NOTE: This thread requires some basic knowledge about Social Security. if you don't know much about how FICA works, how Congress budgets the SSA, how the surplus accounting and trust fund work, please inform yourself of these basic facts. It's well worth it but may infuriate you.

Now, to the main point.

Over the years, some pundits and politicians (of all stripes) have suggested that the payroll tax revenues should be increased in order to shore up social security. Some have proposed raising the FICA rate and some have proposed lifting the wage limit.

This is something that
both Carter and Reagan perpetuated and here's a more recent
proposal along the same lines.

Here's the facts

1. The social security program currently runs a surplus.* citation

2. The "surplus" is spent and replaced with congressional IOUs which are, in effect, promises to make up future SSA budget deficits from general tax revenues**. citation

4. Therefore, if we increase the social security surplus by taxing earners more heavily now, the increased surplus will be spent as usual and Congress's debt to the trust fund will increase. Not only is this indisputable, it's the LAW (see SS Trustee's report - easily accessible via ssa.gov)

5. Thus, increasing the surplus will in effect take more money from today's workers while doing nothing to alleviate the burden on future workers, as congress will still have to make up shortfalls in the future from general fund revenues regardless of how big or small the surpluses are today. That's right, there will be no difference at all to social security's budget future if we tax people more heavily during surplus years.***

So, when someone claims we must raise payroll taxes in order to save social security even though we currently have surpluses (as Reagan did and some other guy is now proposing) ... you'll have to decide for yourself if they are lying to you, if they are just confused, or if something else is going on.


* the connection between FICA and the SSA budget is tenuous, so the "surplus" is actually illusory, but we'll accept the concept for now.

** this is also a bit misleading as Congress is the one that sets the budget for SSA and allocates it from the general fund anyway.

*** there is another perspective on this held by some that posit congress would spend as much as they are going to spend anyway, and thus they'd just run higher deficits if they weren't collecting and spending FICA surpluses. This is debatable but even if true it in effect makes the FICA surpluses a tax on the poor to the benefit of the rich, since future trust fund debt will be repaid from non-FICA tax revenues and the rich bear the brunt of those. So, Congress might as well borrow that money from investors now rather than borrow it from the SSA which is (tenuously) connected to taxes collected from the working poor. Increasing this disparity by raising FICA would only make this travesty worse. Of course, some people like myself actually believe that congress would spend less if it couldn't obfuscate 600 Billion worth of borrowing per year, and any attempt to raise FICA during surplus years is just a specious gambit to maximize the game at the expense of the working poor while claiming to be doing it for their benefit. It's absolutely brilliant, albeit evil. I am *not* pointing fingers at Democrats because both parties are complicit in this.

Since the Reagan-era payroll tax increase, $2,000,000,000,000 supposedly going towards social security "solvency" has been spent on other things.

As natedogg correctly points out, the payroll tax hurt those least able to afford it the hardest; economists of all political stripes agree that the tax is actually double what your paycheck shows it to be, since your employer matches your contribution.

People as far from each other on the political spectrum as andyfox and natedogg agree that the system is a sham, a travesty, and a crime. Which is probably why the "solution" will likely be more of the same.

Three guesses who "fixed" the SS crisis in 1980 by raising payroll taxes when they came close to abandoning the godawful thing the last time it was about to go broke.

I'll even give you a hint: He is also the head architect of the world's current economic collapse.

By the way, has anyone pointed out that the budget deficit this year is going to have to be around a trillion bucks?

I think we could concede all of the OP's points but still argue that increasing the payroll tax now is better than raising it 20 years from now when the budget shortfall is manifest and approaching closer on the horizon. If a rate increase is inevitable (and I'm not asking anyone to grant this premise), but if it is inevitable to keep SS solvent, the question becomes is something like: "is it better to raise the rate a little bit now or a whole lot more later?", and I'd argue that the former (a smaller increase now) might be more prudent policy than the latter (a larger, steeper increase in the rate in 2025 or whatever). Again, I think it's legitimately arguable, but I think recognizing that the OP is correct about surpluses being spent and IOUs written is a certainty, we should similarly recognize that the rate increase is coming*, and then determine the best policy from there.

So again, granting a few premises:

1) the working class likes SS benefits and wants them to continue in their current form
2) a rate increase at some point in the next thirty years is inevitable to keep SS solvent

...then I'm not sure a rate increase now is a scam, and is probably the preferred policy if the alternative is a large increase later.




*Not convinced this is true, mind you, but I'll play Devil's Advocate. As I said, I think it's legitimately arguable.

The point is that any increase now will simply produce larger surplusses that will be squandered now, and everyone knows it. You can stipulate some condition that the money actually be set aside or "invested" somehow (oh what a fascist, corporatist joy that scheme would be), but you might as well wish for unicorns with rainbows shooting out of their butts.

I heard that in 1975, overall debt--public and private--was about 1.5 trillion. Now it's 50 trillion.

I doubt there'll be a rate increase. There will likely be a raise in the ceiling on which taxes are paid--or perhaps a version of what (I believe) Obama has suggested, resuming the tax on income over a certain amount ($250,000?).

The point is that the system can't be kept "solvent" if they spend the money on other things. Which they have, to the tune of $16,000 for every household since the Reagan increase.

