaster lies in wait for countries whose officials smoke the same hashish they give out." --I.F. Stone

    by Alice in Florida on Sun Jan 06, 2013 at 07:15:26 PM PST

    •  Thanks for Pointing That Out (0+ / 0-)

      I hadn't thought of that, either. It didn't occur to me that they would take this and then deny it's a government program.

      I'd like to see how they would handle it, though. What I'm saying here, in just about the most obvious and blatant way, is that capitalism is flawed and it can only be fixed by regulation of the private sector. In other words, without government regulation employers can and will exploit workers.

      What I think they'll actually do is label me a communist, Marxist, socialist liberal. The bad part of that is that it would lump me in with Barack Obama, who's clearly none of those things!

      Thanks for pointing that out. I'll be on my guard.

  •  Short-term fix: eliminate the cap, which will be (2+ / 0-)
    Recommended by:
    Liberal Thinking, wbr

    6.2% only on the first $113,700 earned within a calendar year. I get that benefits are capped, but the current levy poses a much heavier burden on the poor and middle class. Consider:
    A worker earning $25K/year pays $1,550, or 6.2% of total earnings, in Social Security withholding.
    A worker earning $250K/year pays $7,049.40, or 2.8% of total earnings because once the worker has earned $113,700, withholding stops.

    Why should someone who's fortunate enough to earn more than $114K/year be able to stop paying into the system?

    Borrowing from one of your ideas, another legislative fix would be a "surtax" on employers who benefit from the lower wages. Currently, employers pay into the system the same amount as the employee. Assessing employers an extra percentage point would raise their contribution to 7.2%. If applied to all wages and salaries, that 1% could add up.

    Another suggestion would be to expand the basis for the withholding. I think you pay Social Security only on wages and not on capital gains and other sorts of investment income ("carried interest?"). For the sake of tax fairness, as well as strengthening Social Security, we should abolish the favorable treatment given to capital gains and declare that income is income, it's all subject to withholding for Social Security - and Medicare! - and it's all taxed at the same rate.

    I realize that I labeled these "short-term" fixes because they could be enacted much more quickly than some of your proposals. At least, with a sane Legislative branch, that is. With our current Congress, reducing unemployment and raising wages might be more achievable in the short term than any legislative solution :-\

    I'm a Democrat - I believe that government has a positive role to play in the lives of ordinary people.

    by 1BQ on Sun Jan 06, 2013 at 09:00:44 PM PST

    •  Changes That Need to Be Made (2+ / 0-)
      Recommended by:
      1BQ, wbr

      I apologize in advance that this is going to be, well, wordy....

      First, I agree with you about raising the employer contribution. Actually, I'd raise it to 10%. Here's why:

      Since the 1970s, worker productivity has gone up over 80%. But workers have gotten none of that increase. It has all gone to the business side. I think it is fair to raise their contribution from the current amount to about 10%. This would increase their contribution by about 50%, which is still less than the rise in productivity. (Frankly, I'm just rounding it off to an even percentage point, but obviously you could raise it to 1.83 times what it currently is and get a more-or-less exact amount.)

      Not only is this fair, based on the profits they've pocketed, but it makes the point that wages have been suppressed.

      However, as for raising the cap or applying this to capital gains, etc., I don't think I'd do that. Here's why:

      Right now Social Security is a program for the retirement of workers. People who don't pay into it don't get benefits. If you make all your money from capital gains then you have not paid in and you don't get benefits when you retire. Likewise, if you are an investment banker and you make over $1 billion a year, you are only paying in a tiny amount (although you pay the full medical insurance tax, which goes to Medicare). In that case, you get the maximum payment for Social Security because you maxed out, but it is a pittance compared with what you are used to.

      But if we include a "payroll tax" on capital gains or we eliminate the cap, these rich people will want to be paid when they retire. Since they will have put in vastly more than the average worker, they will be entitled to vastly more from the system. This would create fights over how much they should be paid.

      In my view, Social Security is primarily to keep retired people out of poverty. It has done a fantastic job of that, reducing poverty among the elderly from something like 40% to more like 15%. It should not be the only way that people save for retirement if they are well above the poverty line when they are working.

      (The other thing, of course, is that I think the minimum wage should be strengthened as well. It needs to be much closer to the living wage. Doing that would not just mean more money into Social Security, but it would lift a bunch of people out of poverty while they were still working.)

      Also, if we straighten out wages and jobs then we will not be scrounging around for money to fund Social Security. Funding was not a serious problem until we unilaterally disarmed in the trade arena.

      So, let's just get the part working where people are paid adequately. And let's not include more rich people in the benefits. I'm trying to figure out how to induce them to be less of a factor! Right now, they're all in there screwing up our politics.

      •  On this issue, guess my opinion differs a little (1+ / 0-)
        Recommended by:
        Liberal Thinking

        bit.

