This effort is bizarre for several reasons

but it makes perfect sense if seen through the frame of naomi klein’s shock doctrine.

thank you for raising the issue – i listened to geithner’s testimony before the senate banking committee this week and i thought it was pretty clear that they were planning to come after SS (and medicare).

p.s. i think there is a small typo with big implications (should $80 be $80,000?).

p.p.s. though you were great on bob mcchesney’s radio program last week.

Must. Push. Back.

Tom Geoghegan has the right idea: RAISE Social Security benefits! Now that Americans who do have 401(k)s (not me!) have seen their investments plummet and their retirement nest egg house lose value, let’s do the right thing and INCREASE Social Security benefits. Baby Boomers have been paying EXTRA since the Reagan years for the bubble we represent, and now we’ve seen Wall Street steal our pensions.

We need to RAISE Social Security benefits, not decrease them. One way to start to do that is to eliminate the SALARY CAP on payroll taxes, so everybody pays on all the money they make. That’s a good start.

Mr. Baker, I have nothing pithy to say except this scares the crap out of me. thank you for posting this, otherwise I would have missed it.

Dean,

Isn’t it fair to ask — what will the bailed-out, recovered U.S. economy look like?

Like the U.S. economy from roughly 1946 – 1980 (manufacturing-based)?

Like the U.S. economy from roughly 1980 – 2008 (credit-based)?

Seems to me, if we don’t know where we’re going, how are we going to get there?

Must. Push. Back.

yup

dean baker

is that you?

great to have you on board

There’s a better approach, IMO.

Impose FICA tax on unearned (investment) income.

Let everyone contribute to social security.

Hard to see how SocSec at this time is going to be any less of a 3rd rail than it’s ever been before in the eyes of the people; to the contrary, I would expect holy hell to break out, and then there goes Obama’s leverage for getting anything else at all done, including the further stimulus rounds that everyone knows he’s going to have to come back and ask for. So to avoid eliminating the Administration’s entire ability to get stuff done going forward, they would have to have a really, really convincing story for why whatever SocSec changes they propose are going to actually significantly increase benefit disbursals from the system, and not reduce them. Maybe they’ll surprise us all and just raise the contributions caps — such a simple answer, and so economically sensible.

On the other hand, maybe they’ll try to have SocSec buy all the banks so we’re our own landlords.

However, unlike people who fail in other professions, economists who mess up on the job just get promoted so that they can do even more harm.

This has been a sore point with me as well. The very people who drove us over the cliff are the very ones Obama has turned to to fix the meltdown. Now despite their woefully inadequate and wrongheaded efforts on that front they are being asked to do what they do (screw things to hell) on entitlements.

If Medicare were folded into single payer universal healthcare most of its problems would go away. Why? Because insurance companies have been left to take premiums off younger, healthier workers while Medicare takes care of those who are older and sicker. And the overhead of insurance companies is several times higher than that of Medicare. Medicare has also been hampered in lowering healthcare costs for example by being prohibited from bargaining with Big Pharma for lower prices on drugs.

As for Social Security, the story is a little more complicated. Outlays will begin to exceed incoming revenues around 2017. The mythical Social Security surpluses are supposed to make up these differences up to about 2040. What I see with the Obama plan is an attempt to renege on part of this commitment. Why? Because these shortfalls will have to be paid out of general budget revenues meaning that the Executive and Congress will have less money to play around with. Now ways to address this is to cut benefits or make people work longer before they can receive benefits.

But as Teddy above noted, most or all of this would go away if the income caps were taken off of Social Security and if say a maximum benefit were instituted.

I have always had a lot of problems with the Social Security surpluses. I have seen them as essentially a backdoor income tax on the middle class. The government has already spent the money from the surpluses. In exchange, Americans got a commitment that shortfalls between 2017 and 2040 would be covered (out of general government revenues), a commitment that should have been there even if there had never been a single dollar of surplus. But what is so infuriating about this is that after the surplus money has been spent, Obama seems intent on reneging on some portion of the commitment that Americans have already and unnecessarily paid for.

