A Real Lockbox for Social Security

[A18]

http://www.cato.org/pub_display.php?pub_id=3970

Do you know where your Social Security taxes are? Some of them went to pay for the National Cowgirl Hall of Fame and Museum in Fort Worth, Texas. The same monies helped the State Historical Society of Iowa in Des Moines pay for the development of exhibits for the World Food Prize. And we should all be happy that some of our Social Security surplus funded a study of mariachi music for the Clark County (Nevada) School District.

As we know by now, Social Security is facing many problems that will require long-term, comprehensive reform. But before a doctor operates on a patient, the first step is to stop the bleeding. And the first step toward Social Security reform should be to stop Congress from spending Social Security money on anything except workers' retirement.

The basic problem is that the way Social Security is currently set up, workers don't own their Social Security funds. Because workers don't own their money, Congress treats that money like its own: free to spend on whatever the members choose. And spend it they do, on everything from the war in Iraq to the International Fertilizer Development Center. In return, the Social Security Trust Fund is given a bond, essentially an IOU, which will eventually have to be repaid out of future taxes.

It's the ultimate insult. Congress spends our Social Security taxes then expects us to pay more taxes to repay its borrowing. To date, Congress has borrowed and spent more than $1.7 trillion of Social Security taxes. This year it will borrow another $60 billion.

This has been going on for more than 20 years, under both Democratic and Republican administrations. Members of both parties have resisted all attempts to keep their hands out of the Social Security cookie jar. In fact, some seem to be proud of what they are doing. House Minority Leader Nancy Pelosi says, "There's nothing wrong with Social Security lending money with the prospect of returning it … There is a surplus in Social Security, and under the law Social Security can lend that money to the government for other purposes."

As long as politicians have that attitude, the only real way to keep Congress from spending Social Security taxes is to get that money out of Washington. If Congress is going to insist on spending like a drunken sailor, then it's time for an intervention.

Now, Senator Jim DeMint (R-SC), Representatives Paul Ryan (R-Wisc.), Sam Johnson (R-Tex.), and others have proposed legislation to put the whole federal government back on the wagon. Their plan would rebate Social Security surpluses to workers in the form of contributions to personal accounts. The money would belong to the worker, in an account with his or her name on it.

This proposal would represent a true "lockbox," devoting that money solely to the worker's retirement. No politician could touch it.

The plan would have other benefits as well. Because workers would own the funds in their accounts, when they die they could pass money on to loved ones. And, without Social Security surpluses to hide behind, Congress would have to face up to the choices of running higher deficits, raising taxes, or, hopefully, spending less.

That's bad news for Mississippi catfish health research, but it's good news for Social Security reform.

[MODU]

Agreed.

[David S]

No argument from me.

[○∙◄☻¥tπ[╪AV┼cVê└]

In 2000, no money was borrowed from SS, and the rest of the government ran a $87 billion surplus (for a total surplus of around $240 billion). Too bad such a fiscally irresponsible President got elected. Now we are running $600 billion deficits, which include borrowing the $150-160 billion a year SS surplus.

[A18]

How about 1993-1997?

[○∙◄☻¥tπ[╪AV┼cVê└]

How about 1993-1997?

Yeah, it took a while to balance the budget after the fiscally irresponsible Reagan and Bush Sr. adminstrations, particularly because of the former. Democrats always have to clean up Republican's messes.

[A18]

I guess you missed the balanced budget standoff.

The '80s deficits were caused by an unexpected, drastic slowdown in the rate of inflation, which caused Congress to spend more money than it took in. Those deficits were also smaller than FDR's deficits.

Democrats in Congress actually approved larger budgets than Reagan proposed.

[○∙◄☻¥tπ[╪AV┼cVê└]

I guess you missed the balanced budget standoff.

The '80s deficits were caused by an unexpected, drastic slowdown in the rate of inflation, which caused Congress to spend more money than it took in. Those deficits were also smaller than FDR's deficits.

Democrats in Congress actually approved larger budgets than Reagan proposed.