But my point is that an increase is coming, so the question is would you rather have a 2% increase now or the shock of 7% increase in 2035. Now, I know the natedogg/Borodog retort is that we're going to get a 2% increase now AND a 7% increase in 2030 because we'll squander away the surpluses now, and I don't think there's anything I could write here that would convince you otherwise. And I'm not convinced myself it wouldn't happen. There would have to be some kind of plan to set aside the surplus we're creating now with a rate increase, but as you and natedogg point out, history demonstrates there's no real reason to have confidence that would ever materialize. Perhaps in rhetoric, but not in practice.

Greenspan headed the commission, no?

I've posted on SS so much I can't refrain from responding to this. If you're against government "safety nets" like SS fine, I get that. But if we're going to have a "safety net" such as SS the money should go into the safest interest bearing vehicle possible. US debt is considered to have zero default risk so that's what SS funds should be used to purchase, US government debt. The surplus is being used to purchase non marketable US bonds. The treasury does account for the money paid as interest on these non marketable bonds. Non marketable securities are troublesome in my mind. Alan Greenspan's intent back in the 80's was to use the excess in SS payments to retire US debt outstanding ie it would be owed to the trust fund instead of central banks, private sector, and public sector. Instead US government has increased it's spending to borrow the excess money going into the trust fund. That was not the original plan. It would have been much better if US government did not borrow this money and spend it on government whatever but retired at least a portion of it's outstanding debt with the SS surplus.

This assumes an unlimited ability to collect taxes and print money/issue new debt. I can pay my bills with credit cards forever. I just need to keep getting approved for new cards every month with higher balances. How can I fail.

If endless debt was the only issue the US, due to its unique position in the world economy, might keep this going for another 50 years with current benefits, but inflation will reduce the value of these benefit payments very quickly and the soon to retire boomers will multiply the costs. Baby boomers will vote for whichever politician promises them the largest increase in benefits (SS and Medicare).

Extreme continuous growth of the economy is the only way to mask the issue. IMO, this is the real motivation for the current desperate attempts to "solve" the current financial crisis. A major, prolonged slow down in growth right now, just as the first boomers are starting to receive benefits, could bring the whole house of cards down much faster.

The end result is that the general fund borrows money from somewhere. Some of the money they borrow from a arbitrarily budgeted fund of excess payroll taxes and some they borrow from selling tbills. Why not borrow it all from selling tbills and unburden the working poor? Why would anyone in their right mind suggest adding to the burden of the working poor in this scenario?

There are myriad problems with such a plan and as you say, it woudn't happen anyway. I would go so far as to say it *can't* happen but that's a minor point. In point of fact, the most prominent proposal out there to raise FICA revenues (Obama's) most certainly does not include such a provision. In light of that fact, it can only be seen as a cynical attempt to perpetuate the scam on workers. There are some other less-likely explanations including "hopelessly naive" and "utterly confused" but my money's on "cynical ripoff of america's workers".

You win a kewpie doll.

Its not the UFOs in the sky that the government tries to keep out of people's minds.

Yes and that defeats the whole purpose of collecting the surplus for the trust fund. If the intent is to never reign in spending then it's a sham. What I believe that the commission was advocating was a balanced budget with the excess in SS payments going to retire a portion of the outstanding US debt. The trust fund would own marketable US treasuries and less would be owed to central banks, public sector, and private sector. Since marketable US debt securities have zero default risk and the US government has a vested interest in keeping it that way, SS trust fund would be much safer IMO. When we have the trust fund owning non marketable securities it seems to me that the US government could default on those, maintain payments to US creditors that own marketable securities and thus maintain the status of having US treasuries having zero default risk. I mean who's affected with a default on non marketable securities? Seems just the trust fund to me and I would think that it would actually be a plus for marketable US treasury securities by removing a liability from the US government balance sheet. Copernicus disagreed with that, he knows more about SS than I do. Still don't have a warm fuzzy about non marketable securities in trust fund FWIW.

Iron-clad lockbox, ftw.

This is not true, and is the reason people argue for diversification of portfolios- so that a single mistake doesn't cause you to lose everything. If the federal goverment were to default on its debt (either literally or via massive inflation) that would be the precise time that SS payments would be most needed and would be most painful to lose.

If you support the idea of a safety net then something with zero default risk is essential as the vehicle for holding the money. SS has COLA adjustments built into payouts that are indexed to inflation.

I've been meaning to address this.

Even if they had used the excess funds to balance the budget that is no different from simply spending the surplus. It's the same thing. It's taking revenues from what is a supposedly self-contained program and its funding, and using those monies elsewhere while promising to pay them back from future taxes. Whether you pay off the debt or simply unburden the budget, it's the same thing. In the end, it's the same result for workers today: a bigger burden today that in no way alleviates the burden of the future for SS.

Not what I wrote. I wrote about balancing the budget without using the excess funds. During Clinton years budget was balanced by applying excess SS funds. That's not what I'm advocating or what Greenspan was intending IMO. What I'd advocate and what Greenspan intended IMO was buying up outstanding debt that had been issued previously when the budget ran at a deficit and specifically not using excess SS funds to finance current government programs.

It might not have been the plan, but it should have been trivially predictable.

You see how that is no different from simply spending less from the budget and using THAT to retire debt? Collecting excess payroll taxes simply cannot alleviate the future cost of Social Security. It's impossible.