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Home Publications Blogs Beat the Press Ruth Marcus KNOWS That We Can Never Raise Taxes to Pay for Social Security

Ruth Marcus KNOWS That We Can Never Raise Taxes to Pay for Social Security

Friday, 28 February 2014 06:43

It's pretty impressive to be able to know something about the future when all the evidence suggests the opposite. Washington Post columnist Ruth Marcus apparently knows that we will never be able to raise additional revenue to cover Social Security's projected shortfalls. That is the only way we can explain her assertion (expressed in euphemisms) that we have to cut Social Security benefits now to:

"protect those most in need of generous benefits."

Of course the evidence shows that the public has been in the past and is now willing to pay higher taxes in order to maintain Social Security benefits. Few, if any, members of Congress lost their seats over the tax increases put in place in the 1980s. Polls have consistently shown substantial support for raising revenue by increasing or eliminating the cap on taxable wages. And, they have even shown a preference for raising the payroll tax to cutting benefits. (In fact, less than one third of the public even noticed the 2.0 percentage point increase in the payroll tax at the start of 2013.)

The payroll tax increase needed to keep the program fully solvent for the rest of the century is less than one tenth of projected real wage growth over the next three decades. Given the popularity of Social Security across the political spectrum we might think that the public would be willing to pay some price to maintain benefits for all workers, not just those most in need of generous benefits. Fortunately we have Ruth Marcus to tell us otherwise.

Comments (26)Add Comment
written by Mark Jamison, February 28, 2014 6:40
Dale Coberly over at Angry Bear has written about this subject quite extensively. He shows pretty convincingly that an increase in the payroll tax of about 80 cents a week over a few years would be more than sufficient to meet benefit projections.
More important, the work that you and Jared Bernstein have done on the benefits of a full employment economy pretty clearly demonstrates that if our focus was correctly placed many of these so called deficit issues would evaporate as wages and salaries increased and more people worked.
written by DJB, February 28, 2014 8:03
its not about telling the truth

its about keeping that cushy job with all the percs

seeing you name in headlines and all that

if you piss off the boss then you dont get to keep all that

and telling the truth will definitely piss off the boss
Hopefully GOPers Will Follow Ruth's Advice
written by Paul Mathis, February 28, 2014 8:05
I would really love to see all House Repubs vote to cut SS benefits in order to protect the neediest seniors. In fact, I will donate big bucks to their campaign to cut SS and Medicare!

Not happening though, unless Steve King is Speaker.
written by skeptonomist, February 28, 2014 8:39
The real problem is not in SS (payroll) taxes themselves - as Dean says, the required changes are so small that most people would probably not notice them. The problem is in the higher income taxes - not payroll taxes - that will be required to pay out the nearly $2.7T that is owed to boomers. This is money that the general fund has borrowed from SS. Of course hacks like Marcus never mention this - she may not understand what is involved herself, she probably just goes along with the crowd at the WaPo.

High-income people got a break in the form of tax cuts when the Trust Fund was being built up, as deficits could be represented as considerably lower than they really were. Now that it is almost time for them to start paying up, they are falsely claiming that honoring the obligations implied in the Trust Fund would somehow endanger retirees.
By the way, the Trust Fund debt is already included in the gross debt (not the "public" debt), so if it is rolled over instead of raising income taxes there will be no increase in total debt. Paying it out as legally required will actually decrease the gross debt and debt/GDP. When people argue for prolonging the surplus in the Trust Fund they are actually arguing for keeping the debt high.
We have to kill it to save it.
written by Jennifer, February 28, 2014 9:36
It is always fascinating how the Very Serious People want to inflict suffering now so supposedly there will be less later, Also the need to
"protect those most in need of generous benefits."
One is curious who these people would define as "most need" since the majority of seniors don't have much beside Social Security to maintain their living status.
written by BobS, February 28, 2014 10:06
Can anyone explain to me the downside of eliminating the cap altogether?
Unfortunately, this frame of mind is enticing to many
written by Dave, February 28, 2014 10:08
There are a lot of right-wing voters that just love the defeatist attitude, so when a columnist writes such blather, it just catches on with the intended audience.

With every challenge that requires the democratic process and reasonable representatives, their answer is the same, "It's just too hard! There's no way we can do it!"

