Wednesday, December 26, 2012

Social Security: The Press-Citizen Column

December 26, 2012, 10:55 a.m. [Note: See the related, "Rappelling Down the Fiscal Bluff," “Social Security, Inflation, and Punishing the Poor,” and the "Addendum," December 27, 2012, at the bottom of this blog entry (a seven-point reply to an incoming email, providing an explanation why Social Security, and its trust fund, are an independent, stand-alone program unrelated to the "fiscal cliff" issues involving federal income tax rates and the budgets for federal programs).]

See also the January 7 letter to the editor in the Press-Citizen responding to two prior letters criticizing this column, ""Social Security and the Cliff: A Response," January 7, 2013. The text of those two letters, along with some readers' comments, are reproduced below.]

Proposed Social Security Changes Punish the Poor
Nicholas Johnson
Iowa City Press-Citizen, December 26, 2012, p. A11

Going over the fiscal cliff is no fun, but it’s our least-worst solution. For many reasons. See “Rappelling Down the Fiscal Bluff.” [Photo credit: multiple sources.]

Modifying Social Security illustrates one reason why.

I asked Sen. Hubert Humphrey what he told new senators. He said, “I tell ’em they need to give four years to the Lord, and then two years to get re-elected.” Today, few Washington politicians will give four years to anyone other than campaign contributors. But the newly elected might give us one year. Why hand our problems over to the lame ducks on Christmas Eve?

Wasn’t Social Security “off the table”? It should be. It has nothing to do with our $16 trillion debt, $3.8 trillion budget, or $900 billion deficit. And President Obama is getting precious little for this capitulation to the mean-spirited among us. The only winners so far are the White House visitors negotiating more corporate tax breaks.

Even if Social Security was on the table, and should be — neither of which is true — and even if there was an urgent need to fix it now — which there is not — there are fairer ways than benefit cuts.

(1) Raise the $106,100 cap on payroll taxable income. (2) Raise the tax rate by half a percent. (3) Impose a supplemental income tax on Social Security payments to the wealthy. (4) Further tweak retirement age-related percentages of benefits. But remedies aren’t needed now.

Even if inflation-index Social Security savings counted (which they don’t), at $12 billion annually they would provide trivial benefit to reducing our multi-trillion-dollar challenge, while striking an enormous blow to the elderly poor.

The Social Security Administration reports average recipient payments are $14,808 annually (half get less). And, “about 46 percent of (elderly) unmarried persons rely on Social Security for 90 percent or more of their income.”

When Sam Walton’s Wal-Mart stock declined by $3 billion, he calmly observed, “It was paper when we started, and it’s paper afterward.”

Dollars have no more intrinsic value than Sam Walton’s stock. The $10,000 house when Social Security was enacted (1935) is $168,000 today. The five-cent cup of coffee is $2 — a 40-fold increase. That’s “inflation.” That’s why the elderly poor, who’ve contributed to Social Security, need more than a fixed number of dollars. They need enough inflation-adjusted dollars to buy what they could buy with the benefits they were initially provided.

The inflation index matters.

The conventional consumer price index (CPI) prices a basket of goods. The Republicans’ “chained CPI,” which President Obama is offering, assumes if they’ll use cheaper substitutes, their inflation index need not go up.

AFL-CEO President George Meany once told me it all comes down to “who gets the pork chops and who gets the beans.” I guess seniors don’t need to eat meat so long as they can still afford beans. How many corporate CEOs, university presidents or school superintendents would buy this argument? “You don’t need an inflation adjustment. Just send your kid to a cheaper college; rent that summer home instead of buying it; drive that car another three years; wear blue jeans instead of $2,000 suits; make more meals at home. You’ll be just as well off.”

There are cuts that would reduce the deficit. Like Defense. Cutting Social Security won’t. Giving billions to weapons profiteers and beans to grandma makes no fiscal sense either morally or militarily.

It’s appropriate to fashion an inflation index more precisely for the elderly poor. In fact we have one: “the elderly index” (with more weight on health costs, it would increase, not decrease, their rightful benefits). But that’s neither what’s being offered nor what’s going on here. The negotiators are simply cutting costs to cut costs — and in a program that’s irrelevant to the deficit.

What’s that line about “God loves the poor”? I sure hope so, because it’s becoming increasingly obvious that our elected officials don’t.
Nicholas Johnson has written more on this topic at “Social Security, Inflation, and Punishing the Poor.”
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Addendum, December 27, 2012

Based on some reader comments on the Press-Citizen's online presentation of this column, and a personal email, a restatement of my position may be useful.