Finally, going into a depression, there is nothing for encouraging demand quite like scaring a fairly defenseless segment of the population into hoarding and saving what little they have. Just brilliant!

count me among the scaredy cats. I just read Bob’s diary too and feeling really really panicked. I have two kids I hope to send to college next year. Why, I don’t know any more.

Recommended. We should remind our new President that Kommander Guy tried to steal our Social Security also. That was the beginning of the end for him. Even Social Security Guy now admits it was a mistake.

BUSH: I probably, in retrospect, should have pushed immigration reform right after the ‘04 election and not Social Security reform.

As for Social Security, the story is a little more complicated. Outlays will begin to exceed incoming revenues around 2017. The mythical Social Security surpluses are supposed to make up these differences up to about 2040.

first of all, the shortfalls were already addressed by clinton with greenspan, raising ss taxes, the surplus was LENT to the other programs as a method for future return

ss IS solvent IF the “programs” that ss funds were “invested” returned that investment

THIS MEANS GIVE ME MY MONEY BACK

those funds were “invested” in lowering taxes BY BUSH, that’s my money not theirs and I want it back

IN ADDITION

clinton lowered the national debt and created a surplus to SAVE debt service

BUSH gave that surplus to his friends in his REDICULOUS “lower the wealthiest’s taxes” scheme

that money is NOT theirs it’s the middle classes, get that frigging money back and BING

Dr. Baker, thanks very much.

Brilliant/s Just when the market and Retiree’s stocks are going down lets cut their benefits and force them to sell their stocks when the market is down.
Expect the market to go down more then. Expect poverty rates for Retirees to go higher.
Any numbers on how much the poverty rates for Retirees will go up in direct relation to a proposed cut if the Stockmarket stays the same or goes down farther as is likely?

I want poll numbers cutting Social Security or keeping up spending on wars in Afghanistan and Iraq?

We shouldn’t wait for the finding of the task force. We need to start protesting NOW. WTF is Obama doing?

Just why is a Democrat trying to study cuts in a program that works? Social Security keeps Retirees out of poverty.
The Army is supposed to win wars they haven’t I suggest we study them throwing money at a government program that isn’t working is a bad idea.

He has secret plan to get you back into a state of matrimony. /s

Dean Baker, thanks for yet another excellent post: I’m grateful for the information and knowledge you share with us.

The Rethugs and Blue Dogs bark about “saving” Medicare, but they roll over and play dead when responsibility comes around.

IANAeconomist, but I keep reading that Medicare Part D (as Hugh discusses above) and Medicare Advantage (the clever program the shovels out Federal subsidies to the same “Medigap” insurance providers that ran over each other to enroll seniors even without subsidies) are the two factors which have recently accelerated the Medicare Trust Fund’s dive into insolvency.

Corporate socialism kills. (Again)

Where is Maggie Kuhn? Rhetorical. She’s dead. But where is her 2009 counterpart?

Do we know that Obama wants to cut benefits?

The only thing Obama has said he wants to do, except for some vague assurances to the fiscal scolds about “entitlements,” is to raise the cap on Social Security taxes. He needs to keep his word during the 2008 campaign — and make it clear to Americans, and these elite fiscal scolds, that he means to keep his word. Make more-highly-compensated Americans (sure, add investment income in there as well!) pay for Social Security.

Would they rather we all riot at their homes?? Because that’s the alternative.

That’s best for republicans. That way people can buy stock at bottom dollar!

We don’t. But it seems to be a quaint American custom that when the chips are down (also stocks and moods and hopes), pols home in on ways to cut funding to children, people with physical and mental disabilities, and seniors. And poor people, which tends to overlap all of the preceding.

Maggie!!! *g*

But seniors are the most reliable voting block. I want to hear what Obama says before I assume he wants to cut benefits. Do we have anything definite?