Part of the appeal is that holding this view makes dumb voters feel cynically smart.
the downside of eliminating the cap altogether
written by Paul Mathis, February 28, 2014 10:37
It would raise taxes on the rich so a HUGE no-no for the GOP. Donald Trump needs a tax CUT so he can create jobs!
as usual. Dean's out of paradigm
written by Joe, February 28, 2014 11:26
Social Security benefits don't have to be "paid for". In general, the government's should run a deficit to accommodate the savings desires of the non-govt sector (it's that accounting identity thing again. nongovt can't net save unless the govt runs a deficit). There's no reason this deficit can't come in the form of payments to seniors, who immediately spend it into the rest of the economy.
written by Bruce Webb, February 28, 2014 11:31
Contrary to Skeptomonists assertion, adoption of a phased in increase along the lines suggested by Dale Coberly (80 cents per week) or the similar plan of Virginia Reno of NASI has the rather odd arithmetic result that the current $2.7 trillion Trust Fund balance never has to get paid off at all.

Social Security 'solvency' as defined includes a minimum reserve equal to one year of cost. And at some point in the future that minimum reserve will exceed the current $2.7 trillion. As it happens a plan that puts Social Security on a glide path to solvency has the Trust Fund balances indeed declining as a percentage of cost (the Trust Fund Ratio) from around 370 today to something over the target of 100 that would mark 'sustainable solvency' but oddly this would never require current Trust Fund balances to decline in nominal terms.

This was not a feature of the Coberly plan as modified (now called the Northwest Plan) and he was gobsmacked when I pointed it out in his own spreadsheets, but there it is. Which makes the hostility of the billionaires towards SS that much more irrational. Because any proposal to fix it on the revenue side whether Northwest or Scrap the Cap has the result of transforming the $1.6 (sic) trillion they borrowed from SS since 1983 into a discounted, interest only loan whose principal never has to be paid back. Free money for billionaires!

They just hate the memory of 'Class Traitor' FDR and are intent on burying his work and then whizzing on its and his graves. It is arithmetically against their interests to NOT fix SS.
written by liberal, February 28, 2014 11:33
BobS wrote,
Can anyone explain to me the downside of eliminating the cap altogether?

One disadvantage is injustice. Most discussions of raising or eliminating the cap do so in the context of "earned" income.

The truly stinking rich are able to manage their income, so if the cap is changed, they still won't pay into it.

Justice would require applying the tax to all income, not just wage income. Whatever rationale for restricting the tax to wage income only goes out the window if it's radically changed.

Of course, real justice would see a movement away from taxing income generally and instead taxing rents at extremely high rates, with most of the rest of revenue coming from a flat tax on wealth, but that ain't happening anytime soon.
written by Alex Bollinger, February 28, 2014 12:01
@bobs: rich people will have to pay more taxes. That's the only thing stopping it.
written by coberly, February 28, 2014 12:44
all credit to Bruce Webb for pointing out the "peculiar arithmetic" that demonstrates that merely paying for Social Security benefits "as we go" eliminates the need to repay the money the Congress has already borrowed FROM Social Security.

I need to say I was "surprised" but not "gobsmacked" when Bruce pointed this out to me. I had previously done some arithmetic that suggested repaying the money in the Trust Fund would require a tax increase on the order of one percent either as a surtax on incomes over 100k, or as a "robbed again" tax on the payers of Social Security. I argued that this was not a big enough increase to notice, and that even if the SS future beneficiaries had to pay it "again" there would be no injustice as they would get their money back when they retired.

the argument is a little complex to go into here, but in any case I defer to Bruce Webbs observation that simply paying for SS "as we go" from here forward eliminates any need to repay the Trust Fund. In short the Big Liars are either completely stupid or they have another agenda entirely that has nothing to do with "the deficit"... that agenda seems likely to be what Bruce describes above, or perhaps more simply their understanding that without Social Security the poor will have "more incentive" (as in to keep from starving) to work into deep old age, which, if they can find a job, will add about a 100k to GDP for each worker for each extra year of work. Note that the workers themselves will not get the 100k. That money will trickle up through the economy and add to the billions of dollars people like Peter Peterson glean from the work of others.
written by BobS, February 28, 2014 12:54
Thanks for the answers. I guess my question could have been phrased better- I was actually wondering if there is any argument from the left, e.g. unforeseen negative consequences, against eliminating the cap. Frankly, I think it would be as effective a campaign issue as the minimum wage.
Also, does anyone know offhand if there have ever been studies of how aware the general public is about the existence of the cap? My own casual polling, i.e. asking in the course of conversation, is that the majority of the people who earn under the cap are unaware of it.
why tax income?
written by pete, February 28, 2014 3:26
Pay for SS and other "unfunded" issues with a much needed carbon tax. Don't forget the medicare lies they are telling now, as if they are cutting billions of dollars from future payments. A well done carbon tax could reduce carbon emissions and lead to a good reduction in all income taxes, probably allowing the zero income tax to go to even higher incomes. Tax bad things, not income.
written by coberly, February 28, 2014 4:08
Bob S