Here are excerpts from the incoming email (author's name omitted, as I have not yet requested, or obtained, permission to use it):
I don't disagree with several of the proposed ideas for shoring up Social Security's finances, [but] I must strongly disagree with [the column's] premise that Social Security is a "standalone" program that doesn't contribute to the deficit. That's an old Democratic talking point from almost two years ago . . ..
Here is my response:
1. First off, let's distinguish two categories of federal public programs. (a) Most, and those most appropriately on the chopping block, are supported by the federal income tax. Examples: the entire federal judicial branch and Department of Justice; the entire legislative branch; the Defense Department and almost all other executive branch departments and independent agencies. (b) Others are supported, at least in significant part, by a designated and dedicated revenue stream. Examples: the highway fund (gasoline tax) and Social Security (payroll tax). I don't know how much of the National Parks budget is provided by entrance fees (they were free in the 1950s), but that might be another.

2. What the "fiscal cliff" is (or ought to be) about, at a minimum "primarily about," is matching the revenue stream provided by the federal income tax and the programs that revenue is used to support -- along with what is borrowed from the Chinese (and Americans) to make up the difference when income tax revenues aren't enough to cover those costs. That's why the dialogue has been about "tax increases" and "program cuts."

3. Interest on the national debt is $432 billion a year. That is an "expense" that needs to be covered with federal income tax revenues. It is not. We are running deficits that annually add to the national debt. We have to pay that interest if we don't want to suffer the consequences of default. So we have to borrow more to pay the interest on what we borrowed before, thereby increasing both the national debt and the annual interest on that debt.

4. During the years that Social Security's revenue stream exceeded its outflow of payments the resulting reserve had to be invested somewhere. It was invested in U.S. Government bonds. Those bonds earn interest. That interest contributes to its revenue stream. If past and present presidents and members of the House and Senate were irresponsible enough to fail to raise income tax rates sufficiently to be able to cover those interest payments when they became due, that is not really the fault of those administering the Social Security Administration, those paying in, or those receiving benefits.

5. When it is asserted that Social Security is good until 2020, or 2037, that is not to say that its revenue from the payroll tax will be enough to cover all payments during those years, it may be only to say that the payroll tax revenues, plus drawing down on its investments in government bonds over the years, are enough. This is analogous to the finances of a construction worker, or farmer, who (hopefully) has a reserve to carry them through hard times; sometimes the revenue stream will be more than they need, and some can go into savings and investments; other years the revenue will contribute, but won't be enough, and they'll have to draw down on those savings, set aside for that purpose.

6. Now it is apparently the case that, whatever the year may be, a time is coming when the reserve will have been totally depleted and the revenue stream will not be enough to cover the promised payments to the retired recipients -- especially since the payroll tax was reduced by one-third! There are many ways that this can be fixed. Some are itemized in the column. But these are challenges that arise within, and can be resolved within, the Social Security system. They are unrelated to federal income tax rates.

Note that the highway trust fund has a similar challenge. It's dependent on the gasoline tax; that's a "user fee" of sorts: the more you use the highways the more gas you buy, and the more gas you buy the more you will contribute to the construction and maintenance of the highways. The problem? When mpg is increased by 50% to 100% or more, less gas is sold -- and the hybrids and coming electric cars buy little or none. What to do? One proposal is that a fee be levied on drivers based on miles driven, rather than gas purchased (an option on which I don't mean to be expressing an opinion). The point is, that the highway fund's challenge, and potential solutions, like those confronting Social Security, don't depend on federal income tax rates or total revenue either.

Both need to be addressed. But neither is properly a part of a fiscal cliff discussion regarding the setting of federal income tax rates (or other tax reform proposals) or the budgets of agencies without their own revenue streams.

7. If the federal government is paying interest on the money it has borrowed from the Social Security trust fund I don't think that can fairly be cited as a "cost" of Social Security being paid for by federal income tax payers. That is simply a part of the cost of the federal government's having borrowed money in the past (rather than raising income tax rates high enough for a pay-as-you-go funding of wars and other expenses) -- regardless of the creditor from whom the money was borrowed.

And if the federal government is, actually, transferring federal income tax revenues above and beyond the interest payments owed to Social Security, that is also not the fault of Social Security. The Social Security Administration does not have the constitutional or legislative authority to revise itself. It must look to Congress to make revisions in the formulas, if any are urgently needed now. But the options available for doing that involve neither federal income tax rates going up or down, nor cuts or increases in the funding of federal programs that do not have their own revenue streams.

The following Letters to the Editor, criticizing my column, were published in the hard-copy editions of the Iowa City Press-Citizen January 2 and 3, 2013, and are reproduced here in accord with my belief in what used to be the F.C.C.'s "Fairness Doctrine" (now repealed). Needless to say, I disagree with much of what the letter writers assert, for reasons outlined in the column, the seven-point "Addendum" of December 27, 2012, set forth immediately above, and in the prior blog entry, “Social Security, Inflation, and Punishing the Poor.”

