“Democrats Introduce Plan To Fix Social Security, The Way We Fixed the Cat”

Yves here. Monica Lewinsky is an American heroine who saved Social Security, at least for a while. The fact that she kept the blue dress and could therefore prove that Bill Clinton indeed had sex with “that woman” so preoccupied the White House that the Clinton Administration had to abandon its plan to “reform” Social Security. The story of why Obama’s Catfood Commission managed not to mangle Social Security is more complex, but big elements are Obama overplaying his hand, concerted and more important noisy opposition from the left, and the 2010 midterm wipeout, described in the Guardian as one of the worst Democratic defeats in 70 years.

But the feckless Democrats never give up. A new scheme to gut Social Security is being rolled out. The fact that the Democrats with one side of their mouth can talk about taxing the rich and with the other, not once voice the idea of raising the salary cap on Social Security contributions tells you everything you need to know.

But there is a difference between fixing Social Security and fixing your cat. Even cats young enough to be spayed or neutered have worked out that going to the vet results in stuff they don’t like happening, and they fight being stuffed in their carrier. The Democrats rely on Americans being too inattentive to notice that the people driving the Social Security car plan to put it on autopilot on pothole-filled road, make their exit, and lock the back doors.

By run75441. Originally published at Angry Bear

Commenter and Social Security Expert Dale Coberly assesses the latest plan coming out of Washington DC “Congress has a new plan to fix Social Security. How it would change benefits,” CNBC in the House. Dale was one of the creators of the Northwest Plan which was accepted as a solution by Congressman DeFazio and Social Security’s Karen P. Glenn, Deputy Chief Actuary, Office of the Chief Actuary, Social Security Administration in an email from DeFazio’s office.

Today, Dale explains why many of the points or changes proposed in the House plan may be bad ideas as depicted in the CNBC article.


The Democrats have been so successful lately demonstrating how to turn a winning position into a losing one, they thought they’d try it out with Social Security.

Leave Social Security Alone has been a winning position for Democrats since 1936, despite their occasional efforts in the past to join the latest Republican stampede to fix Social Security by cutting benefits.Now they may have found a way to boot their advantage and lose by winning. The following is taken from an article in CNBC Life Changes ( Congress has a new plan to fix Social Security. How it would change benefits ).

My comments follow each paragraph in indented type.

[THEM] House Democrats are reintroducing a Social Security reform bill popular with their party. This time, it features some changes aimed at attracting more support from Republicans.

[ME] note: “attracting more support from Republicans.” That should tell you something is up that won’t turn out good for Social Security or the people who depend on it. [that’s you, even if you don’t know it yet.]

The bill, known as the Social Security 2100 Act, is being brought forward by Rep. John Larson, D-Conn., chairman of the House Ways and Means subcommittee on Social Security.

Rep. Alexandria Ocasio-Cortez, D-N.Y., and House Ways and Means Committee Chairman Richard Neal, D-Mass., appeared with Larson on Tuesday to announce the reintroduction of the bill.

All good people as far as I know.  Maybe not as smart as Roosevelt, but they mean well.

Neal urged lawmakers to offset the concentration of wealth, which has become more prevalent in the U.S., by embracing this Social Security proposal and extending the expanded child tax credit.

“We have this rare moment to accomplish seismic achievements, and this is the time to do it,” he said.

Beware of seismic achievements;  this has been the Republican “Don’t miss this once in a lifetime opportunity” sales pitch for their last eight attempts to kill Social Security by saving it. or (when the wind changed) to save Social Security by killing it:

“it’s socialism,” “you’ll never get a penny back,” “It’s going  broke,” “it is broke, flat bust,” “it’s going broke (again),”  “The stock market will make everyone rich,” “Greedy old people are stealing from the young,” etc.

The new version of the bill, called Social Security 2100: A Sacred Trust, follows the Social Security Administration’s latest estimates that the trust funds that support the program will be depleted in just 13 years. At that time, in 2034, only 78% of promised benefits will be payable.

The bill proposes extending that date to 2038 to give Congress more time to come up with a long-term solution to the program’s solvency issues.

I think what this means is that Larson’s bill will not solve the program’s “solvency issues” but just push them back four years. In any case the Trust Fund was never intended to “support the program.” Social Security is “supported” by the payroll tax.  The temporarily largeTrust Fund was created to enable the boomers to pay for their own retirement, just all previous generations have done, but because of the unusual size of the boomer generation could not be done by the normal pay as you go financing. There is no mention in this article that 100% of promised benefits could be paid for by raising the payoll tax 2% each for the worker and the employer. Even though polls have shown that workers would rather raise the tax than “change”Social Security. There is no solvency issue if we just pay for what we need, just as our parents and grandparents did.

The measure would also incorporate proposals made by President Joe Biden during his presidential campaign.

“We have a person on Pennsylvania Avenue who knows and understands that Social Security is a sacred trust,” Larson said of Biden.

This new bill combines Biden’s proposals with House Ways and Means initiatives to expand and enhance Social Security benefits, he said.

Biden seems to be another good man.  But he would not be the first Democratic President who advocated doing something that would hurt Social Security and the people who depend on it.

“It’s got a lot that’s attractive, and nothing that I think should cause Democrats problems in an election year,” said Nancy Altman, president of Social Security Works, an advocacy group that promotes expanding benefits.

Unless making “the rich” and powerful mad at you would cause problems.

Like Biden’s plan, the Social Security 2100 Act would set a higher minimum benefit for low-income workers. Benefits would be set at 125% above the poverty line and tied to current wage levels.

There’s also a benefit boost for both new and existing beneficiaries amounting to about 2% of the average benefit.