Ech, I was just doing my eeyore thing. Hard not to lately.

Eli’s come
Peanut Pity Party

SS “reform” is even stupider than the Gregg appointment. Predict premature withdrawal. What are they thinking?

These economists have been wrong so many times that they are WAY overdue to get something right. Maybe we should trust them this time… /s

Heh, Fica on investment income, nice, but, as Teddy points out raising the salary cap to $250K alone is more than ample…!

Not you, barbara. This is the assumption of this post. I’m just wondering the basis for it?

Predict premature withdrawal.

barbara gnaws on own arm to keep from snarking. CHOMP

I’m stupid. What does matrimony have to do with this?

Messing with SS is a hornets nest the country cannot afford to go through in these difficult times. If PO wants to reform something, how about the ridiculous tax code? The IRS is as outdated as the FDA and needs to be trimmed down and brought into the 21 Century. Look at how many of Obama’s (possible) appointees had difficulty knowing which items to pay taxes on and which items to take tax deductions on. And they are educated professional and political people.

Seems like I just wrote a diary on this very subject about two weeks ago. Of course that was before the ‘commission’ was announced and now I am really really scared.

WTF are they thinking?

Do universal health care, remove the cap on FICA. Allow Medicare to negotiate drug prices and/or reimport them.

Presto. Problem solved.

Ha!

I like this post from Dec 2008.

Jello Biafra Writes An Open Letter To Barack Obama

HUMANE TAX REFORM

Please do not break your promise to raise income taxes on the wealthy and close those Titanic-sized loopholes that allowed two-thirds of US and foreign corporations who do business here to pay no tax at all between 1998 and 2005. We used to have a tiny tax on security speculation and stock transactions. Britain still does. If the annual amount of wheeling and dealing in the stock market really amounts to the reported $500 trillion a year, a mere 1% tax could raise $5 trillion per year and Wall Street would not even feel it! Other ways to raise badly needed revenue without hurting Joe the Plumber would be to tax companies who pollute, divert funds overseas, and ship jobs out of the country, as well as taxing stock windfalls rewarded by Wall Street for balancing the bottom line with employee layoffs.

Last September the Bush administration quietly dynamited Section 382 of the tax code allowing big banks to run off with as much as $140 billion dollars in new tax breaks that many suspect are illegal. Was this illegal? Please enforce the law and stop the bleeding now.

We could also follow the lead of Berlin, Moscow, Beijing, and even the state of Maine and encourage cities to start their own municipal or community banks. Being a non-profit, these banks would provide low-cost loans for homes and small businesses. They would also save cities millions of dollars apiece that they now waste on private banking fees.

Rep. Jan Schakowsky (D – IL) proposes generous tax breaks and shareholder advantages to “patriotic corporations” who limit management salaries to 100 times the lowest-paid fulltime worker. I think 10 times is better. Shareholders need better legal tools to limit runaway CEO pay and looting by top executives.

Schakowsky would also give tax breaks to corporations that: produce at least 90% of their goods and services in the United States; spend at least 50% of the research and development budgets here at home; stay out of employee organizing drives; are clean with the EPA, OSHA and the NRLB; and provide their employees with generous and portable pension funds and health insurance. They must also agree not to price-gouge consumers.

…

Taxes also wouldn’t hurt so much if the people had more say in where their money went. How about placing 12-15 categories in US income tax forms so people can vote what percentage of their tax money they want spent where? I’ll bet education, the environment, infrastructure, and services would go straight up and our bloated military cash cow would go straight down.

http://firedoglake.com:80/2008…..ack-obama/

For those of us who have had FICA taxes taken out for decades while working for others on a 50/50 employee/employer pay-in basis.

Or if self employed paying the full withholding tax just for being your own boss which for any small business cash flow velocity was not small spuds.

