An Exchange With The Cato Institute
This is NOT mine. It is the work of a fellow blogger.
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Dear Mr. Tanner,
I just saw you say on Fox News that Social Security is under funded by $12 Trillion. Could you please expain what you mean by this and why you believe it?
Sincerely,
Jeffrey T. Stewart, Ph.D.
His response:
That is the present value of projected future benefits minus projected future tax revenues as estimated by the Trustees of the Social Security system.
My response:
Dear Mr. Tanner,
How do you reconcile your statement with the June 2004 CBO report stating that Social Security can pay all benefits from FICA tax revenue alone until 2019. Starting in 2019 Social Security fully and easily meets all of its benefit obligations with FICA tax revenue and the approximately $6 Trillion accumulated in its Trust Fund?
Sincerely,
Jeffrey T. Stewart, Ph.D.
His response:
The Trust Fund is not an actual asset, but merely a claim against future tax revenues. Redemption of the Trust Fund bonds, starting in 2018, will cost $1.5 trillion (present value). However, even if you consider the Trust Fund an asset, it will be exhausted by 2042. The present value of unfunded liabilities after the exhaustion of the Trust Fund is $10.4 trillion. Add the $1.5 trillion to redeem the Trust Fund and it totals $11.9 trillion.
My response:
Dear Mr. Tanner,
You are using the Social Security Trustees report for the 2042 date. If one uses the CBO figures which assumes an historically low 1.8% growth rate of RGDP for the next 42 years, then only in 2052 will FICA tax revenues not be adequate to pay full benefits. Given that RGDP growth has been approximately 3% for the last 75 years, one may conclude that if RGDP grows anywhere near its historic average then there will never be a “funding crisis” with Social Security. Thus, there is no problem with the program now or in the foreseeable future and THEREFORE no reason to profitize this most successful government anti-poverty program.
If RGDP grows only an average of 1.8% over the next 40 years there will be huge problems in the U.S. that have nothing to do with Social Security.
I am sure you know that when the federal government runs a deficit, then it must borrow. When Social Security runs a surplus, then by law it must lend to the federal government. In fact, it can only lend to the federal government because those assets are backed by the full faith and credit of the U.S. government. If the government did not borrow from Social Security, then it would have to borrow from other sources. Are you suggesting that just because the government borrows from Social Security that it doesn’t have to repay the loans as is does when it borrows from the Japanese and Chinese central banks? Thus, those assets in the are just as real as the bonds held by foreign central banks.
If one is intellectually honest, one tells the truth about these matters to people who do not have the time or access to research this issue. Respectfully Mr. Tanner, you do a disservice to these people and one may even say that you are lying. I would be elated to publicly debate this issue with you any time and any place.
Sincerely,
Jeffrey T. Stewart, Ph.D.
His response:
I would call your attention to the Clinton Administration’s FY2000 budget which explained:
“Trust Fund balances are available to finance future benefit payments and other Trust Fund expenditures--but only in a bookkeeping sense....They do not consist of real assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not by itself have any impact on the government’s ability to pay benefits.” Therefore, beginning in 2018, the government will face a cash-flow shortfall in Social Security regardless of the status of the Trust Fund. I would further call your attention to the work by Nobel Laurate James Buchanan and others that shows that the existence of the Trust Funds themselves led to the excess spending that was then funded by “borrowing” from the Trust Fund. The CBO study extended the insolvency date of Social Security from 2042 to 2052 largely by raising the estimates of the presumed interest rate paid to bonds in the Trust Fund. The CBO report made very little change in the date of cash flow shortfalls, moving it only from 2018 to 2019. The majority of experts on both sides of the individual account debate continue to use the Trustees report as the best official representation of Social Security’s finances. Second, because benefits as well as taxes are linked to rising economic growth (benefits being wage indexed), increased GDP growth does nothing to solve Social Security’s long range deficits. Finally, even if you take out the $1.5 trillion (present value), needed to redeem the Trust Fund, you are still left with unfunded liabilities of $10.4 trillion. Nor do you adress any of the other problems with Social Security: the low rate of return to younger workers, the unfairness to working women (because of the dual entitlement rule) and minorities (with shorter life expectency), the lack of ownership or legal rights to benefits (see Nestor v. Flemming), or the barrier to low and middle income workers from accumulating real inheritable wealth. Most successful government program? Only because that bar is so low.
My response:
Dear Mr. Tanner,
You may address future emails to Dr. Stewart. When you earn your Ph.D., I’ll return the courtesy.
The fact that you conveniently avoid is that if the federal government did not borrow from Social Security to finance its massive deficits during the ‘80’s and ‘90’s, then it would have had to borrow from other foreign and domestic sources. Are you arguing that it would not have an obligation to repay those creditors principal and interest when due? Social Security was compelled by law to finance the deficit because U.S. Treasury securities have no risk in that the U.S. government has always paid its debts. Now you argue that it doesn’t have to pay because it is only Social Security that loaned the money. With hope the absurdity of your logic is clear to you. Citing an authority such as the Clinton Administration fiscal year budget does nothing to change this logic or the conclusion. I might add that just because James Buchanan, whose ideological biases are well known, says something does not make it so.
