By Michael Hiltzik: Don't let Paul Ryan near your money
Sunday, April 6, 2014 19:46
Sunday, April 6, 2014 19:46
There should be a rule – or even a law – that politicians who propose “fixes” to Social Security should at least show they know something about the program. By that standard, House Budget Committee Chairman Paul Ryan would flunk. What's worse, his misunderstandings – heck, let's go ahead and call them misrepresentations – are aimed at taking your money.
But what concerns us here is his description of the Social Security trust fund, which currently holds close to $3 trillion in U.S. Treasury bonds – all purchased with payroll tax paid by working men and women since 1983 … to bank excess tax revenue against the looming wave of baby boomer retirements, which has now begun … the trust fund is still growing because Social Security's income streams – payroll tax, interest on its bonds and revenue from income taxation of benefits – still are sufficient to cover current benefits, and then some. Ryan wants you to think different. Here's the passage in question, from page 66 of his plan.
“Any value in the balances in the Social Security Trust Fund is derived from dubious government accounting. The trust fund is not a real savings account. From 1983 to 2010, it collected more Social Security taxes than it paid out in Social Security benefits. But the government borrowed all of these surpluses and spent them on other government programs unrelated to Social Security. The Trust Fund holds Treasury securities, but the ability to redeem these securities is completely dependent on the Treasury's ability to raise money through taxes or borrowing.”
Let's examine the misrepresentations embedded in these 90 words by explaining exactly how the trust fund works.
From 1983 on, the payroll tax was increased to produce more revenue than was needed to pay benefits each year. The idea was to build up a reserve to cover the coming wave of baby boomer retirements. In effect, the baby boomers have been pre-funding their own old-age benefits.
The natural question was: What should be done with the money in the meantime? It wouldn't make sense to just place it under a national mattress, because inflation would have reduced the value of the holdings by as much as half over the last three decades.
The answer was to place the money in an interest-bearing account – that is, invest it for a yield above inflation. (This is the folly of Al Gore's old line about keeping the money in a “lockbox.” That can't be done because the lockboxed funds would turn to dust.)
That's what's been done. The money has been invested in U.S. Treasury securities, just as you might do by purchasing Series EE savings bonds, or TIPS. Why do people invest in T-bonds? Because they're the safest securities in the world. The U.S. has never, ever defaulted on them, though the tea party wing of the GOP seems to think that would be a good idea. The money isn't invested in corporate securities or anything else, because Congress hasn't allowed that.
The Social Security trust fund's bonds are backed by … the U.S.' “full faith and credit” as any other Treasury security. Keep your eye on that ball, because Ryan is going to try to palm it.
When one buys a T-bond, one is effectively lending money to the government, which then uses it to do things. So, yes, Ryan is correct in stating that “the government borrowed all of these surpluses and spent them on other government programs unrelated to Social Security.”
Right. On national defense. Two wars. Construction of roads, school buildings, courthouses. On the salaries of congressmen like Ryan. What of it? Was this money wasted? Hardly. The U.S. economy has more than doubled in size (adjusted for inflation) over that time in significant part because of the infrastructure and services provided by government – including with that borrowed money.
It's worth noting that under George W. Bush, the government also used those surpluses to preserve tax breaks for the wealthy by spending the borrowed funds on those wars without having to raise the income tax, which is predominantly paid by the wealthy. The payroll tax is predominantly paid by the middle class and the working class, so, in effect, the latter two classes have made an interest-bearing loan to the wealthy.
As I've written before, when you hear people like Paul Ryan talk as though the country can't afford to pay back the money by redeeming the bonds in the trust fund, what you're hearing is the sound of the wealthy preparing to stiff the working class.
If the income tax has to be raised to turn those T-bonds into cash for payment of benefits over the next couple of decades, that's how the rich will be made to repay the people who lent them the money. Some people love to claim that the government has “stolen” the trust fund. The correct reply to that is “Not yet.”
But if Ryan has his way, yes, the money will be stolen. It's up to you and me to make sure that doesn't happen.
So, to put all these pieces together, there's no “dubious government accounting” involved here – the dubious accounting is all Ryan's. The trust fund is indeed a real savings account, involving deposits and interest.
Yes, the government borrowed the money, and it has paid interest on it every year. And, yes, “the ability to redeem these securities is completely dependent on the Treasury's ability to raise money through taxes or borrowing.” What Ryan doesn't say is that the Treasury's ability to raise taxes and borrowing is effectively unlimited.
The most important factor is the one that people like Ryan want you to forget: The money in the Social Security trust fund came directly or indirectly from the payroll taxes paid by millions of American workers – 100% of it. It was paid by workers in the trust that the government would pay it back. Paul Ryan is hinting, pretty strongly, that he doesn't want to pay it back. So why would you trust him?