Annual cost-of-living adjustments would be tied to the Consumer Price Index for the Elderly, or CPI-E. The argument is that this experimental index may better reflect the costs seniors face. Biden also included this change in his Social Security proposals.

These may all be good things to do.  But if they are to be done, the workers must pay for them. Not mentioned is that the proposal means paying benefits to people who never paid the payroll tax.  We have programs to help people who did not work, or did not  work long enough in occupations that paid into the Social Security system.

Notably, the Social Security 2100 Act proposed in 2019 had more than 200 co-sponsors, though all were Democrats. On Tuesday, lawmakers indicated that the new version of the bill has already drawn a similar level of support.

I am not sure what’s notable about this. If 200 people say a stupid thing, it’s still a stupid thing.

“To have that social safety net isn’t just good for us individually for peace of mind, it helps us feel like we are part of a society that respects our elders and values our vulnerable.” Rep. Alexandria Ocasio-Cortez Democratic Congresswoman from New York

Ocasio-Cortez spoke about how Social Security benefits helped her family when her father died unexpectedly of cancer.

“Social Security checks helped my family through,” she said. “It’s why my brother and I were able to go to college.

It’s why I felt confident while I was at college that my mom would be able to have something to eat,” she added. “To have that social safety net isn’t just good for us individually for peace of mind, it helps us feel like we are part of a society that respects our elders and values our vulnerable.”

Absolutely. But this is true of Social Security, not true of the Larson plan.

The plan also integrates a couple of elements that might help draw support from across the aisle.

The new version would repeal rules that reduce Social Security benefits for public workers and their spouses, widows or widowers who also have pension income. These are known as the Windfall Elimination Provision and Government Pension Offset.

This issue came up at a recent House hearing on Social Security and has bipartisan support.

The elimination of one proposal — a higher payroll tax rate — may also help draw more support. The Social Security 2100 Act had previously called for gradually increasing contributions to the program from workers and employers to 7.4%, up from the current rate of 6.2%, over roughly 20 years.

The Windfall elimination program was intended to prevent relatively high paid workers who had a government pension from working a few years in Social Security covered employment in order to collect the enhanced benefits designed for people with very low lifetime earnings. It does not surprise me the relatively well-off “bipartisan” people would support having an opportunity to poach on a program designed for the very poor.

And they offer “as a good thing” getting rid of the gradual payroll tax increase, the only provision having d  chance of actually solving the “insolvency problem.”  Of course people, even poor people, are going to be against a tax increase .  .  . until they understand it is the only way to pay for their future needs. Without selling Social Security to the rich to do with as they want.

However, the legislation does call for increasing Social Security taxes paid by higher-wage earners. In 2021, those taxes are capped at $142,800 in wages, and in 2022 that will rise to $147,000. This proposal reapplies taxes on wages at $400,000 and up, which is also in line with what Biden has proposed.

 This is the killer.  Roosevelt very carefully designed Social Security to be not “the dole” . . . ”so no damn politician can take it away from them.  The Larsons and Altmans think that as long as they don’t call it welfare they can make the rich pay for it. The rich will just say, “okay.” The rich will only say “okay” if they see this as the opportunity to replace Social Security with welfare that they have always wanted.

Because they know how to get rid of welfare.

At the same time, the bill would also raise the thresholds above which income including Social Security is taxed. The plan calls for changing that to $35,000 for individuals and $50,000 for couples, up from $25,000 and $32,000, respectively.

The tax on benefits is a normal tax on retirement income.  What is not normal, is that SS income is not taxed on people whose total income is below a certain threshold.  Raising the threshold might be a good idea, but the payroll tax will then need to be increased to pay for needed benefits.  This is a tax cut for the relatively well off, paid for by a tax on the less well off.

The bill would also prevent the reduction of benefits for certain beneficiaries if the National Average Wage Index declines due to unforeseen circumstances, such as events impacting the economy.

I assume this means that in the event of a recession and a loss of payroll tax income to Social Security, benefits will not be reduced.  This is the normal function of the Trust Fund [when the baby boom is not a factor].  Should a recession be deep enough or long enough to exhaust the Trust Fund, the answer would be to raise the payroll tax enough on those still working…to tide everyone through, and then to reduce the tax when good times return. The temporary tax increase would not need to be large .  .  .  less  than about five dollars a week for a very deep and long recession.  An amount the still working would be glad to pay knowing a time might come when they could be retired or disabled facing a cut in benefits.

It would also require the SSA to mail paper statements to all workers ages 25 and up, unless they request electronic delivery.

This is a good idea. The paper  statements were cut “to save money”…an insignificant amount of money . . . but really to keep ordinary people from seeing how much their future benefits are likely to be .  .  . something  that seems to always make them less willing to see “changes” in Social Security.

Other changes in the bill include extending benefits for students up through age 25, increasing certain widows’ and widowers’ benefits, boosting beneficiaries’ benefits after 15 years, eliminating a five-month waiting period to receive disability benefits, and creating caregiver credits so that the retirement benefits of those who take time out of the workforce are not reduced.

Eliminating the waiting period for DI benefits is a good idea, but the “other changes” are just welfare for people who did not pay into Social Security. There are welfare programs to help those people.  The whole point of Social Security is that it is NOT welfare.  “We paid for it ourselves.”

It remains to be seen how much attention this bill will get amid Congress’ busy legislative agenda and whether it will be embraced by Republican lawmakers.

However, advocates such as Social Security Works are optimistic.

“We’re all hoping that after they finish, however they finish the reconciliation and the debt limit and all these other things, that they will bring up Social Security,” Altman said.

The National Committee to Preserve Social Security and Medicare was also among the groups to support the proposal.

“There is good news for everyone in this bill, which is only fitting, since Social Security touches almost every American’s life,” said Max Richtman, the organization’s president and CEO.