To now return to another round of “time to go after that wicked and far too successful entitlement American Federal SS program” after The Decider’s political capital expenditure after his 2004 “landslide victory” re-election. Those of us with working memories that go back to that happy time for G.W.Bush will recall how that worked out for Lil’Georgie.

By rights SS funds paid in by all Americans for decades to WashingtonDC should have never been touched for any purpose other than that programs long term actual funding security.

WashingtonDC however just could not leave the SS funds alone.Too much money that too easily could be taken and used for other WashingtonDC spending.

During the Reagan WH years WashingtonDC pulled a fast one and increased SS taxes while cutting income taxes for the top ten percent of Americans. Of course the reason for increasing SS taxes was to “stabilize” future SS funding because SS was “out of balance”. Right. OK. So. A Big Lie? OYah.

So now here in early 2009 with the thieves and bandits and scofflaws of Wall St. and Big American Banking getting billions of taxpayer money tossed to them with few strings–what now–why of course–go after SS again.

Meanwhile the CIA/Homeland security-Pentagon/M-I complex is raking off a easy trillion plus per year these days out of WashingtonDC/off of American taxpayers.

TARP funds? Hundreds of billions? Two page request form from Bush WH all it took to get these hundreds of billions.

Universal American Healthcare? These things take time doncha know?

Now go after SS/Medicare because we paid it in but we aint going to get it back cuz WashingtonDC blew it elsewhere or will not raise FICA to cover all labor derived income or put capital gains into the FICA tax pool.

The French had a messy revolution. Perhaps the first American Revolution was not messy enough.

Maybe time for a messy American Revolution.

WashingtonDC–a heads up coming your way. Or off with’em? Your pick.

All due respect to Dean Baker, who is no doubt far better connected than I. But….all through the last year we’ve heard rumors that Obama would do this or that – but whatever he was surely going to do — never happened. (yeah, I’d have to spend some time pulling up some links, but I’m already epu’d.)

Just saying, I think I won’t panic until/unless it happens.
The man does seem to learn – if this is true, he will get pushback from us and pretty much everybody but the wacko 23 per centers. And he’ll learn.

At least for now, that’s where I am. Don’t borrow trouble, somebody once told me. Got enough to deal with right now.

Is it possible that this group of economic losers is a case of Obama appointing thieves to catch thieves? In other words, if they find SS is OK, then it must be OK?

Mr. Baker,

If you are referring to Peter Diamond, you are missing your target. I don’t know Orzag, but Diamond is first-class, and is on our side. Apart from that, he is a first-class economist, Tobin-taught. He is not going to sell out social security. You have to remember that the context of the 2005 report was Bush’s victory in 2005 and his attempt the following 6 months to destroy Social Security. Orszag and Diamond were fighting a rear-guard defence against what looked like a possible thug destruction of Social Security. It looked worse than it actually was, because they didn’t understand how unconvincing the shrub was on the stump, and also Nancy Pelosi’s steel when it came to the crunch.

The only economists who want to do away with SS are the same old tired bunch that accumulate around Feinstein at Harvard (Mankiw), and the old chicago gang.

Check this out:
Five reasons ‘population explosion’ is world’s biggest economic problem

I thought Obama wanted to take the cap off SS? It’s grossly unfair that really rich people get to stop paying into SS at $90,000
The boomers paid DOUBLE under Reagan and subsequent presidents. Calling this program an entitlement is a mockery of so many peoples hard work. Stopping the gov from using it’s sticky fingers to loot the fund would be a good way to start the “reform”.

Obama just doesn’t come across to me as a guy who wants to let poor, old, sick people starve.

Take the cap off of 100% of wages and salaries. It ain’t like those taking down $250+ are going to feel it. Well…they might have to change vintages on their cases of Dom, but other than that…

The third reason that this effort is pernicious is that this talk of reform is occurring with the baby boomers just as the cusp of retirement. Due to the reckless policies of the Rubin-Greenspan-Bush clique, this cohort has just seen their housing equity wiped out with the collapse of the housing bubble. Tens of millions of baby boomers who might have felt reasonably secure three years ago are now approaching retirement with little or no equity in their homes.