i don't know if I qualify as "from the left," but "raising taxes on the rich IS an argument against raising the cap. FDR understood that "welfare" is death in American politics.

SS has succeeded very well, better than any other anti poverty program in America, exactly because it is not welfare. Those who claim to be on the left are as rigid in their thinking demanding "the rich pay for it" as those on the right are demanding "no new taxes."

It seems to me that we would be pretty stupid to risk turning SS into means tested welfare... to be destroyed by the rich at their leisure... just to save ourselves eighty cents per week in a few, but not all, years.

try to remember that "we paid for it ourselves" is the strongest arguments workers have for not cutting Social Security.
Here's why
written by john, February 28, 2014 7:36
Simple reason why one third of the public polled did not notice the payroll tax increase in 2013 - only one third of the public works for a living in return for a paycheck. I am one of the one third and I did notice thank you.
written by Richard H. Serlin, February 28, 2014 9:19
She really is a VSP's VSP, working at VSP central, the temple of "Balance", accuracy and non-misleading be damned.
Thanks to Bruce Webb and coberly
written by Joe T., February 28, 2014 9:35
It seems to me that we would be pretty stupid to risk turning SS into means tested welfare... to be destroyed by the rich at their leisure... just to save ourselves eighty cents per week in a few, but not all, years.

try to remember that "we paid for it ourselves" is the strongest arguments workers have for not cutting Social Security.

Those last two paragraphs from coberly say it perfectly.
written by watermelonpunch, February 28, 2014 10:28
written by coberly, February 28, 2014 5:08
try to remember that "we paid for it ourselves" is the strongest arguments workers have for not cutting Social Security.

Yes, yes.
I've been thinking for awhile that what progressives minded people need to do is devise ways to cleverly disguise all sorts of social safety net welfare the same way that Social Security is disguised - AND moreover... the way welfare for the rich is heavily disguised so very well that rich people (and of course big corporations) feel NO SHAME, COMPUNCTION, REGRET, NOR HESITATION, to take it, and very few people understand it enough to object to it!

written by BobS, February 28, 2014 1:54
Also, does anyone know offhand if there have ever been studies of how aware the general public is about the existence of the cap? My own casual polling, i.e. asking in the course of conversation, is that the majority of the people who earn under the cap are unaware of it.

I'd be interested in this as well.
In my experience - people who have income over the cap generally know about the cap. People who have income below the cap usually seem to be unaware of it, or have simply never even thought about it.
written by skeptonomist, March 01, 2014 10:42
Bruce Webb: The important thing is that boomers get back the excess they have paid into the Trust Fund, and this must not come from payroll taxes. This excess should not be swallowed up in an increase in the minimum reserve according to an artificial definition of solvency. Or to put it another way, boomers should not be stinted in their benefits so rich people do not have to pay higher income taxes - they have already had lower taxes in the years since 1983.

Actually there is no need for a minimum reserve, and SS would not be "insolvent" if the balance went negative. The general fund is now over $17T in the red - is it "insolvent"? Any concerns about the "solvency" of SS could be instantly erased by a change in the law to allow a negative balance. Again, as an opposite extreme to all this projection of solvency, etc. 30 years in the future, much of which is just phony by the time it gets into political discourse, it would be possible to set SS tax and benefit levels by referendum, say at two year intervals. These levels for 2040 should be set at that time, not now. The real issues are what kind of taxes pay for benefits, and how much is allowed to go into deficits/debt.

It is taken for granted that the gross or public fiscal balance does not have to be positive or zero - the large negative balance is allowed to increase with GDP. Why should SS be required to always have a positive balance? This is putting the burden of debt onto payroll taxes.
written by coberly, March 01, 2014 12:19

sorry, but i don't think you understand how social security is financed and why. in our normal dealings we like to get value for our money, and we like to think we earned the money we get. "the government" can finess this a bit because it has the power to create, or borrow, money, limited by the need to keep the created money, or borrowed money, in line with what the economy can support. without destroying the credibility of the government or the "dollar."