Local columnist plain wrong on Social Security
Brenton Smith
Iowa City Press-Citizen, January 2, 2013, p. 9A

Nicholas Johnson’s recent guest column (“Proposed Social Security changes punish the poor,” Dec. 26) is a combination of misstatement of fact and faulty logic.

• First, Social Security did add $103 billion to the 2011 federal budget deficit to pay for payroll tax holiday. It has added to the budget deficit every year since the mid-’70s when the government created the EITC to offset the high cost of payroll taxes for lower wage workers. By law Social Security adds to the Federal budget deficit every year.

• Second, Johnson states that savings from indexing benefits would fall on the elderly poor. Social Security benefits are connected to past contributions, not need. The majority of the changes would hit those who contributed the most in the past — in other words, high wage earners.

• He concludes that a fairer way to change Social Security is to punish the young by raising taxes on workers. This version of fair means that we take from those who get the least from Social Security to give to those who have taken the most. Specifically, the Urban Institute research shows us that the returns of Social Security have declined every decade over its 77-year existance. According to its research, people who retired before 2011 collected a positive return; people retiring after 2011 lose a progressively larger amount.

The writer is right about one thing: the savings from indexing benefits will not reduce our deficit. It will help perserve the system for the elderly poor in the future, ones who will be subjected to much more severe cuts than what we are proposing today.

Brenton Smith
Marietta, Ga.

Here are the Press-Citizen online readers' responses to Smith's letter (including my own, only because it is helpful to put in context the comments of the other two readers):

Nicholas Johnson · Top Commenter

I welcome -- because I have tried to encourage -- public discussion of these issues, including this letter writer's, and others', criticism of some of my points. Indeed, I have now reproduced his letter within one of my blog entries on the subject.

However, since I have already addressed most of this letter writer's points, there is little to be gained with perpetuating a 'Tis-'Tain't series of exchanges in this Press-Citizen comment space that merely repeat what's already been said.

For any readers who would like more on the subject, if such there be, I'll simply refer you to two prior blog entries (one of which includes the earlier Press-Citizen column to which this letter writer is responding, as well as his letter):

"Social Security, Inflation, and Punishing the Poor," Dec. 19,

"Social Security: The Press-Citizen Column," Dec. 26,


Bob Vander Beek · Top Commenter · Case Western Reserve University

Thanks, Nick, for directing us to both. At risk of delaying anyone following that more extensive coverage by adding here, much as I try I can't figure out his explanation that SS does contribute to the deficit. Yes, money was taken from SS to offset the payroll tax holiday. Yet any way I look at that it was taking from SS to lessen the budget deficit.

Reply ·

Sam Osborne · Top Commenter

Social Security does not have a return on investment problem; it has an obligation of return of the investment that has been made by those that have built and maintained the society from which the current generation benefits by being able to work in support of themselves and loved ones, in the continuance the system and in payment of the user fee they owe those that built what they enjoy and will pass on in good enough shape to collect their user fee.

The right-wing propaganda in the above letter salves pretence of some wannabe moneychanger and the real interest of plutocratic government of the few, by the few and for the few. This letter does so in hiding disregard of the fact that Social Security (SS) is not a debt problem as the confabulator pretends. In fact the SS Trust Fund (SSTF) is owed money and has kept the national debt, that Republican pretend to moan about, from even being greater by 2.8 trillion dollars.

This is the amount of SSTF money spent for general government outlays---funds from a “wonderful” flat tax paid in full by working people making under $116,000 per years, but escaped by the rakers-and-takers on the huge portion of their income above the cap. To wit, on the 12 million Mitt Romney finally reported as taxable income, he did not pay any on $984,000 of his rake and take that a blind trust supposedly keeps him from even knowing how he got it.

So SS not only pays its way in terms of benefits paid out to recipients, its SSTF potion paid in has also been paying the nation’s bills in uncompensated but extended benefit to the 00.006% few that have hoarded the nation’s wealth (like Mitt). And the hoarding is been done in compound expense of 99.994% of the American people that make up a declining middle class, working poor, totally destitute and younger generation trying to get a start from under a huge pile of educational debt.

It is time to do away with the trust fund as excess flat tax and remove the cap so all pay FICA in full. This will reduce FICA tax for the people that actually work as the heavy lifters that keep our nation going and growing. SS is and has been more than sound and will run just fine as the user-fee it was intended---hereby the current working generation pays the fee to the retired generation that built and maintained the system from which the next generation can make a living.

