Anyhow, if there is interest, read the piece, and maybe give me comments.
I think it is written by Moynihan himself, I hear his voice. Needless to say, his article infuriates me, but I would like some sanity checks before I explode.
1. Using the excess FICA to pay down the debt does not "spend" Trust Fund money as Moynihan claims, but just substitutes one debt for another, with a net of no change except for interest. Am I right?
2. Just how big is the Trust Fund at its max in relation to the Federal debt? What I have in mind is that the so-called tax-cut means no surplus, and thus no continued debt paydown.
3. If the dollar is just a Fed obligation, backed by no more than Treasuries (I've been re-reading your book, Doug), and if Moynihan is right (hah!) that making good on the Trust Fund is very difficult, then aren't our dollars near worthless? Let me be fanciful for a moment, reach in your billfolds, pull out a fistful of dollars and give them the Clint Eastwood squint, cuz they're worthless.
Isn't that the logical conclusion of Moynihan's argument, if one grants that his argument *is* logical in the first place?
4. Finally, does anybody have comments on Moynihan's place? I've been intrigued for some time by his liberal reputation contrasted with his longstanding (I think he was a founder) joint editorship with Irving Kristol and Daniel Bell of the Public Interest. What gives?
-- John K. Taber
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By Daniel Patrick Moynihan and Richard Parsons
No government program directly touches as many Americans as Social Security. For many retirees, it represents the difference between poverty and a modicum of comfort, a well-deserved payback for a lifetime of hard work. For those still in the work force, however, especially those just entering, it's a promise of future support that seems more and more in doubt.
As co-chairs of the President's Commission to Strengthen Social Security, which held its first meeting this week, we've signed on with no illusions about quick fixes or Band-Aid solutions. This is an issue crucial to the well-being of millions of Americans, and its impact is felt throughout our entire economy. Equally, it involves the sacred bond of trust between our government and our people.
Before all else, let's be clear about one thing. The challenge facing Social Security isn't the figment of some statistician's overheated imagination or a political ploy. The challenge is real and can best be summed up in a single word: demographics.
As it currently stands, Social Security is a pay-as-you-go system. Contrary to what many citizens believe, Social Security taxes aren't saved in an account bearing their name. Instead, they are used primarily to pay benefits to current retirees. Such a system works best when there are a lot of workers paying taxes and just a few retirees collecting benefits. In 1950, for example, there were 16 workers for every one retiree. Today, the ratio of workers to retirees is 3 to 1, and will drop to 2 to 1 by 2030.
It's this relentless demographic shift that is fueling Social Security's financial woes. Starting in 2016, when today's 50-year-olds are scheduled to retire, Social Security will pay out more in benefits than it collects in payroll taxes. If no changes are made before then, the government will either have to raise taxes, cut benefits or other government spending, or add to the public debt.
The good news is that the Social Security Trust Fund has been promised enough resources to pay full benefits through 2038. The bad news is that the Trust Fund is a financial obligation, not a financial asset. That's a big distinction.
Since 1984, Social Security has been collecting more in payroll taxes than it pays out in benefits. This money is assumed to be saved in the Trust Fund as a way of "pre-funding" the benefits of future retirees. In reality, the money is "loaned" to the Treasury, which in the past used the money to underwrite federal spending and is currently using it to retire public debt. In other words, this money has already been used. In return, the Trust Fund receives from the Treasury special bonds that can redeemed as needed.
When the Trust Fund tries to redeem its bonds starting in 2016, where will the Treasury get the money? The Clinton administration's 2000 budget summed up the problem perfectly:
"Balances are available to finance future benefit payments and other trust fund expenditures -- but only in a bookkeeping sense. . . . They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, have any impact on the Government's ability to pay benefits."
Thus, the government faces the same unpalatable choices of spending cuts, tax increases or budget deficits, whether the Trust Fund's balance is a billion, a trillion, or nothing at all.
Social Security's shortcomings go beyond budgetary issues. Chief among them is that workers don't truly own their Social Security benefits. They pay taxes into a system in exchange for a promise that, when they retire, the government will somehow find the money to pay their benefits. A future Congress, facing annual deficits of hundreds of billions of dollars, could raise taxes or cut benefits with the stroke of a pen, even for workers who had paid into the system for decades.
The current Social Security system also does not allow workers to build up an estate that they can leave to their beneficiaries. This is not a problem for wealthy Americans who earn enough to give their children a head start in life. But for many middle- and lower-income Americans, Social Security is their only long-term savings tool.
Addressing these challenges means putting aside ideology and taking an honest look at how best to preserve and enhance this vitally important program. It means rejecting inflammatory rhetoric or scare tactics in order to make a realistic, nonpartisan appraisal of what changes might restore people's faith in the system and, at the same time, give them options for increasing their wealth and passing on what they've worked a lifetime to accumulate.
Our goal isn't to come up with a rationale for a pre-arranged plan to "privatize" Social Security. Neither of us has ever had any talent for acting as front men. Together with the other members of our commission, we will present the president with a clear, detailed analysis of the challenges confronting Social Security, as well as recommendations for making it stronger and more equitable than ever. ___________ WSJ 6/15/01 Mr. Moynihan, a former Democratic senator from New York, and Mr. Parsons, co-chief operating officer of AOL Time Warner, co-chair the President's Commission to Strengthen Social Security.