“It is time for the full House to pass Rep. Larson’s bill and send it on to the Senate,” he said.

And here is the tragedy.  The people who have saved Social Security in the past from “bipartisan”   efforts to destroy it, have been seduced into selling it out for a promise of higher benefits paid for by the rich, “The Rich” couldn’t have come up with a better plan if they thought of it themselves

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  1. Hepativore

    Oh, I KNEW that this was coming sometime during the Biden presidency. Obama tried so hard to butcher Social Security with his attempts to cram the Grand Bargain down our throats, and Biden has been trying to cut Social Security since the 1980’s.

    Still, I suppose the Democrats are trying to shove this through now while they still control Congress since they will be slaughtered in the midterms.

    It is not that the Republicans have not wanted to roll back Social Security as well but it has not been as big of a priority for them as seniors make up a large portion of the Republican base.

    Even now I am amazed at the Democratic Party’s urge to commit political suicide.

    1. timbers

      We need to cut SS to fund team Senator Biden’s plan to give $450,000 to illegal immigrants. If we don’t, the tidal wave of cheap labor into the U.S. might waiver. And no one wants to see the horror of “transitory” wage inflation. We need to keep sending signals that they should come.

      1. Questa Nota

        Wait until you see their new offshore investment option for your self-directed -targeted Social Security account. Sign the papers, direct the funds toward that haven and ignore the asterisk*.

        * Nominal service charge for financial intermediary, upgraded from prior 12b-1 fee concept. Includes separate fee to bundle accounts for securitized asset sales. Requires chip insert. /s

        p.s., Frank Zappa was onto that decades ago. Listen to his song Cosmik Debris.

  2. coberly

    well, Larson’s bill mentions raising the cap…or at least skipping the cap. raising the cap is another way to turn SS into welfare. this would make us enemies we don’t need, and wouldn’t even solve the “solvency problem.”

    why does the Left resist so hard the idea of paying for SS an extra dollar per week to cover the costs of their longer life expectancy after they can no longer work. or no longer want to work: if they have paid for it themselves there is no reason anyone can tell them they can’t retire. Raise the cap and next year there wil be a bill to raise the retirement age “to hold down costs,”

    as long as Social Security is worker paid it has nothing to do with the Federal budget deficit, if people could keep that in mind there would not be the constant maneuvering to find a way to cut Social Security.

    I think Hepativore has not been paying attention: Republicans have been trying to cut Social Security since it was invented, but especially since Reagan and Bush II. What is less known is that so have every Democratic president since Carter. Clinton called for raising the retirement age. And Obama called for cutting benefits by cutting the Cost of Living Adjustment.

    only the working people have stood in the way of these “reforms.” the Larson plan is likely to fool the people into destroying Social Security because they think they are going to get more money and make the rich pay.

    1. Anthony Stegman

      It has long been said that if and when Social Security is cut in a significant way that it will be Democrats who will do the cutting. We have ample evidence that this is true. Republicans are often seen as the boogeyman when the ones we all need to be wary of are the slick talkers like Clinton and Obama.

      1. drumlin woodchuckles

        The Democrat Party wants a Democrat President to be the great historic Nixon-goes-to-China President to cut or destroy Social Security.

        Are the DemProgs stupid enough to think the Larson Plan is not a DLC Catfood Conspiracy Plan in disguise? Is Ocasio-Cortes that stupid? Is she just stupid enough to support Larson? If they are that stupid, they will vote for the Larson Catfood Plan.

        Do the Republicans hate Democrats more than they hate Social Security? Or do they hate Social Security more than they hate Democrats? I guess we will find out.

    2. Oh

      When reporting the Federal budget deficit, the figure show show the total, not offset by funds in the social security “trust” fund. Another item to be reported alongside needs to the amount in the social security “trust” fund.

      1. coberly

        Trust Fund reserves are repoted in the Trustees Report.. please understand that this figure is not really important. The Trust Fund, as it is today, was designed to run out when it had paid the extra expense of the larger than average Baby Boom retirement. It is doing that now. But meanwhile longer life expectancy, lower birth rate, and slower growth in wages, requires that the payroll tax be raised a small amount. Shouting about the Trust Fund going broke is just a way to stampede people into letting the people who hate Social Security “save” it.

        The needed tax hike is 2% of wages. you wouldn’t feel it, though the amount might cause temporary sticker shock. Better, we can still increase the tax one tenth of one percent per year at a time…. that’s about one dollar per week per year while wages are going up over ten dollars per week per year.

        Legally, Social Security is “off budget” and it is not legal to report “unified budget” to disguise the federal deficit when SS is in surplus, or to claim SS is causing the Federal deficit when it has nothing to do with the federal deficit. But Congress is devoted to lying about everything, even to themselves.

      1. coberly

        no it doesn’t. retiring before you die has always been the privlege of the rich. now that social security has made it possible for the poor to retire, they should have the right to retire when they want to as long as they paid for it themselves.. which is what social security enables them to do.

        the “whole world is doing it” because the rich don’t like to see the poor retire. and in most of the world retirement is paid for by the rich (that is by general taxes which are mostly paid by the rich).

        “making” the rich pay for social security woud lead instantly to raising the retirement age to where the rich could squeeze no more profit out of working the poor unit they are ready for the nursing home/

        1. Yves Smith Post author

          You are seriously discrediting yourself. You need to stop.

          My brother, a union member, retired at 57. He’s not relying on Social Security. Ditto cops and CalPERS beneficiaries. I know plenty who have retired very comfortably at 60.