Speaking of which, it is truly frightening. Thank God for the inheritance.

Obama’s obsession with social security and Medicare is all very simple. social security taxes having been paying for a ton more than social security for more than 20 years, including the little-dick republican obsession with the monster pork barrel military budget, paying for all their little boy blow shit up toys with our retirement fund. In other words there is nothing in the retirement fund and republicans are drunk as skunks on bloated unnecessary military spending.

So their fun with our retirement money is coming to an end where they actually would have to use most of the social security receipts on actually paying social security benefits. If the perfect cover man Obama can take away a chunk of medicare and social security benefit payouts, little-dick republicans can keep on buying their military pork toys for another couple dozen years.

The alternative, military downsizing just ain’t no fun for them at all.

Isn’t it fair to ask — what will the bailed-out, recovered U.S. economy look like?

I’m not Dean, but I’d like to comment here.

First, I’m surprised because earlier today I commented that there didn’t seem to be any interest in SS reform. Maybe they’ll just increase taxable income, increase payout and move on to Medicare.

What’s the economy going to look like after Obama’s first term?

Hmmm, I think it will be chugging away making profits and goods & services. I think the financial markets will be a lot less exciting, but a lot better regulated and will function a lot better. I think the ‘green’ economy will be moving along better and there will be more investment capital for it. I think the union movement will be doing better, but that it will take quite a while for it to really be strong — some things just take time. Unfortunately debt remains a very long time. Until families start earning more than they need to live they won’t be able to pay down much debt. Federal government debt and household debt will take a long time to bring down. But, with some good legislation it can at least begin to go in the right direction. Probably the most exciting prospect is in the area of international trade. The potential there is huge. With the dollar fairly weak we might begin exporting quite a lot and if we begin to cut back on oil we might cut imports of that to start getting our trade balance where it needs to be.

There are a lot of smaller things which might happen along the way, but as far as changing the course of the ship of state I think Obama plans to move forcefully and with great focus in all the right directions. Congress might have other things in mind, but since we have a Dem majority there shouldn’t be too much conflict.

Since the commission will take a while I’m thinking we won’t see results on that until late Summer or Fall.

Messing with SS is a hornets nest the country cannot afford to go through in these difficult times. If PO wants to reform something, how about the ridiculous tax code?

Priorities! Some things work well enough and don’t have to be ‘fixed’ just yet. Hopefully his idea of ‘fixing’ SS is something small. Work on tax system reform would be difficult and take a lot of time. Right now isn’t the time for it.

I told President Obama and most of the leadership in Congress how to fix Social Security without raising taxes retirement age or cutting benefits. I got not one response.
I suggested they start a well designed lottery to fund it. One with many small prizes so a person has a chance to win. If people knew that this would make it solvent and save the need for future taxes or cuts and give them a chance to win they would gladly buy tickets.
They would rather cut benefits and raise taxes than fix the problems and fund it. Stealing the peoples money in taxes is so easy why should they even consider a better way. We never seem to notice that they never fix one problem but only create more. We could never give them enough money to really start doing what was right for the Country.

Thank you for this article, Dean Baker. It is vitally important that we watch for any action on changes to the Social Security Act.

I retired from employment with SSA. By 1978 I was a Data Review Tech, calculating benefits, ensuring that all required documentation and evidences were in the file, coded and typed the award certificates, etc.
In 1978 Congress passed the 1978 Omnibus Reconciliation Act which changed the formulas for calculating benefit amounts entirely. It was sold with lots of big, tonguetwisting words to cover the fact that in the end benefits were lowered. Earnings were indexed and benchmarked at several levels and rounded down at each level. (stealing dimes from widows).