Social Security is NOT "the government." it is financed, it is true, by taxes, and generates "interest" from the growth in the economy. but each person pays a definite amount into the fund, based on his income up to the point where the "tax" no longer represents a reasonable cost of "insurance" or "return on investment."

then everyone gets back a pension based on what he paid in, with a very generous "schedule" that gives the poorer a greater return as a percent of "investment" but not greater in absolute amount that the richer. this provides an "insurance" benefit that insures those who find themselves poorest after a lifetime of working with enough to retire on. and those who find themselves richer after a lifetime of work are out no more than what they "might have" earned from other investments, which most of them can justify as a reasonable cost of insurance... they could have been one of those who ended up poor.

playing games with this system by taxing the rich more than a reasonable cost for the insurance, or depending on the government's ability to create or borrow money is just ignorant and irresponsible. based on the delusion by some that "the rich" owe them a living.

the rich don't feel that way, and they will fight you, and they will win. and most workers don't feel that way either. we like the idea that we paid for it ourselves, even if most of us don't quite understand where the "extra" money comes from (effective interest or effective insurance).

i can't convince you of this. i can't even convince learned professors who have a welfare mindset (or a free enterprise mindset), but i COULD convince about 98% of workers if i had a billion dollars worth of marketing like Peterson, or a left that actually understood why SS works and was not wedded to the idea of taking from the rich and giving to the poor. which is a fine idea when needed, but a dumb dumb dumb idea when it is not.

you don't want to run the economy by referendum. most people don't know a damn thing about the economy and are easily fooled by people who say they do.
My Email To Ruth Marcus
written by Jeffrey Stewart, March 01, 2014 12:24
Sent yesterday.

Dear Ms. Marcus,

I am writing with a question that I hope you have time to answer. You're an educated woman according to your biography, so I imagine you have an answer.

Could you please explain why, exactly why it is necessary to cut Social Security benefits now so that they don't have to be cut in the future?

Thank you for your time and consideration.

I look forward to your response.

No reply.
written by coberly, March 01, 2014 12:32

that said, much of what you said above is true. my point is that Social Security works fine the way it is. you don't want to kill it by making the rich pay for it or by calling for exotic financing schemes.

what is "wrong" with SS today is ONLY that Peter Peterson has convinced the people... mostly the politicians and the press, but sadly also "the left"... that the workers cannot afford to pay for their own benefits... as they have done for seventy years.

They have done this by hiding the eighty cents per week cost of keeping up with the cost of retirement from time to time.

So Peterson pretends that it IS welfare and will require huge tax increases or cuts in the budget. And the left says "there is nothing wrong with it: we can fix it with huge tax increases on the rich." and "The workers have paid for it themselves, we can fix it by making the rich pay for it." Like I said, dumb.
Place the "2%" increase in the payroll tax in context
written by winstongator, March 03, 2014 5:48
For a couple making $50k, the 'Bush Tax Cuts' saved them $1100 in taxes (per http://interactive.taxfoundati...calculator)

The payroll tax cut saved them $1000/yr. Why was one lauded as having marvelous knock-on effects, and the other barely noticed? Why was letting one expire a disaster, while the other expired without notice?

Who really cares about tax rates? Not the average worker, but the rich. The vast majority of workers just care about their current situation - am I taking home enough to keep my family happy. Why are Republicans so focused on tax rates when it is a secondary concern to most Americans?
Loser liberalism
written by Marriners Ghost, March 03, 2014 11:20
This whole Trust Fund nonsense is loser liberalism 101. I dont understand why liberals insist on talking about the "trust funds" as if they have any meaning at all. They dont! Congress just tells a few people at the Bureau of Fiscal Service in Parkersburg, WV to scribble down numbers on a piece of paper, based transactions in and out of the Treasury general account that have already happened. All these mythical trust funds accomplish to is provide the Peterson folks with an easy target claim to that "its going broke".

SS is always solvent, and is not "paid for" in any operational way by the FICA tax. We should increase benefits and get rid of the cruel and regressive FICA tax so middle class workers can enjoy 7% more spending power.

Read more here: http://justgatekeeper.blogspot...about.html

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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.