          1. coberly

            apparently my reply to you is still being moderated. i hope that unlike
            MarketWatch…a Wall Stret Owned blog…your moderation does not mean “deleted if it disagrees with us.”

            as assertion that i am seriously discrediting myself isn’t much of an argument. You seem to be saying that because your brother has a pension, and CalPers provides a pension for state employees, my statement that retirement “has always been a privilege of the rich” is somehow badly wrong or dishonest. well, “always” here means from the time there were rich people at all to the time that there was Social Security. private pensions were very rare and public pensions fairly rare..only found in a few countries, not including the united states.
            so perhaps i was speaking a little loosely, but not so loosely as to seriously discredit myself.
            for most americans retirement became a real possibility when Social Security was enacted.

            Does this help you understand what i meant?

        2. Lambert Strether

          > as long as they paid for it themselves.. which is what social security enables them to do.

          That was FDR’s talking point, and he was correct it was politically powerful. However, that’s not how Federal taxes work.

  3. Sound of the Suburbs

    How did we get here?
    We need to look at the big picture.

    Economics the timeline.
    Classical economics – observations and deductions from the world of small state, unregulated capitalism around them
    Neoclassical economics – Where did that come from?
    Keynesian economics – observations, deductions and fixes for the problems of neoclassical economics
    Neoclassical economics – Why is that back again?

    We thought small state, unregulated capitalism was something that it wasn’t as our ideas came from neoclassical economics, which has little connection with classical economics.
    On bringing it back again, we had lost everything that had been learned in the 1930s and 1940s, by which time it had already demonstrated its flaws.

    What did the economists learn in WW2?
    In the paper from 1943 you can see …..
    They knew Government debt and deficits weren’t a problem as they had seen the massive Government debt and deficits of WW2.
    They knew full employment was feasible as they had seen it in WW2.

    Balancing the budget was just something they used to do before WW2, but it wasn’t actually necessary.
    Government debt and deficits weren’t a problem.
    They could now solve all those problems they had seen in the 1930s, which caused politics to swing to the extremes and populist leaders to rise.
    They could eliminate unemployment and create a full employment economy.
    They could put welfare states in place to ensure the economic hardship of the 1930s would never be seen again.
    They didn’t have to use austerity; they could fight recessions with fiscal stimulus.

    They had worked out how to create stable societies after the 1930s, but we forgot what they had learned before.

    What did go wrong with Keynesian economics?
    After a few decades of Keynesian, demand side economics, the system became supply side constrained.
    Too much demand and not enough supply causes inflation.
    Neoclassical, supply side economics should be just the ticket to get things moving again.
    It does, but it’s got the same problems it’s always had.

    Mariner Eccles, FED chair 1934 – 48, observed what the capital accumulation of neoclassical economics did to the US economy in the 1920s.
    “a giant suction pump had by 1929 to 1930 drawn into a few hands an increasing proportion of currently produced wealth. This served then as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied themselves the kind of effective demand for their products which would justify reinvestment of the capital accumulation in new plants. In consequence as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When the credit ran out, the game stopped”

    This is what it’s supposed to be like.
    A few people have all the money and everyone else gets by on debt.

    This is why Keynes added redistribution to the system.
    Maggie/Reagan removed the redistribution and inequality soared as things returned to the old normal of neoclassical economics.

  4. paul.w

    I didn’t see anything about the financial repression of the Federal Reserve. https://www.ssa.gov/oact/progdata/fundFAQ.html. This seems like a very low interest rate.

    The rate of interest on special issues is determined by a formula enacted in 1960. The rate is determined at the end of each month and applies to new investments in the following month.

    The numeric average of the 12 monthly interest rates for 2019 was 2.219 percent. The annual effective interest rate (the average rate of return on all investments over a one-year period) for the OASI and DI Trust Funds, combined, was 2.812 percent in 2019. This higher effective rate resulted because the funds hold special-issue bonds acquired in past years when interest rates were higher.

  5. Eureka Springs

    increasing contributions to the program from workers and employers to 7.4%, up from the current rate of 6.2%

    This is misleading framing. It’s not a contribution from employers, it’s a cost. What so many workers don’t know is they are paying double the deduction noted on their pay stub…their income is actually higher.

    Bill sounds good to me. The naysayers are going to scream “welfare!” and such no matter what. Tax the hell out of the rich even if for no other reason than to watch their loot burn live on youtube. Can’t close the greatest disparity in human history without draining their coffers and lifting up from below at the same time, imo.

    1. Anthony Stegman

      There is some truth to what you say. Lots of folks seem to think that unemployment insurance is a form of welfare, and that those who collect on the insurance are welfare cheats, lazy bums, etc…What they don’t seem to realize is that just as all wage slaves pay into Social Security they also pay into the unemployment insurance system.

    2. coberly

      it does not matter who pays the employer share. it’s your money when you get it back in the form of Social Security benefits. if you want to say the needed payroll tax increase is “really” two dollars a week when you count the employers share as “really” the workers money…what difference does it make.

      the “really” the workers money was invented by the enemies of Social Security to make the “return on investment” look bad during times of high stock market returns on investment. it’s just meaningless words to distract from the fact that you need Social Security, and whether it costs you 6% from your check, or 6% from your check and another 6% from the boss that you would never see if it wasn’t that SS makes him pay it.

  6. anon y'mouse

    so, the farce of the trust funds and the idea that SSI needs to be budget neutral or whatever holds?

    MMT is not in effect?

    and no raising the cap, because then it becomes “like welfare”?

  7. Jim

    This article seems very deceptive, acting as if it’s somehow bad to tax the rich for SS. The payroll tax is regressive and should be replaced w an income tax.

    1. Anthony Stegman

      One important thing to consider with respect to Social Security solvency is the simple fact that since the 1970s wages have been in decline (versus inflation) for the vast majority of workers. This has caused the funding model for Social Security to be broken. An easy “fix” for Social Security entails raising average wages substantially. There would be no need for games such as imposing additional payroll deductions on incomes above $400K.