Blaming the large deficits on a decrease in inflation is one of the lamest excuses I've ever heard. A decrease in inflation decreases the interest payments on the debt.

[A18]

Which is obviously more than offset when money is appropriated for each year based on expected inflation.

Reagan actually proposed smaller budgets than the Democrats in Congress enacted.

Real federal revenues grew at a faster pace after the Reagan tax cuts than after the Bush and Clinton tax hikes.

Huge dents in defense spending were fine for the '90s. Wasn't an option in the '80s, and isn't now.

[○∙◄☻¥tπ[╪AV┼cVê└]

Which is obviously more than offset when money is appropriated for each year based on expected inflation.

Reagan actually proposed smaller budgets than the Democrats in Congress enacted.

Real federal revenues grew at a faster pace after the Reagan tax cuts than after the Bush and Clinton tax hikes.

Huge dents in defense spending were fine for the '90s. Wasn't an option in the '80s, and isn't now.

The main cause of the deficits was large tax cuts and increased military spending. What's you're arguing about is probably just a few billion dollars, basically rounding errors.

Why was military so important then? In 1980, Senator Monyihan said "The USSR will fall in 10 years". It turned out everyone (except Senator Monyihan) vastly over-estimated the power of the USSR.

[A18]

There were three primary causes: (1) a large and sustained defense build-up; (2) the unexpected rapid decline in inflation; and (3) the recession in the early 1980s.

You like selectively ignoring facts. The GOP-Clinton budget standoff is one of them.

The fact that federal revenues grew at a faster rate after the Reagan tax cuts than after the Bush and Clinton tax hikes is another.

[○∙◄☻¥tπ[╪AV┼cVê└]

There were three primary causes: (1) a large and sustained defense build-up; (2) the unexpected rapid decline in inflation; and (3) the recession in the early 1980s.

You like selectively ignoring facts. The GOP-Clinton budget standoff is one of them.

The fact that federal revenues grew at a faster rate after the Reagan tax cuts than after the Bush and Clinton tax hikes is another.

I'm the one ignoring the facts? Reagan's tax cut cost the treasury a huge amount of money.

[A18]

Tax revenues almost doubled due to economic growth under Reagan. So yes, you're ignoring facts, as usual.

[○∙◄☻¥tπ[╪AV┼cVê└]

Tax revenues almost doubled due to economic growth under Reagan. So yes, you're ignoring facts, as usual.

Thanks to inflation, population growth, and that he was President for 8 years, and had an above average economy for being a Republican (still sh**tty compared to a Democrat).

[○∙◄☻¥tπ[╪AV┼cVê└]

Oh, and it didn't double. That's BS.
http://www.cbo.gov/showdoc.cfm?index=1821&sequence=0

[A18]

No, population growth and inflation do not explain the doubling of revenues. Again, you ignore that revenues grew at a faster rate after the Reagan tax cuts than after the Bush and Clinton tax hikes.

He had a better economy than any Democrat except Kennedy/Johnson.

1980: 517.1
1989: 991.2

[○∙◄☻¥tπ[╪AV┼cVê└]

No, population growth and inflation do not explain the doubling of revenues. Again, you ignore that revenues grew at a faster rate after the Reagan tax cuts than after the Bush and Clinton tax hikes.

He had a better economy than any Democrat except Kennedy/Johnson.

1980: 517.1
1989: 991.2

Reagan was President for 8 years, not 9. Quite a lot of that doubling of revenues is from inflation and population growth.

JFK + LBJ 1962(no data for 1961)-1969 almost doubled
Nixon+Ford 1969-1977 almost doubled
Reagan 1981-1989 increase of about 66%
Clinton 1993-2001 probably would have doubled without the Bush tax cut

[opebo]

It wouldn't be necessary to use regressive Social Security taxes for other purposes if we had a higher level of taxation for the wealthy.

[A18]

I was specifically talking about the rate compared to tax hikes, but okay.

Nixon and Ford had a much faster inflation rate. For Clinton, you can see that the growth in federal revenues came mainly towards the end of his term, and not after the tax hike.