This works just fine as long as we are willing to share the declining amount of work that manually needs to get done in our land. Due to automation and robotization we increasingly do not have a shortage of workers, we have an increasing shortage of manual labor jobs that need to get done and should cut the work week to 30 hrs and raise the minimum wage so that this great nation can continue to do and be as it was founded and fought for:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.” ~ July 4, 1776


Johnson Refuses to Accept Reality
Tim Borchardt
Iowa City Press-Citizen, January 3, 2013

I read Nick Johnson’s recent column on on Social Security. With Johnson as a University of Iowa law professor, it is easy to understand why the quality of education in the U.S. is in decline. Johnson fails to recognize the fundamental truths. People are living longer. We are taking more out of the Social Security funds than we are contributing. When Social Security was passed into law it was a supplement to a retired individual’s income.

I believe every individual has the right to collect what they have paid in. Once they have collected 95 percent of their contributions, they need to be means-tested.

There are real solutions to this issue. I find it very difficult to recognize Johnson as an expert when he refuses to except reality.

Tim Borchardt
Iowa City

William M Duffy · Top Commenter · Owner/Partner at Stuart, Carmen and Associates It is ironic that a man that uses the word "except" when the correct word is "accept" has the audacity to imply that the person he is in disagreement is a bad educator or, in effect, stupid.

Sam Osborne · Top Commenter It is easy to care little about what a letter writer thinks in a missives that reflects such little regard for the wellbeing of others.

When someone so easily can verbally displays such little regard for others, it is equally easy to give little regard to what they think. And most easily so when what they have to say reveals itself to be a product of the kind of poor education that the letter writer tries to make the responsibility of another.

Unbeknownst to this letter writer, Social Security is not and never has been a savings account. It is a user’s fee paid by the current generation to the previous generation that built and preserved the culture that enables the citizenry to continue to provide food, clothing, shelter and a bit of leisure for themselves and the ones they love.

Social Security was enacted in the depths of the Great Depression---times far more dismal than the present period that has been made less dismal because of the kind of General Welfare provisions in the Social Security Act. When President Franklin D. Roosevelt (FDR) signed it into law only a relative handful of citizens had any private pension fund (which is still true for many today). And if they did not come of family connections to the kind of 00.006% wealthy of the day, they had no one to turn to for a handout or up. And, charities were as hard pressed then as they are now. They just could not take Mitt Romney’s advice and ask mom and pop; so a bulk of Americans (Mitts Romney’s 47% or the 99.994% that increasingly must just try to make end meet) were doomed to later years of uncertainty in certain hardship---as FDR described it, "poverty-ridden old age."

Thanks to FDR's commitment to the Constitutional principle of the General Welfare, Americans that have done the heavy lifting in our land get paid their monthly Social Security user’s fees, disability benefits that include the blind, and unemployment assistance funds administered by the states.

In doing this the Socials Security Administration is run with the lowest administrative overhead of any public or private organization I the world, a 1% of its total cost. Thus it is the bargain portion of administering funding for the Medicare and Medicaid programs and it paid for all medical service directly the nation would have billions for more extensive health care for all.

In signing Social Security into law in 1935 FDR in his words saw it “a cornerstone in a structure which is being built but is by no means complete.”

This great president prefaced this expression of faith in a future, progressively passed by the Greatest Generation into our hands, with a recognition that what had been done then would for us and our posterity always be a work in progress---as with the Preface to the Constitution’s intent “to form a more perfect Union”---best we ever know it comes dropping slowly:

“We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.”

So today, as we mull over what we have read in the newspaper, it is up to us. Do we adopt the dismal view presented in some dismal letters like this and thus follow them as a self-fulfilling prophecy of what will become dismally true? Or do we move on in the spirit of being a generation as caring and engaged as the Greatest?

Coming from an Irish heritage that had an appreciation of a story so good that you hardly needed to add to it, but realizing that a good one was even better with a bit of improving on the truth, when we reflect on our history, be it personal or as a nation of people, we tell ourselves and others who we are and who we want to live among. I like Nick Johnson and all the many others with whom good fortune lets me travel life.

Like Nick and many others, I too wish no one ill. And likely a bit less caring than Nick and some, I am content to distantly encounter a dismal few so that they can live alone as miserably as they seem content to let others suffer want alone. But, I’d go to a White House Beer Summit and share one wit’ ‘em---hey, am I really a nice guy, or what? Meantime, I do not care to live in this letter writer’s dismal reality.

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[Note: One of the purposes of this blog is to provide, if not permanent access to my published newspaper columns, at least relatively more permanent access than is usually provided by newspapers. The column obviously draws from the blog entry “Social Security, Inflation, and Punishing the Poor,” originally posted here a week ago, December 19, 2012. The challenge was to see if there were 650 words somewhere among the 2179 that make up that blog entry that could capture enough of the essence of it to be worth publishing as a column. The answer to that, of course, must rest with others than myself.]

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