      1. coberly

        true, but until you figure out how to raise wages, we need to pay a little extra to keep Social Security solvent.

    2. Yves Smith Post author

      That’s why I advocated for eliminating the income cap. That would end the perceived solvency issue (which like the supposed financial woes of USPS, are actually a function of misleading accounting) and be more equitable.

      1. ChetG

        Eliminating the cap would be wonderful and fair. Why should the wealthy get off so easy?
        I remember the Reagan days when he supposedly reduced income taxes but had sole proprietors pay the full FICA tax. Yes, that was gradually introduced but played hell on my expendable income. Therefore, I would enjoy the wealthy paying their due.

        1. coberly

          fair to who? to the workers who would lose their Social Security because the Rich will not pay for it? or is it fair to ask the rich to pay for your groceries while you are in good health with a good job?

          the rich do pay for their fair share…which is a benefit scaled to their contribution with a somewhat lower rate of return than that proveded to the less well off… the difference in rate of return is what enables the poor to get a return high enough to keep them out of poverty,

          if you buy an insurance policy, you don’t like to pay more than the insurance is worth to you. you seem to think the rich should pay for your insurance….without knowing that they actually do…but then you go on to thinking the rich should also pay for your groceries. i don’t want to sound like a lover of the rich, but there is both a political and economic reality we have to deal with.

          1. Yves Smith Post author

            You have government operations totally wrong. The Social Security Trust fund is a mere accounting device. It does NOT EVEN REMOTELY represent how Social Security is actually paid for. Treasury debits its account at the Fed. Period. Issuance of bonds in connection with any deficit spending is a pure political requirement, a hold over from gold standard days.

    3. coberly

      social security is a highly progressive program that works because it is paid for by the workers.

      “regressive” is just a word that soome professors like because it makes them sound like they know something. applying it to Social Security shows that they don’t understand what Social Security is.

      it is not bad to tax the rich. but it would be bad to tax them to pay for your social security. do you make someone else pay for your groceries when you are healthy and have a good job, just because he has more money than you?

      1. Yves Smith Post author

        No, the taxation is most assuredly regressive.

        It winds up being net progressive because the payouts are disproportionate to the contributions.

  8. Benjamin

    SS is a demographic ponzi scheme.

    It’s already broke.
    It went cash flow negative 4-5 years ago not counting “interest” payed(with new debt)
    It will be cash flow negative in 2-3 years even counting interest payed.
    After that the fictional “assets” will be burned through. All by issuing new debt.

    There is no cash flow math that has ever been put forth that can save it given our current demographics. Any conversation about the trust fund is just making the argument that “my left pocket is not broke, my right pocket owes it money”. While your right pocket must go borrow to pay the left.

    SS is the number one reason why the CPI is and must be total fiction. If inflation as measured by the CPI bore any resemblance to reality all of this would have happened 20 years ago.

    1. Adam Eran

      See my previous comment. The “Ponzi scheme” meme is straight out of the political right’s playbook. Taxes do not (and cannot) provision federal programs. Sovereign, fiat money creators with floating exchange rates are not fiscally constrained. Ever!

      To quote myself: Federal fiscal policy is often described as “tax & spend,” but where would tax payers get the dollars to pay those taxes if the monopoly provider of (non-counterfeit) dollars didn’t spend them out into the private sector first?

      It must be: “spend first, then retrieve some dollars in taxes” — taxes create the demand for dollars, but spending is independent of revenue.

      What do we call the dollars spent, but not retrieved in taxes? Answer #1: the dollar financial assets of the private sector (i.e. their savings). Answer #2: National ‘debt’… Both answers describe exactly the same thing, just as your bank account is your asset, but the bank’s liability.

      …FICA is simply a regressive, unnecessary tax.

      1. coberly

        Adam, no. it’s a highly progressive program to protect the savings of the workers against inflation, market failure, and all the evils cash is heir to. Foget that “regressive tax” stuff. it’s just a meme that certain professors came up with to make themselves sound wise.

        1. Yves Smith Post author

          It does not “protect the savings”. Federal spending is not funded by taxes. Treasury spends by debiting its account at the Fed. Bond issuance is a politically-necessary tidying up after the fact.

          Taxes serve to create incentives and disincentives, transfer income, and drain demand (aka combat inflation).

          States and municipalities are different but the Feds do not need to tax to spend, and Social Security has long been a pay as you go program, despite pretenses otherwise.

          1. coberly

            that might be one way of looking at things. but it is easier to understand if you notice that people work for their money. and if they are going to want money when they can no longer work they have to save it or hope some rich person will give them some. Social Security enables ordinary workers to save their own money safe from inflation and market failures and their own failure to save, as well as being unable to save enough because of low wages.

            so why not use ordinary language?

            1. Lambert Strether

              > Social Security enables ordinary workers to save their own money

              No it doesn’t, because Federal taxes don’t fund Federal spending. You’re not asking Yves to use ordinary language, you’re asking her to lie.*

              NOTE * Given the state of the discourse, the overlap between ordinary language and lying is considerable, especially where mainstream economics is concerned.

            2. Yves Smith Post author

              THEY ARE NOT SAVING. The Federal government does not tax to spend.

              Social Security benefits are way disproportionate to the value of contributions. I can see this from my own SSA statement, which shows my contributions, v. my life expectancy.

              Your expertise was challenged above and your remarks here are leading me to doubt it.

