CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press Just Because the Post Doesn't Like Social Security Doesn't Mean That It Is Not Important

Just Because the Post Doesn't Like Social Security Doesn't Mean That It Is Not Important

Print
Tuesday, 14 December 2010 05:19

The Washington Post has long expressed its disdain for the Social Security program in both its opinion and news section. It continued this practice by not even mentioning the potential impact of the tax compromise on Social Security in an article reporting on the progress of the bill in the Senate.

The risk is that the Republicans will put pressure on President Obama to extend the payroll tax cut beyond this year by describing the end of the tax cut as a tax increase. This raises the prospect of a permanent reduction of 2 percentage points in the payroll tax. The loss of this revenue would effectively double the projected shortfall in Social Security over its 75-year planning horizon putting its future in serious jeopardy.

While this article reported the results of a poll on the package it ignored the most obvious implication. The extension of unemployment insurance benefits is hugely popular even among Republicans. This suggests that the benefit of extension would likely pass as a stand alone effort. That means that politicians who are raise concerns about the unemployed as a reason for supporting this package are not being honest.

It also would have been helpful if the numbers in this piece were expressed as a share of the budget and/or the economy. That way most readers may have been able to assign them some meaning. As it is, the Post could have just substituted the words "really big number,"  RBN to save space, and provided as much information to the overwhelming majority of its readers.

Comments (13)Add Comment
unemployment extension did not pass
written by tom, December 14, 2010 5:49
I don't know what you mean when you say the extension of benefits would pass a stand alone measure. It failed in the House and Senate, though it did not get to a majority vote.
More Tax Cut Traps: New Way to Starve the Social Security Beast
written by izzatzo, December 14, 2010 6:49
The risk is that the Republicans will put pressure on President Obama to extend the payroll tax cut beyond this year by describing the end of the tax cut as a tax increase.


Tax cut traps are like predatory pricing by a monopoly, reducing prices (taxes) long enough to drive out competitors, but not long enough to cause losses to the monopolist after the competitors are gone.

The macro parallel in this case are tax cuts by the Austerian-Keynesian posuers, designed to lure in demand-side stimulus spending which include masking SS with a heavy tax (price) discount.

Like a predatory monopolist, SS is first underpriced as part of the general budget to prevent its competition with other parts of the budget during recovery - then set up for strangulation after recovery as it's crowded out with non-SS budget spending ... on grounds that the SS tax cannot be increased.

For tax cut purposes, the Austerians have conveniently converted to Keynesianism to prevent claimed damage to demand-side recovery potential (and avoid true direct fiscal stimulus spending), after which they will convert back to the true zero-sum Austerians they are for debt purposes, and starve the SS Beast accordingly by killing off its funding sources.

It's another Obama compromise. Where one's head may in in the oven and one's feet may be freezing from standing on ice, on average the temperature is just fine.
Alternate scenario
written by AndrewDover, December 14, 2010 7:03
Objectively, social security is untouched by the President's proposal to reduce employee payroll taxes from 6.2% to 4.2% since the 2% difference would be paid into the SS trust fund with new bonds.

But it is possible that the politics ends not with pressure to reduce social security benefits, but with an approach to have the general fund cover the actuarial deficits.

I think it is likely that Social Security evolves to a three payer system:
Employer: 6.2%
Employee: 4.2% (Reduction on 2%)
Federal: 4.2% (New match)

The 4.2% will be billed as a "matching" contribution to the employee payments.

This will follow the trend of compromises that increases deficits over current law. I suspect the Democratic will continue to accept the extension of Bush tax cuts in return for this Social Security payroll "matching" idea.
...
written by liberal, December 14, 2010 8:44
AndrewDover wrote,
But it is possible that the politics ends not with pressure to reduce social security benefits, but with an approach to have the general fund cover the actuarial deficits.


It's certainly fair for the general fund to cover actuarial deficits, since the people who benefited from the deficits are pretty much all dead, AFAICT.

Of course, it won't happen, because that would increase the overall progressivity of SS.
...
written by Ron Alley, December 14, 2010 9:27
Andrew Dover,

As I understand it, the rationale a FICA tax and an "insurance" based social security system was to insulate social security spending from other government spending demands. It seems to me that the threshold which concerns you was crossed when the federal government began to include FICA in the budget to facilitate illusory budget balancing exercises.

The circus rule applies
The only thing that would put SS jeopardy is if recipients stopped voting
written by jwo, December 14, 2010 10:01
The loss of this revenue would effectively double the projected shortfall in Social Security over its 75-year planning horizon putting its future in serious jeopardy.


Hahahaha. Lets be realistic here, the ONLY thing that would put SS jeopardy is if recipients stopped voting. The more people on SS the stringer the program. The thing wrong with SS is the FICA tax.
SS is a welfare program that pays most of its money to rich and middle class
written by jwo, December 14, 2010 10:07
SS is a welfare program that pays most of its money to rich and middle class. SS is a rob peter to pay peter program, that makes no sense for anyone. It taxes the rich + middle class when their earnings are low to pay them later in life when they are richer.

Welferize SS by paying the same amount out to all recipients.
...
written by pete, December 14, 2010 10:15
"I think it is likely that Social Security evolves to a three payer system:
Employer: 6.2%
Employee: 4.2% (Reduction on 2%)
Federal: 4.2% (New match)

The 4.2% will be billed as a "matching" contribution to the employee payments."

This won't cut it, the 4.2% match will have to grow. I liked my idea of simply raising the interest paid on the social security "fund." All the payments are coming from taxes somewhere. Whats discouraging about the 4.2% coming from the income taxes rather than payroll is that the payroll is flat and nondistortianary, while the income is progressive and anti-incentive. Flatter is clearly more pro growth. Better solution is to make the flat part of our taxes bigger and on all income, not just salary, and lower the marginal rates. This deal is the opposite.
...
written by liberal, December 14, 2010 2:31
pete wrote,
...while the income is progressive and anti-incentive.


Given that many people "earning" lots of money are merely collecting economic rents, this isn't necessarily true.
The extension of unemployment insurance...
written by Bill H, December 15, 2010 9:24
Interesting that on a blog critical of journalistic inaccuracy you use that term. It is not "insurance." The first 26 weeks are insurance, funded by payments from employers, but after that, the part provided by the US Congress, they are merely benefits and are funded by tax revenue.
rents to labor
written by pete, December 15, 2010 9:58
Liberal raises an important point....those workers under monopolistic regimes which yield rents, such as unionized public sector workers, will not have incentives affected by changing from progressive to flat. Rents require market power, typically endowed by the government. Perhaps Fannie and Freddie workers earned rents for 30 years.
...
written by izzatzo, December 15, 2010 11:40
Exactly. Since flatter tax rates obviously result in more growth than progressive ones, a 15% tax rate at the margin for hedge fund managers, who obviously earn no economic rent, is a regressive tax that encourages maximum investment spending by the very ones who have it to spend.

If not for this, hedge fund managers would hedge less, setting off negative multipliers and make the recession much worse than it is. It's essential that hedge fund spending acts to offset the destructive rent seeking wages earned by members of public employee unions, which are totally inelastic to tax rates at the margin, unlike hedge fund earnings which create massive net added value driven by tiny reductions in the marginal tax rate.
hedge funds are redistribution
written by pete, December 15, 2010 1:12
Hedge funds average like 0% return. They merely serve to redistribute money from wealthy individuals who are not smart enough to know how to invest, and give it to fledgling MBAs and finance phds, with bank and exchange fees thrown in. Us po folk benefit greatly from having these nuts trade a lot, probably lowers our cost of investing greatly.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.

busy
 

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613

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.

Archives