        Since the "wage gains" have skewed so heavily to the top, I don't see the "unfairness."  IMHO, this is the neoliberal model (IOW, it is not an accident that this is happening).  And truly, I don't see this changing any time soon.

        The bend points can be adjusted so that raising the wage cap (not necessarily lifting it altogether) does not exponentially raise the benefit of wealthy tax payers.

        I don't have time right now, but if I can find it, I'll try to post a video of ultra conservative Bruce Bartlett being interviewed by Bill Moyers.  When asked "why" the push to eviscerate Social Security, he says that he figures it's simply a matter of the wealthy wanting to "pare down benefits," in order to avoid ever have taxes raised on them.  IOW, it's basically a preemptive measure.

        Personally, I believe that.  And I have very little sympathy for that point of view.  (Again, THEY have made all the financial gains for over 30 years.)

        BTW, I have also called for a very minor increase in payroll taxes (as a last resort) on everyone--say 1/2 to 1% max.

        Now, I'm certainly with you, LT, on wanting to see wages raised.  But that's a subject that's never even been broached by this Administration, as I can tell.

        And, if this Administration does enact cuts to Social Security and Medicare, I doubt seriously if the Dems will see the White House for years to come.

        [Look at how successful in 2010 and 2012 that the Republican Party has been in taking back "the senior vote."]

        I certainly don't expect a Republican Administration to raise the minimum wage, much less implement a living wage.

        Listen, I'm on your side.  We come from the same place.   And maybe I'm overly pessimistic.  

        But, I really think that the drive to cut Social Security is going to be relentless.  And in spite of all the White Papers from the 1990's, many of which suggest a very slight raise in the payroll tax, it appears that the PtB (Bowles-Simpson, Domenici-Rivlin, Gang of Six--or 8 or 10, now!), etc., all seem to disregard this policy.

        Thank you for all that you do on this issue.  It's true that the one thing that we can't do, is give up.

        Mollie

        “If a dog won’t come to you after having looked you in the face, you should go home and examine your conscience.” -- Woodrow Wilson

        by musiccitymollie on Mon Jan 07, 2013 at 08:25:46 AM PST

        [ Parent ]

        •  Yes, We're on the Same Side (0+ / 0-)

          You are right that the drive to cut Social Security is going to be relentless. In fact, it already is, and has been. That's why I think we have to link this to wages. By making this an argument about how we are going to raise wages we blunt their attack.

          In a way my pitch here is that it is unnecessary to tamper with Social Security because the only ills it has are a reflection of the bigger ills that come from depressing wages and cutting jobs. Quite frankly, if Social Security is going to go bankrupt then that means workers are going to go bankrupt.

          I'm disappointed in the Obama Administration. They don't seem to have any smarts about pushing back against Republicans. If they had they would have broached that issue at the start.

          Even so, I think it's up to us to make this the issue.

          As for taxing the rich, who have benefited enormously over the last few years, I'm with you on that. I just think we should separate that issue from Social Security and fight that on the income tax battlefield. My feeling is that we have a great case to make that the rich are not paying anywhere near their fair share of taxes. If they were, the group that owns 40+% of the wealth would be paying 40+% of the cost of our government. They aren't. They're paying more like 20%.

          By keeping Social Security about wages (and specifically the minimum wage) and about preventing poverty in old age, which is its core mission, we make it very difficult for Republicans to attack it. One of the reasons it's been the third rail of politics for so long is because it was put together so carefully. Disturbing that too much could lead to disaster.

          I say that as one friend to another.

      •  Good article and I especially agree (1+ / 0-)
        Recommended by:
        Liberal Thinking

        that you solve social security shortfalls by having more people paying into the system at higher wages.  However, I would raise rates on employers by keeping the employee cap but eliminating the employer cap and include all forms of executive compensation, such as stock options, as taxable wages.  Otherwise the public companies will shift executive compensation to non-taxable forms of compensation to avoid the new taxes.  This approach would counteract the reduction in employer contributions to social security caused by the employee compensation trends that are increasing the gap between executives (capped) and hourly employees.  

        Dedicated to recapturing the American Dream by changing the framework of the debate to focus on: Growth, Efficiency, Community, Sustainability and Economic Fairness. Improve constantly and drive out fear - Dr. W. Edwards Deming

        by Paradigm Change on Mon Jan 07, 2013 at 09:52:45 AM PST

        [ Parent ]

        •  Yes (0+ / 0-)

          I think there's a lot of merit in maybe keeping the cap on the employee contribution but eliminating it on the employer contribution. That would put more pressure on them to hold down outrageous executive compensation.

          But I do think we should not extend this to stock options and similar compensation. I'd prefer to move that to the income tax, where we can make the argument that it should be related to the amount of benefit that person gets from our government.

          As I said elsewhere, if we tax the rich for Social Security then they'll want out-sized payments when they retire. And there is no way to satisfy them. By divorcing them from funding the program we take away their strongest argument against it.