              1. coberly

                apparently my reply is still in moderation. my expertise is not challenged by your doubt. i doubt very much the you have even read the Trustees Report, or noticed wehre it says the same thing I do. to notice that would take a very little arithmetic. I can’t give you page and verse off the top of my head, but if you ask, I will look it up. Try “immediate and permanent tax increase of [something like] 3.5%”, which requires a little bit of understanding about what immediate and permanent means. Later in the Report “infinite horizon” projections are discussed. They even give the infinite horizon deficit as a percent of infinite horizon payroll (without my proposed tax increase), and an infinite horizon projection of the defict as a percent of infinite horizon GDP; this is on the order of 1%.

                Do you think we can afford to spend an extra penny on the dollar to pay for an extra two or three years in retirement…if we pay for it ourselves?

                1. Yves Smith Post author

                  This is the last time I am entertaining this discussion. We have spend years educating readers on MMT, which is how government spending for a fiat currency issuer like the Federal government works. The SSA accounting is a mere convention. It is not how the funds flows actually work. The ides that payroll taxes represent savings is flat out inaccurate.

    2. Oh

      If you feel that SS is a ponzi scheme, let’s tax the stock transactions to fund it more! If you’re right wing, neo conservative or a neo liberal you’ll recoil at the idea.

    3. lance ringquist

      social security is a insurance scheme like most all private insurance companies. social security cannot go broke as long as even one person pays into it.
      just like any private insurance company, social security must adjust its policy rates from time to time depending on the economic environment.
      so next time your auto insurance goes up, its because the economic environment has changed. same thing for social security.
      next time you get a upwards cola adjustment, its because social security is so well run, that your policy rate factured in a raise.
      its not social securities fault that nafta blly clinton took over the democrat party and went fascist.

    4. coberly

      Benjamin. my previous reply did not appear. here is second attempt. A ponzi scheme is a fraud with no assets. SS assets are the unending stream of people who will need a safe way to save for their retirement. EVERY INVESTMENT depends on future investors. SS has paid back every investor every dime plus interest and often large insurance boost for over eighty years and can do that forever unless the Liars can fool enough people like you.

      my cash flow math has been checked by SSA Deputy Chief Actuary. She says I am right that a one tenth of one percent per year increase in the payroll tax will guarantee solvency for the forseeable future.

      The left pocket right pocket is an old joke. America is not one person. It is 300 million people who borrow from each other every day. SS is borrowing from your young self to pay your old self when you can no longer work. This is exactly the same as what you do when you put your money in the bank. SS is the safest bank in the world.

      1. Benjamin

        my cash flow math has been checked by SSA Deputy Chief Actuary. She says I am right that a one tenth of one percent per year increase in the payroll tax will guarantee solvency for the forseeable future.

        You claim exact math but cite none. Ok, simple 3rd grade math. Currently SS and Medicare outlays(since they pull from the same revenue the outlays must be combined) are 1.8T. Revenue is ~1.2T. So a 600B shortfall or roughly 30%.

        I have not looked at the projected increase in the shortfall due to demographics in a while but it was approx +30-50% by 2050. (And this was based on pre-COVID inflation projections.)

        So to not be in deficit SS taxes would need to roughly double(again, not even counting the new far worse that projected inflation reality). .1% increase per year for 30 years would be a massive increase over time and yet still not be even close to getting it done.

        Social Security has long been a pay as you go program, despite pretenses otherwise.

        This is correct. SS payed, and it went(elsewhere). It was always meant to be this way. It’s provable in a few simple facts.
        1) SS excess revenue(when there was any) can only be held in Treasuries.
        2) But they are not quite Treasuries. They are non-transferable. i.e. They cannot be sold on the open market.
        3) So there never was any chance/intention that SS assets would be firewalled off from being redirected to the general fund.

        1. Yves Smith Post author

          No, you are wrong on this. Medicare and Social Security are treated by the CBO as separate and subjected to entirely independent cost projections.

          You’ve discredited yourself as qualified to opine by saying otherwise.

        2. coberly

          third grade math indeed. you really don’t know enough for your math to mean anything. I think you might at least suspect the Chief Actuary knows what she is talking about, though you may doubt my claim that she agrees with me. go over to AB, they will direct you to the letter from the Chief Actuary. again, you might call me a liar, but your math is ridiculous.

  9. lance ringquist

    this is the direct results of america’s aversion to naming names to their disastrous polices and demonizing those names.
    if we had demonized nafta billy clinton and the people who helped him take a meat axe to america, we would not be stuck with the most progressive president since FDR, who is anything but.
    in europe most so-called left wing parties were taken over by nafta billy cardboard cutouts, and today most of those parties are in the basement, no one takes them seriously. they were and still are publicly ridiculed, they name names.

  10. Starry Gordon

    ‘This article seems very deceptive, acting as if it’s somehow bad to tax the rich for SS. The payroll tax is regressive and should be replaced w an income tax.’

    Then it becomes Welfare. Taxing the rich is not popular in America because because everybody is going to be a billionaire any day now. It would make SS easy to attack and destroy. However, the folk believe that SS is _their_ money, which they _earned_ by their _hard work_ and is being held in trust for _them_. Never mind all the magical practices with the funny money. The rich will always escape, as long as there are rich people, but the earnest greasy dollars of the poor are sacred to them. Any clear attempt to steal them will be, well, perhaps pre-revolutionary. Occupy Wall Street can come back in monstrous (to the rich) form.

    1. coberly

      starry, not bad to tax the rich. but bd to tax them to pay for Social Security which works because it is paid for by the workers themselves. paying an extra dollar per week to pay for your own future groceries is not an unreasonable burden.

      SS is not welfare. it must not become welfare. there is nothing wrong with welfare where and when it is needed. but not at all safe as a general answr to everything. and not at all good for you to be asking for a handout to pay for your ordinary living expenses when you can afford to pay for them yourself.

      you seem to think that workers should not have to use their ordinary greasy money to pay for what they need. so what do you want them to use it for?

