Allan Sloan, Senior Editor at Fortune and a frequent Washington Post contributor, is usually a smart and fair guy with a knack for seeing through the usual DC economic spin. That's why it's particularly disappointing to see him get it wrong on Social Security trust funds, and in a way that provides ammunition to those who would do the wrong thing morally. Today's piece by Sloan is an excellent example of the arguments being used to justify breaking commitments to working Americans. So, even if that's not his intent, it's important to respond.
Sloan says that the $2.54 trillion Social Security trust fund -- money that the government borrowed to offset tax cuts, a couple of wars, and a whole host of other expenditures -- is "funny money" that looks real but isn't. He mocks this longstanding financial (and moral) obligation as a "Geithner bond," complete with the picture of a Monopoly-money bond with Geithner's face on it. (It's a handy rhetorical move to pin this on ol' Tim, since he seems pretty unpopular these days, but most of this debt was incurred in previous Administrations.)
Here's the example that's used as the crux of Sloan's "funny money" argument: If he and Mrs. Sloan begin collecting their Social Security when they become eligible this year, "Social Security would have to cash in about $3,400 of its trust-fund Treasurys each month to get the money to pay my wife and me." So, argues Sloan, the trust fund's accounts aren't "real money" at all.
This is important. Social Security trust funds will have an annual surplus of $77 billion in 2010 (because of interest earnings on bonds and certificates of obligation issued by the US Treasury), but payroll taxes alone won't cover the full cost of benefits. Sloan writes that Social Security will "tap" the Treasury Department to cover the $41 billion difference between tax income and benefits paid this year, but that's loaded language. Collecting interest on borrowed funds, or for that matter the principal, is not what we usually consider "tapping" (a slang word for borrowing or asking for money). Sloan's argument, as nearly as I can tell, is that the $41 billion isn't "real" because the Treasury Department might need to borrow to pay for it.
That doesn't make sense. It's an IOU. An IOU is both a financial instrument and a moral obligation. It's wrong to say that a government IOU has no value unless you expect the government to default. Why should a financial obligation to the future recipients of Social Security be treated with any less gravity than one to a bank or other lender? Banks consider the obligations the government has toward them very real indeed. Is Mr. Sloan, suggesting a bank-held Treasury bill or debt obligation isn't "real"?
Employees and employers paid into the Social Security fund for the sole purpose of providing these benefits. Politicians raided the kitty to borrow the funds for other purposes. We as a nation have an ethical responsibility to pay it back.
Here's another problem with Mr. Sloan's argument: That $41 billion is only 6% of the total benefits of $686 billion that will be paid this year. So Social Security would only have to cash in about $200, not $3,400, to provide the Sloans with the retirement security to which they're entitled each month.
And, as the Social Security Trustees reported this year, this year's shortfall is "attributable to the recession and to an expected $25 billion downward adjustment to 2010 income." We'll probably have another year like this one, followed by a couple of years of surplus. After that the plan will need to draw down on the IOUs for a portion of its payments under current projections.
The real shocker in Mr. Sloan's piece is this line: "The trust fund is of no economic value." Let's hope that nobody takes him seriously when he says that, because it could set off a panic. Bonds from the United States Treasury are of no economic value? They are, in fact, one of the safest forms of investment. What could he mean?
Apparently he means that they're of no value in reducing the deficit, since he bases that statement on this quote from the 2009 Trustees report (presented as if it were a smoking gun): "Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new income to the Treasury, which must finance (them) through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public."
It's true that redeeming these bonds doesn't reduce the deficit -- but that's the point. It shouldn't. And given that Tim Geithner is one of the Trustees, along with the Secretaries of Labor and HHS and the Social Security Administrator (two public trusteeships are awaiting confirmation), it's hardly surprising that this reminder was included last year. (It's not in this year's report.)
Mr. Sloan says that both political parties are "wrong" -- "the Democrats financially, the Republicans morally." But the financial argument for repaying the money is perfectly sound: Government bonds -- all IOUs, for that matter -- have real financial weight. They can't just be declared invalid, or "funny money," because the borrower now has other priorities and doesn't want to borrow to redeem it, even when the borrower is the nation itself. In the end, the argument that this money isn't "real" is morally mistaken, too. It's based on the premise that government debts to the Social Security fund have no ethical, legal, or economic weight.
"Let's not kid ourselves that a fat trust fund is the solution," writes Sloan -- but a solution to what, exactly? It's certainly not a solution to the Federal deficit, any more than the government's other debt obligations are. That's why it's wrong for Alan Simpson's Deficit Commission to be going after these benefits.
I hope Mr. Sloan comes to see the flaws in his argument. Social Security is a separate trust, a pact to provide benefits to the American people. Debts to Social Security are real and valid, and if they're not honored millions of Americans will suffer. That's why we hope Mr. Sloan will come to see that the "funny money" line, and the "gag" bond illustration that went with it, really aren't funny at all.
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Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Strengthen Social Security campaign. Richard also blogs at A Night Light.
He can be reached at "rjeskow@ourfuture.org."
