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Home Publications Blogs Beat the Press Bruce Ramsey and the Seattle Times Can Say Untrue Things About Social Security Because the Government Cannot Sue for Libel

Bruce Ramsey and the Seattle Times Can Say Untrue Things About Social Security Because the Government Cannot Sue for Libel

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Sunday, 29 May 2011 15:54

Bruce Ramsey, a columnist for the Seattle Times, apparently thinks it is really cute to call the U.S. government bonds held by Social Security "IOUs." That is the only possible explanation for using this unusual term for government bonds in a column that is completely incoherent.

Ramsey apparently thinks that he is giving his readers news by telling them that they don't have a constitutional right to Social Security. This is of course true, but people do not have a constitutional right to many things that they can reasonably depend on, such as drinkable water, roads they can walk and drive on, not having their income taxed at a 90 percent average rate.

Congress could change laws tomorrow and make it so that we no longer enjoy any of these items, the constitution will not prevent them. But most of us conduct our lives as though Congress will not take such steps, because any Congress that did take away any of these items would likely be voted out of office quickly. Similarly, any Congress that substantially reduced Social Security benefits would likely be looking for new jobs quickly also. So, there is no constitutional right to Social Security benefits; there is just the fact that in a democracy it will be very difficult for Congress to substantially reduce Social Security benefits, since almost everyone either depends on them or expects to depend on them in the future.

But the serious inconsistency problem arises when Ramsey talks about the government bonds held by the Social Security trust fund:

"If you or I had the bonds, we would be trillionaires. But Social Security is the government — and an organization's IOUs are not an asset to itself."

Okay, first off, under the law, Social Security is a distinct entity from the government. Mr. Ramsey may not like this fact, but that is the law. This means that the bonds held by Social Security are an asset to Social Security.

Congress can change the law, but as the law is written now, both the bonds and interest on the bonds are assets to Social Security. This means that under current law as long as the trust fund holds bonds, Social Security must pay full benefits. (If Mr. Ramsey knows any member of Congress who plans to vote to default on the bonds held by the trust fund he could do a great service to his readers by publishing their names. Their constituents would probably want to keep this information in mind at election time.)

The inconsistency in Ramsey's argument is that if we take his "Social Security is the government" line at face value then his article makes no sense.

Let's say Social Security is the government just like the Defense Department, the Education Department or the State Department. What does it mean to say that Social Security has a deficit? Does the Defense Department have a deficit?

If Social Security is just like any other part of the government then it makes no sense at all to discuss the program as running as a surplus as deficit. The government collects revenue though a variety of sources, including a payroll tax, and it has various expenses. If we take Ramsey's view of Social Security (ignoring current law) then claiming that Social Security has a deficit or faces a shortfall is nonsense.

Of course that is not the direction that Ramsey goes. He wants to cut benefits because current Social Security tax revenues are less than current benefits. However after he just told us that there is no link between these two -- Social Security is the government -- there is no reason anyone should care whether the payroll taxes designated for Social Security are bigger or smaller than the benefits paid out.

Essentially what Ramsey wants is to say that Social Security is the government when taxes exceed benefits, so the money cannot be banked for future benefits -- but Social Security is not the government when benefits exceed taxes -- so then he can say that benefits have to be cut.

It's dishonest, but hey, it's not like Social Security can sue him for libel.

Comments (8)Add Comment
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written by bmz, May 29, 2011 7:47
He is just another Republicon.
Keep writing
written by ljm, May 29, 2011 11:43
You've been the most diligent economist writing about social security and the misrepresentation by the press. Keep untwisting their words to show them somebody is watching and thus more of us are also watching what they do and say. They'd better start getting it right.
Bruce Ramsey and the Seattle Times Can Say Untrue Things About Social Security Because the Government Cannot Sue for Libel
written by caseyf5, May 30, 2011 2:57
Hello Dean Baker,

The good news is that someone is willing to take on the distortions in the press by "reporters/fiction writers whose overall pay is determined by the size of the lies. Whoppers generate the greatest salaries. The bad news is that they are growing in the "press" sic like kudzu. The situation can only get worse for the near and possibly middle future. I have given up on the newspaper business as it is full of stenographers who take down whatever is said and regurgitate it verbatim as if it was their investigation. To those who still do their own research, investigating and other things that make a true reporter I apologize.
The Premise of Ramsey's Argument and the Underlying Issue
written by Ron Alley, May 30, 2011 8:05
Ramsey's piece is as outrageous as Dean reports. However, Ramsey makes a valid observation and highlight the underlying issue.