      1. coberly

        looks to me like i might have misread Starry. I’ll leave my comment in case it say something someone else needs to hear.

    2. drumlin woodchuckles

      The only way that Occupy Wall Street can stay come-backed, if it comes back, is to arrive with more guns and ammo and training in how to use them then all the potentially deployable police who could be flooded into the Occupy Wall Street zone. But they probably know that.

      So they won’t allow themselves to be led by LARPing COSplaying non-violent Graeberite Anarchists next time.

  11. lance ringquist

    at one time i think i read that social security could not add to the deficit. at that time we were on the gold standard, or loosely tied to it.
    FDR did that so that the rich could not bark and bray that social security was a burden on the american people adding to the deficit.
    he did it because he could point out that it was self funded, like any insurance company. taking away the blow horn from the filthy rich.
    today of course we are fiat, and the deficit is a phony scam to deny us the preamble of the constitution, and article one, section eight of the constitution.
    but, it still should stay 100% self funded. and social security should say that loud and clear.

  12. flora

    Robbing the old, the poor, the powerless to pay-go trillions in tax give aways and direct money injections to Wall St. and the billionaires… again.

    It wasn’t only Monica Lewinsky saving SS in the C admin, the original Tea Party saved SS in the O admin. I hope this 3rd Time try isn’t a “charm”. (AOC appearing with Richie Neal to push this idea? That’s progressive?)


    Now this new SS “modernization” Dem fakery, again…?
    This is after Congress granted business owners a particular windfall re: employees SS & MC fica taxes during this pandemic. See Karl Denninger’s write up about that particular plum in the CARES Act. (language)

    In plain English: The employer gets to claim a refundable credit (meaning if it zeros their obligation they get the rest back in cash.)

    YOU earned every dime of these funds which were then withheld in your check for Social Security and Medicare, only half of which is on your check stub (whatever you see there double it — that’s the amount you actually paid in said tax) but instead of those funds going to and remaining with the government to pay for those programs (in part) they instead gave it to your employer!


    1. drumlin woodchuckles

      Really? AOC appeared with with Richie Neal to push this idea? I guess you answered my question up above. The DemProgs and especially AOC really are stupid enough to vote for the Larson Catfood Plan.
      They are stupid.

      There is no hope for us from the DemProgs. There is no hope to be found in AOC. If she really is so totally dumm ignorant stoopit that she will support the Larson Catfood Plan for Social Security, then it shouldn’t amaze us to see what other Overclass Initiatives she is dumm stoopit ignorant enough to support.

      Hopefully the Republicans will reject it because AOC supports it and also to deny Biden the honor of being the Great Democrat President to go to China on social security.

      1. flora

        They are stupid.

        Or they are not “New Deal” Dems, they are “old deal” Dems, aka the pre-1930’s Dems outlook, the old 19th c. outlook of the so-called Bourbon Dems. And, sadly, they might not even know that history they seem to be repeating. My 2 cents.

  13. ChrisFromGeorgia

    Odd timing, or maybe I am just missing something, isn’t the Medicare Part A hospital fund running out of road in 2026 a much more imminent problem? That would mean mandatory cuts if Congress does nothing, something they’re real good at.

    One third of the Senate will have to deal with this in their current term, assuming they don’t retire or decide not to run again for office.

      1. flora

        And remember that people signing up for Advantage plans are signing over their traditional part A and part B covered premiums from traditional MC directly to the Advantage plan income, in addition to the extra govt subsidies the Advantage plans receive (that traditional MC plans do not receive). What a deal… for the Advantage plans’ profits.

        1. Oh

          That’s why they call it the Advantage Plan. It’s for the advantage of the (crooked) insurance companies.

    1. coberly

      chris, i can only solve one problem at a time. but you are right that Medicare is a bigger problem. but harder to solve because it is mostly caused by too high prices, which congress protects because big-med is one of their best contributors.

      meanwhile we can fix SS with a simple dollar per week per year increase in the payroll tax. but we must DO it, not just talk about it. though i think it would be a good idea if we at least started talking about it.

  14. p fitzsimon

    If real wages could increase would the additional social security tax revenue be sufficient? How much would they have to increase or would any increase in real wages be offset by increased payouts?

    1. coberly


      look at p 208ff 2021 Trustees Report. looks like an increase in real wage differential from 1.15% to 1.77% would result in a reduction in the needed tax increase of about 2% over 75 years (combined..so about half of the current projected needed increase). note increase in costs also from increase in wages.

      this is the real experts answer to your question. note that the 2% is my rounding because i don’t think you can make a 75 year projection any more accurately than that.

      thanks for the question.

  15. PghMike4

    Calling paying social security benefits to widows and dependents “welfare” is crazy misleading. The breadwinner paid into the system, and in some cases, the widowed party may have made career choices depending upon the breadwinner. A typical family is a *partnership*, and its wrong to say that only the breadwinner paid into social security.

    The author also writes that we have “welfare” to handle widows, which is so wrong that it’s amazing. We don’t have any significant welfare system in place at this time. TANF is temporary, and applies to parents of dependent children only.

    In addition, the payroll tax is regressive, and I don’t see that there’d be any real change in how social security is viewed if part of it was paid from income taxes instead of increasing payroll taxes.

    It really seems that this article is 100% off base.

    1. coberly

      Pgh Mike
      you have badly misread what I said. we have welfare for those who did not pay, or pay enough, into Social Security to qualify for benefits, or enough benefits to avoid poverty. Social Security does pay benefits to widows and widowers, and other dependents. I never said it didn’t. The point of Social Security is that it is NOT welfare, so it is harder for the rich to kill. The point of my essay today was to show that “taxing the rich” is the best way to turn SS into welfare that the rich can kill.