I read about it in the back pages of my newspaper. MY manager, asst manager, supervisors – nobody knew anything about it. The entire deal had slipped quietly through and become law. Don’t allow that to happen again.

They’ll come out with some Orwellian DC speak or Paulson bamboozle to try to sell some new benefit calculation formula – just say NO!

There would be no problem if Treasury had to replace all the ‘borrowed’ $$57 Trillion WITH INTEREST that it has taken from the SS Trust Fund. The reason it was set aside separate from the General Fund was to make sure it would not be looted and would only be used to pay benefits.

I apologize for the rant; I know what I’m talking about.

OT (sorta). James K Galbraith has a diary here at Oxdown. He tells it like it is and has no use for the non-plan plan of the Geitner Group. It’s a real honor to have him here, please drop by and leave a comment.

thanks

I have always had a lot of problems with the Social Security surpluses. I have seen them as essentially a backdoor income tax on the middle class. The government has already spent the money from the surpluses. In exchange, Americans got a commitment that shortfalls between 2017 and 2040 would be covered (out of general government revenues), a commitment that should have been there even if there had never been a single dollar of surplus. But what is so infuriating about this is that after the surplus money has been spent, Obama seems intent on reneging on some portion of the commitment that Americans have already and unnecessarily paid for.

Per the Wikipedia:

As of the end of calendar year 2006, the accumulated surplus stood at just over $2 trillion. [1] Projections are that current receipts will continue to exceed expenditures until 2017 (according to Charles Blahous, Special Assistant to the President for Economic Policy). Thereafter, there will be a shortfall that will be made up by withdrawals from the Trust Fund, although the Trust Fund will continue to show net growth until 2025 because of the interest generated by its bonds. [2] The Trust Fund will gradually be drawn upon to cover the difference between tax receipts and benefit payments. It will be completely depleted by 2042 (according to the Social Security Administration) or 2052 (according to the Congressional Budget Office). However, if the US economy performs better than the economic assumptions and projections used by the SSA and CBO, the trust funds may remain in surplus indefinitely.

It is my understanding that the Social Security surplus has been invested in U.S. Government bonds, which is considered to be among the safest investments in the world.

Saying that the SS surplus “has been invested in U.S. Government bonds” and that is “has already been spent” are two different ways of saying exactly the same thing, i.e., the government spends the money that it raises through the sale of bonds, which thereby creates an obligation that shortfalls between 2017 and 2040 [will] be covered out of general government revenues, which is the standard way that the government retires its (bond-based) debt.

But you knew all that. And what I don’t get is why it’s “infuriating.”

These attacks on Social Security are not simply at attempt to rob us of our money, but rather to get us to the all classes wellfare intrinsically tied to that of Wall Street: http://www.dailykos.com/story/…..455/618900

Broad ownership of deferred compensation plans has greatly changed how we view the stock market and made us more willing to take action that benefits the market. It’s likely that not only the $700 billion bailout, but much of the deregulation that made that bailout necessary, would not have been possible without the change in attitude created through deferred compensation plans. We were willing to let them get away with being weasels, because we thought we would gather part of the benefit from their activities.

This is, of course, an illusion. This impression that stocks are now in the hands of average Americans is a thin veneer over the situation as it has always existed. The median amount of money Americans hold in retirement accounts is around $35,000 – hardly a stock market bonanza — and even this number fails to capture the real situation. For Americans below the 60th percentile on income, the amount held in retirement accounts is around $15,000. For the top 10%, the number is $182,000. Similar numbers apply to direct stock ownership. Around 85% of all stock is owned by those families in the top 10% income bracket. The top 1% owns over half.

What Reagan said in 1975 is still true – a very small number of Americans own the means of production, while the rest work for them. The difference now is that we think we are among the owners, which has been a tremendous benefit to that handful of “real capitalists.”

They turned the pension system into a weapon that worked to their benefit, both at the bank and in the polling booth. Which is why they’re so anxious to do the same for Social Security.