The premise of Ramsey's piece is that Social Security benefits are not set in stone and those benefits can be changed at the whim of Congress. Ramsey correctly observes:

n 1960, the U.S. Supreme Court had to decide whether he [a worker who paid through FICA deduction] had a contract [to receive a specific benefit]. The court said he did not. In Flemming v. Nestor, it said no worker has such a contract.

Social Security is not a program to invest an individual's money, but a social program for one generation to pay for another. And because it is "designed to function into the indefinite future," the court said, Congress has to be able to adjust the taxes and benefits.

That doesn't mean your benefits are "some kind of charity." If you paid, your claim is better than that. But you don't have a constitutional right to a specific deal.

And for some Americans the deal will be changed — because Social Security is now running in deficit.



Ramsey goes on to point out that, if one disregards the interest received from its bond portfolio, the Social Security Administration in 2010 paid out more in benefits than it received in payroll tax revenue.

Well, that is precisely what the Grace commission reforms envisioned. Congress changed the "deal" on Social Security during the Reagan administration.

The underlying issue is that Congress has the power to change the "deal" again. Unfortunately, it also has a powerful incentive to make changes that cut benefits.

That incentive is the practice of counting positive cash flow from Social Security payroll taxes as a part of federal government revenue when it "balances" the federal budget and calculates the federal budget deficit. So long as the positive cash flow exits, a portion of federal government spending is "covered" by any Social Security "surplus". The Republican leadership in the House apparently believes that cutting Social Security benefits, or, alternatively, raising payroll taxes, to create a Social Security "surplus" is a better way of balancing the federal budge than raising revenue through income tax increases. The Democratic Party's leadership wants to preserve the practice of counting Social Security "surplus" in computing the federal deficit as a useful argument to justify federal spending.

Ramsey is correct when he points out that the big losers are likely to be the generation (now 35 to 45) who are likely to suffer most from any Social Security benefit reductions.
...
written by skeptonomist, May 30, 2011 9:19
The legal and Constitutional aspects are not the important things. The two important things about the Trust Fund are: a) morally, it is not money owed to "the government", it is owed to those, mostly boomers, who have been paying SS taxes since 1983; and b) the Trust Fund is not the SS program - it is supposed to be paid out almost completely by around 2045 and SS will not be "bankrupt" or "insolvent" when the Trust Fund is near zero.

If these two things are understood by the public SS will be in no danger. SS bashers constantly lie about them without being called by the media so it is evidently necessary to repeat these points every time the subject comes up. If Obama and other prominent Democrats in their speeches actually referred to Republican statements on these two point as lies this would get covered by the media. Political discussion should be civil if possible but there is no requirement to pretend that lies are never told.
...
written by Joe T., May 30, 2011 4:25
@Ron Alley,
You're right that any year's surplus helps that year's deficit look better.

There's a $2.5T SS surplus. And there's that law that uses SS surpluses to make yearly deficits look good. They're separable issues. Otherwise, the national debt clock would say $12T. Instead, it says $14.5T, which *includes* the $2.5T SS surplus.

@skeptonomist,
You're right. But sadly, trading the SS obligations one-for-one for marketable obligations, i.e., going out on the market now for several extra billions, is not going to happen easily or painlessly. Thus, the relative immediacy of the politics for shoring up SS.
...
written by skeptonomist, May 30, 2011 5:57
What is going to happen as the Trust Fund obligations become payable is that those bonds will be replaced by bonds held by the "public" (unless income tax rates are increased, which seems unlikely at the moment). There will be nothing particularly painful or harmful about this. Over the last couple of years the large deficits have been covered by bonds taken up by the public, since the intake from payroll taxes has been much reduced and the surplus going into the Trust Fund has at least temporarily disappeared (Ramsay got this right if nothing else). As Dean and others (e.g. Krugman) have continually pointed out, this has certainly not caused inflation or any increase in interest rates. The obligation to the Trust Fund will never be more than a small part of the total debt and it is not something to be concerned about in this respect, ever.
...
written by denim, May 31, 2011 7:55
But since I would not buy a used car for even a dollar from men of his caliber, why should I waste my time arguing with a totally self deceived individual? The issue is to be won by truth and by vote, not by debate.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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