          Also, a huge part of the income disparity comes from mismanaging trade. If we fix that problem, the disparity will automatically come down. A much higher proportion of the economy will go to workers. (Imagine if we could move this back from 50% to 60% of business income.)

          There is no major funding issue for Social Security, especially if you fix the real problem, which is the radical decrease in money going to workers. My feeling is, fix what needs to be fixed while ending the attack on Social Security and then go after them on other issues where we have strong arguments.

          Thanks for your comment!

  •  Off budget (0+ / 0-)
    (Lyndon Johnson was reported to have added Social Security to the federal budget, in part to hide the federal deficit, since Social Security was running a surplus. The fact that it wasn’t even a part of the federal budget until the 1960s suggests that when it was set up it was not considered government spending.)
    Does this mean that we should also not consider the cost of the various Gulf wars as not part of government spending, as they have similarly been kept off budget?

    More to the point, as "government" has borrowed a great deal of money from Social Security, and the funds to redeem those loans will come eventually from general funds, I'm forever puzzled by the assertion that this is not government spending. It may be hidden government spending, but it's government spending nonetheless.

    •  False 'equivalence'. These wars do not generate (1+ / 0-)
      Recommended by:
      Liberal Thinking

      any funds to government coffers of any sort and always generate debt which Congress delays to recognize and reflect in budgets..  And no 'oil revenues' ever came in from defeating Iraq, not even to fund the costly US occupation or for the most expensive and expansive US embassy ever built.

      Social Security is funded 100% by the payroll contributions of workers and employers.  These funds which have been accumulated on behalf of Social Security for decades have been replaced by Congress's bales of IOUs, as bonds issued from the Treasury (at very moderate interest rates), so that the government can claim to have had cash on hand with which to pay for very expensive wars and other programs deemed by Congress necessary (but also refused to properly fund).  And such deceptive practice is always defended as an emergency which justifies this diversion.  We don't seem to stay out of war footing long enough to get our federal funding in order and give 'we the people' a long deserved 'peace dividend'--as if that's something that would be a magnanimous bonus handed us by Congress.

      The decades of IOUs mean the government (okay, we the US tax payers) is obligated to repay Social Security fund for the IOUs written, and to restore funds appropriated with interest in time to make them available to pay current obligations.  In a sense, we get taxed twice for Social Security. Once to provide the contributions needed to fund the plan, and a second time to repay ourselves for the funds Congress diverts toward its 'emergency' causes.  

      These aren't 'entitlements' as if some arbitrary largesse. These are past-due obligations due in full, and with interest, to US citizens/workers who are now disabled, widowed or retired, whose contributions while working were paid in full, with the good faith that government would ensure these paid to them when due.  We need to refocus the 'entitlement' and 'austerity' arguments on the problem that we are long past due providing COLA adjustments to Social Security recipients and upon the outrageous withholding from workers of their share of the gains in productivity, as wages and benefits, that have instead mostly gone to the top 1% as bonuses, dividends, asset values, etc.

      When life gives you wingnuts, make wingnut butter!

      by antirove on Mon Jan 07, 2013 at 09:39:44 AM PST

      [ Parent ]

      •  Equivalences (0+ / 0-)

        1) Then I take it you agree: the bales of IOUs are in fact going to be part of the budget, just not immediately.

        2) Your distinction between an entitlement (on the part of the citizen) and an obligation (on the part of the government) is mystifying. I'm guessing that you're confused because of the often-stated, yet false, claim that Social Security is some sort of insurance program with contractual obligations. It is not, a position that has been upheld by the courts and which was restated in Bruce Webb's posting.

        3) It may be that workers (all? some?) may not have proportionally shared in various sorts of productivity gains, but that is not an argument for anything except that they negotiate better in future. Certainly there is no legal or moral obligation that current taxpayers now be retroactively saddled with additional debt for some putative failure of either legislative or corporate policy in decades gone by.

      •  Couldn't Have Said It Better (0+ / 0-)

        I think you're abundantly correct on both points. Thanks for your comment!

    •  Social Security Is Not Government Spending (0+ / 0-)

      It doesn't change the nature of the money from consumer uses to government uses. It is just passed through from working workers to retired workers.

      The fact that the first thirty years or so of Social Security it was originated off budget and stayed off budget suggests that it was not considered government spending. It was not part of the federal budget until it became politically expedient to make it part. That doesn't change what it is.

      The spending on the wars did change the nature of the money used. It took money that would have gone to consumer products and spent it on military products. It literally changed the guns-to-butter ratio of that money. Whether you count it as part of the budget or not, it's still government spending based on its use.

      And finally, even though we will take funds that would have gone into the federal budget and spend them on Social Security, that still does not change the nature of the money. It will still be taken from someone who would have spent it on consumer products and given to people who will then spend it on consumer products. It is a transfer payment, not government spending.

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