Sunday, November 14, 2010

Republicans are to give retiree money to the weallthy and cut benefits

There is an argument that because the Social Security trust fund is invested in government bonds, it is nothing more than a slush fund to be used by Congress to spend more without taxing to pay for it - like tax cuts to the rich and unneeded wars -- or even needed wars which also have to be paid for. but Social Security retirement has never added to the deficit and by law it cannot borrow money to pay benefits. Only revenue from the FICA tax can be used to pay benefits.

Why has the Social Security trust fund been invested in treasury bonds? Because they are the safest investment vehicle in the world. If you are going to build up retirement savings for Social Security when the baby boomers retire, where else do you place the money? Wall Street? Bernie Madoff?

Congress has been spending like drunken sailors for thirty years after the Reagan Commission raised the FICA tax to more than needed to pay the benefits each year. The excess money went into the trust fund and was loaned to the federal government. The feds then spent that money, just as they would money the Chinese loaned them. Neither Social Security nor the Chinese have any control over how the Congress spends its money. Congress has been a drunk living on credit card debt. That's the problem. But Social Security has NEVER run a deficit any year since it was established. And it never will because by law if a deficit looms the benefits will be lowered to the amount that anticipated revenue can cover. The retirees have not contributed to the deficit. Why should they have to sacrifice their benefits to bail out Congress for its bad spending and giving government money away to the rich?

As long as the government has a unified budget where income to Social Security could be used to mask the deficit and as long as the fund is growing, the Congress really can use that money. They borrowed money instead of raising taxes. The trust fund masks the true deficit.

The problem now is that the boomers are going to start drawing down on that fund instead of building it up, and Congress is going to have to at long last pay for their profligate tax cuts, unnecessary wars and unneeded military projects (F-22 and F-35 as examples. Neither will ever see combat because the Cold War ended two decades ago.

The fear that is driving the conservatives is that they are going to have to 1. raise taxes to pay for the idiocies they have been spending on or 2. they are going to have to let the federal government default on its debt (which would be a disaster for the economy.) The third choice is 3. a slow subtle default on the money that the Social Security trust fund has promised to pay to retirees. This has the great benefit that it delays the pain without forcing Congress to raise taxes. Again, Congress will be spending today and stealing the money from the retirees. But the real pain is delayed a decade or more, so no current politician will be effectively blamed for their graft.

This third option is the one that the Pete Peterson Foundation and the cat food commission are choosing. Notice that the catfood commission mixes default on benefits promised to social security retirees with further tax cuts to the wealthy and calls that "sharing the pain."

So let me summarize briefly. The Social Security situation is not complicated.

The reason why treasury bonds are so secure is the US has the largest economy in the world, and if the federal government defaults on those treasury bonds the whole US economy will go into the tank faster that Wall Street's derivatives nearly put it there.

The Republicans have three choices 1. Raise taxes to pay social security back, 2. Default to China and the other investors with disastrous economic results for America, or 3. Run a scam that allows them to selectively default to the baby boomer retirees.

We are watching choice 3 being worked out and the US media is so stupid they are buying it. With the House in Republican hands and the Senate under control of Republicans and blue dog Democrats, the retirees will have their retirement benefits slashed to pay for the wars and tax cuts the Congress was unwilling to raise taxes for.

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