      Saying the payroll tax is regressive fails to umderstand that the program is progressive. It’s a bit like calling your fire insurance “regressive” because the rich pay the same price for the same insurance that you pay. Or calling your grocery store regrssive because the rich pay the same price for their groceries that you do. In fact the rich pay MORE into Social Security than you do, and they get less back as a percent of what they paid in. It is their lower-as-a-percent return that enables SS to pay a higher return to the poor than they could expect on the basis of what they paid in, enabling them to escape dire poverty when they get old.

      you don’t see there would be any change… because you don’t see that the rich would fight paying for it. or use the fact that they are paying for it to cut benefits. they are counting on you not seeing that. why is one dollar a week to keep your benefits (I paid for it myself) such an intolerable burden for you? Are “the rich” right that if you could live on their money without working that is exactly what you would do?

      it seems to you that this article is 100% off base is not proof, or even an argument, that it is off base at all. It could be that you just don’t know what you are talking about.

  16. coberly

    The purpose of my essay, and my coming here, was to get people to at least begin to understand that they can pay for the projcted “huge looming unfunded deficit” in social security by raising their own payroll tax about one dollar per week per year. ( “raising the tax” is called “funding.”)

    I can’t explain everything all at once.

    i do not call myself an “expert”, someone else did. I only know something…very well…about how to pay for Social Security without the dangers of selling it to the rich by “making them pay for it.”

    i did not want to get into an argument about MMT. I am certainly no expert on MMT. I certainly don’t know the special words that MMT uses to describe what ordinary people understand as taxes and spending.

    being “sticklers for the truth” can make you blind to truths you did not previously know about. you can check what i say just by reading the Trustees Report very carefully and keeping in mind that what is trillions of dollars over seventy five years for 250 million people is only a few dollars per week for one person. a very cheap price to keep Social Security for you and your children and their children.

    I don’t know how to say that in MMT-speak,

      1. coberly

        what a very clever analogy, but i wonder if your epistemology allows for the possibility that I might be Lavoisier and you the man in the street with the tumbril. “The Revoution does not need philosophers.”

    1. Basil Pesto

      I certainly don’t know the special words that MMT uses to describe what ordinary people understand as taxes and spending.

      MMT uses ordinary words to explain that taxes and spending, at the federal level in the USA (and other economies), are not related to each other in a cause-and-effect way. ie, taxes do not fund federal government spending. Nobody comes to this idea overnight because it’s something of a big paradigm shift that clashes with concepts inculcated since about childhood, but it does have the benefit of being correct (that is to say, what ordinary people understand as taxes and spending is wrong, and has been for some time). Kelton’s “The Deficit Myth” is a good plain language explainer. Bill Mitchell’s blog has many long-form explainers albeit slightly more technical (for example)

      1. coberly

        thank you for civil reply. i will look up your references. but…and this is not saying anything at all about MMT, but about language:

        you say MMT uses ordinary words.. then you say that what ordinary people understand by those words is wrong. that might be a contradiction, but at least it fails to understand what words are.

        related to this, I have been censored by a Wall Street Journal affiliate for saying what they did not want to hear. I expected that. I did not expect to be censored by Naked Capitlism for using words that ordinary people understand…even if their deep understanding of what the words refer to is “wrong”.

        we can teach people what those words “really” refer to, but it doesn’t help to begin by censoring them.

        it happens that i do use words that apparently mean what people do not expect them to mean. i use those words because it is the only way i know how to begin to explain something starting by using familiar words to point to concepts that are already familiar to them.

        my purpose here was to try to explain what was dangerous about the Larson plan. my purpose was not to explain or deny or argue about MMT.

        my response to the first time i heard about MMT was…”we already do that”… so i am not surprised to hear you say that “we already do that.”

        so, what does MMT say about the necessity to raise the cap? please try to use words i can understand..that is, point to something i think i understand. we can work out the errors in my understanding as we go. i’d like to invite you to do this over at AngryBearBlog. we don’t practice censorship of ideas there… at least we try not to. i say we, but i do not have any editorial control over AB at all. So you’d have to go through the site owners. I don’t think they would censor your opinions or language trying to express those opinions.

      2. coberly

        i have the Kelton book on order. The very favorable review i read didn’t say anything I disagree with.

        Yves argument with me is not about MMT substance but a very totalitarian idea about the dangers of free speech. And yes I understand that “free speech” is about government censorship, and blogs are free to censor whatever they want to. But the spirit of censorship forever lurks even among the most liberal hearts. This makes it hard for even honest people to learn something they did not know before.

        1. coberly


          Look at the post by the same name and comments in Angry Bear Blog might be helpful. We don’t practice ideological censorship, and we do understand the use of “imperfect” language. I just added a comment there that might fit Yves ideas about SS being independent of “primitive ideas” about taxes and spending and deficts etc. But I think it’s the “accounting convention” that makes the whole thing work. i am not a deficit hysteric. but i am wondering how “raise the cap” fits with Yves undersanding of MMT.

          Again, thank you for your civil answer above. it helps.

          1. coberly

            I was not inculcated from childhood in anything. The first day in Economics 101 I realized something was wrong. I understood before you mentioned it that the Fed and the World Bank use monetary policy in ways that sound like MMT. One problem I have on other blogs with “ordinary people” is that I DO use words in ways they don’t yet understand. That’s the starting off place to try to educate them about how what I am saying is not that SS is exactly what they think of as “savings” or “insurance” but it’s a good place to start thinking about them in order to understand them. I never expected to be blindsided from the MMT side…not argued against, but called a liar because I did not use the received language of MMT.

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