Website: Eskow and Associates
Follow Richard (RJ) Eskow on Twitter: www.twitter.com/rjeskow
“THE BIG LIE: How Our Government Hoodwinked the Public,
Emptied the S.S. Trust Fund, and caused The Great Economic Collapseâ€
by
Allen W. Smith, Ph.D.
As I have stated many times in this book, the Social Security surplus funds were not invested in anything. All of the money was spent by the government on other programs, so there was nothing left to invest. What the Treasury does when it spends Social Security money on other programs is to create IOU’s to serve as accounting records of the money “borrowed†from Social Security.
Prior to 1994, the IOUs consisted only of accounting entries recorded in government ledgers or stored on computers. However, some members of Congress began to worry that someone might want to actually see the IOUs, so legislation was passed that required the physical printing of documents to serve as certificates of indebtedness, in addition to the accounting entry. Today, when a new IOU is issued, it is printed on a laser printer located at the Bureau of the Public Debt office in Parkersburg, West Virginia. Once printed, the document is carried across the room and placed in a fireproof filing cabinet. That filing cabinet is the closest thing to the mythical Social Security trust fund that exists.â€
Allen W. Smith, Ph.D., Professor of Economics, Emeritus, Eastern Illinois University
Website: www.thebiglielnet
It sounds to me as if Mr. Sloan believes that Soc Sec is going to "tap" the Treasury Dept.
AS IF Soc Sec never had those funds in the first place. Would not this be the very same
$41 billion difference thats included in the $2.54 trillion (that is now in a trust fund) that
politicians "tapped" the Soc Sec for to pay for their fun and games?
Or, to put it another way, Mr. Sloan is saying that the government shouldn't pay back the
money it borrowed from Soc Sec because its worthless, and besides, the government
needs this worthless money more than you do (the workers who paid in). So f**k you.
money it borrowed from Soc Sec"
That is not true. Allan Sloan is a strong supporter of Social Security, and he believes that the government should repay the looted Social Security money. In his Washington Post column, Sloan writes, "Given that taxpayers are bailing out the most imprudent companies and people in this country, we damn well should bail out Social Security, the mainstay of low-and middle-income people."
I have been trying to expose the Social Security scam for more than a decade, and I have received a lot of criticism and ridecule for being the messenger of bad news that people did not want to hear. Allan Sloan, one of the greatest business journalists of our time, has recognized the truth of my message and quoted me in his Washington Post column. As a result, Mr. Sloan has become one of the messengers of bad Social Security news (which happens to be the truth) and he is being demonized for telling the American public what they need to know, and have a right to know. The dirty secret of how the government has been raiding the trust fund and spending Social Security money on wars and other government programs has finally been let out of the bag by a highly respected member of the national media.
It is a cash cow and they want that money for their own use.
Social Security will always be in surplus, for the simple fact that most people die before they ever get out what they put into it.
If you don't believe me, all the statistics you need to prove it are on the government's own websites. Start with the census bureau.
It's amazing how so many journalists think that being objective means not taking sides.
“Instead of raising Social Security Retirement age we should be looking to lower it. Offering early retirement to those 55 and older even at a lower rate than the current 62 1/2-63 would help solve unemployment two ways, opening jobs for younger(cheaper) workers and getting the near retirement aged people off the Unemployment roles.It would also keep many of them in their present housing which will lower mortgage default/bankruptcy rates.Paying for this is simply a matter of removing the cap on earnings.â€
I wonder how clear the Republicans must make it for the American Public to finally understand that the Republicans in congress are not working for the people
We have paid in our entire lives. It is criminal to now suggest that we are just supposed to live in poverty simply because the government screwed up, especially when almost no one will hire anyone past 55.
I agree with nearly everything you said, texastrixie, but you missed something here. You stated that it is difficult for even a 55 yo to find a job. Consider this:
1.) Statistics prove that most people die before they take out even half - half! - of what they put into Social Security.
2.) Politicians "borrow" your money for their own use. The less you use, the more they have to "borrow".
3.) The older they make you wait to retire, the less you will use of your own "savings", therefore, we are very generously leaving more of our own money behind after death, for our illustrious "leaders" to use as they see fit.
Our government has very good reasons to raise the retirement age. They don't want US to use up too much of our own money. If we were to use more of our own money, there might not be enough left over to furnish our government's luxury lifestyles.
The statistics are available online at government websites and if you go to the trouble to check it out, you will see that I am telling the truth and they are not.
Social Security and Medicare are mandatory funding written into law. It is the military budget that is discretionary and can be and should be voted down.
To stop payment on social security benefits would be to defraud the American people. We could go to court and win on those grounds.
Raising the taxes on the rich is the smart thing that FDR did and the smart thing that Obama should do.
But who is this "you" who borrowed it? WE are that "you". In 1966, the total national debt was about $300 billion (.3 trillion). Today it exceeds $13 trillion. From 1966-1980 (14 years) it increased to 900 billion. From 1980-2010 (30 years) it increased to $13 trillion. Who was in charge over the last 30 years? Who had the largest voting block? The boomers.
Over that 30 years, we have allowed the government to borrow over $12 trillion, $2.5 trillion from Social Security. Effectively, we have borrowed that money. So now we say "pay us back our Social Security money?" Who are we telling to "pay us back"? We borrowed it.