Today in the NYTimes the new war on social security and Medicare starts in an article by a congressman, ostensibly bashing the stimulus as a portent of stagflation. His illogical conclusion is to ‘reform’ SS.

http://www.nytimes.com/2009/02…..4ryan.html

When all is said and done and the honorable opposition has collapsed ( phhhhhhtt!) the ‘Federal Bank of the USA’ will emerge as the nations largest and only trusted cash lender and it’s long term interest income will fund the social programs such as health care and added Social Security benifits. It’s a no-brainer!

Here is my reform:

No cap, but alternate pay in so that for every other 50 or 100K you pay in (and then the next chunk you do not).

I guess workers would have to pay on the first 100K (or 50) then the 3rd 100K, the 5th ..

Any more money needed look at the market for a transaction or dividend or whatever tax. That could be split in tenths of pennies and applied to the appropriate program.

Oh, and ”nationalize” the FED (duh).

Great point on younger workers paying into private for less care and older paying less to none into government for more care.

They have Nixon on tape saying what a great money making scam hmo was when they gave him an overview.

Trading caps would be a good approach. First remove the cap (totally) on contributions (this would allow the overall percentage contribution to be reduced) but place a cap on the other end (collection). That is you could receive SS payments up to say 150%-200% of the median (although mode would be best) cost of living beyond that level you receive nothing. Of course this would be even better if combined with a rational tax policy.

For personal income tax:

1) money is money is money regardless of how you ‘earn’ it (rates would still be progressive but the overall rates could be lowered or remain similar and take care of universal healthcare and/or higher ed

2) a single deduction that represents the modal cost of living (mCOL; for where you reside; these data are readily available and all cities/towns could be represented by a couple of dozen ‘brackets’)

3) the progressive tax brackets be based on multiples of the mCOL

4) limit dependant deduction (i.e., tax bracket based on mCOL for a given number persons not to exceed 4 people/family unit for 18-24 years max depending on full-time student status of dependant(s) – clarify no more than 2 dependants period to encourage zero population growth).

Individuals would not even have to file an income tax form they would get a statement and either a bill or a check. No deductions. No loopholes. Personally I would like to see one additional tax added and that is a consumption tax (for homeowners whose home exceeds say 3,000-3,500 square feet or so – exemptions given for ‘off-grid’ properties).

Then we could address corporate tax policy.

Saying that the SS surplus “has been invested in U.S. Government bonds” and that is “has already been spent” are two different ways of saying exactly the same thing, i.e., the government spends the money that it raises through the sale of bonds, which thereby creates an obligation that shortfalls between 2017 and 2040 [will] be covered out of general government revenues, which is the standard way that the government retires its (bond-based) debt.

I really think you are missing the forest for the trees here. Who did the government borrow this money from? The American people. What did it do with it? It spent it. Who will have to pay it back? The American people.

If you can’t see the scam in that, then further explanation is pointless.

But I will try anyway. Let’s forget for a moment the higher deficits or taxes the government would have needed if it had not had SS supluses to spend. Let’s look instead at the case if there had been no surpluses, if SS had been balance with inflows equalling outflows right up 2017. In 2017, the government could simply have said from now until 2040 we will use money from general revenues to meet any shortfalls. No surpluses or bonds would have been necessary and the same commitment could have been made.

It is for this reason that I say the surpluses are a backdoor tax. The same commitment could have been given if they had never existed. But they did exist and if they weren’t necessary for propping up SS then what were they for? To increase general government revenues, a backdoor tax.

This is the same reason that Obama and his advisers want to cut back on the 2017-2040 commitment, not to save taxpayers any money but to have general revenues to spend for what they want, and not be pre-committed to SS.

I hope this has been helpful. The key is that because the government is a party in this deal it does not operate the way such a deal might in the business world. There the borrowers and lenders are different. In the case of Social Security they are the same.

Obama Will Fight with Us to Quash the Campaign to Loot Social Security — Right?