I do not respond to your other criticisms about Social Security because you and others are not using them as evidence of the main “problem” with Social Security and thus, as reasons to “profitize” it. That is, they are not germane to the central issue we are debating and so I leave red herrings to the side. Most are irrelevant because you attempt to misrepresent the nature of Social Security. It is a social insurance program, not an investment vehicle.
After they pay their taxes, including FICA, U.S. workers are free to accept the inherent risk and invest in any stock or bond they wish. Why is privatizing Social Security necessary when all workers already have this freedom?
Your crocodile tears for workers not being able to build wealth is touching, but unconvincing. What are your positions on raising the minimum wage and legislating a livable wage? How many times have you stood with workers against management when they strike for higher wages, benefits and better working conditions all of which are direct ways to help workers accumulate wealth, but at the expense of corporate profits? Has this point been made clearly enough?
Admit it Mr. Tanner, your $12 Trillion unfunded liability is a lie. You cannot escape your responsibility for intentionally misinforming the public in the service of Wall Street brokerage firms and blind obedience to ideology.
Once again, I challenge you to publicly debate this issue any time, any place.
Sincerely,
Jeffrey T. Stewart, Ph.D.
This is NOT mine. It is the work of a fellow blogger.
-----
Dear Mr. Tanner,
I just saw you say on Fox News that Social Security is under funded by $12 Trillion. Could you please expain what you mean by this and why you believe it?
Sincerely,
Jeffrey T. Stewart, Ph.D.
His response:
That is the present value of projected future benefits minus projected future tax revenues as estimated by the Trustees of the Social Security system.
My response:
Dear Mr. Tanner,
How do you reconcile your statement with the June 2004 CBO report stating that Social Security can pay all benefits from FICA tax revenue alone until 2019. Starting in 2019 Social Security fully and easily meets all of its benefit obligations with FICA tax revenue and the approximately $6 Trillion accumulated in its Trust Fund?
Sincerely,
Jeffrey T. Stewart, Ph.D.
His response:
The Trust Fund is not an actual asset, but merely a claim against future tax revenues. Redemption of the Trust Fund bonds, starting in 2018, will cost $1.5 trillion (present value). However, even if you consider the Trust Fund an asset, it will be exhausted by 2042. The present value of unfunded liabilities after the exhaustion of the Trust Fund is $10.4 trillion. Add the $1.5 trillion to redeem the Trust Fund and it totals $11.9 trillion.
My response:
Dear Mr. Tanner,
You are using the Social Security Trustees report for the 2042 date. If one uses the CBO figures which assumes an historically low 1.8% growth rate of RGDP for the next 42 years, then only in 2052 will FICA tax revenues not be adequate to pay full benefits. Given that RGDP growth has been approximately 3% for the last 75 years, one may conclude that if RGDP grows anywhere near its historic average then there will never be a “funding crisis” with Social Security. Thus, there is no problem with the program now or in the foreseeable future and THEREFORE no reason to profitize this most successful government anti-poverty program.
If RGDP grows only an average of 1.8% over the next 40 years there will be huge problems in the U.S. that have nothing to do with Social Security.
I am sure you know that when the federal government runs a deficit, then it must borrow. When Social Security runs a surplus, then by law it must lend to the federal government. In fact, it can only lend to the federal government because those assets are backed by the full faith and credit of the U.S. government. If the government did not borrow from Social Security, then it would have to borrow from other sources. Are you suggesting that just because the government borrows from Social Security that it doesn’t have to repay the loans as is does when it borrows from the Japanese and Chinese central banks? Thus, those assets in the are just as real as the bonds held by foreign central banks.
If one is intellectually honest, one tells the truth about these matters to people who do not have the time or access to research this issue. Respectfully Mr. Tanner, you do a disservice to these people and one may even say that you are lying. I would be elated to publicly debate this issue with you any time and any place.
Sincerely,
Jeffrey T. Stewart, Ph.D.
His response:
I would call your attention to the Clinton Administration’s FY2000 budget which explained:
“Trust Fund balances are available to finance future benefit payments and other Trust Fund expenditures--but only in a bookkeeping sense....They do not consist of real assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not by itself have any impact on the government’s ability to pay benefits.” Therefore, beginning in 2018, the government will face a cash-flow shortfall in Social Security regardless of the status of the Trust Fund. I would further call your attention to the work by Nobel Laurate James Buchanan and others that shows that the existence of the Trust Funds themselves led to the excess spending that was then funded by “borrowing” from the Trust Fund. The CBO study extended the insolvency date of Social Security from 2042 to 2052 largely by raising the estimates of the presumed interest rate paid to bonds in the Trust Fund. The CBO report made very little change in the date of cash flow shortfalls, moving it only from 2018 to 2019. The majority of experts on both sides of the individual account debate continue to use the Trustees report as the best official representation of Social Security’s finances. Second, because benefits as well as taxes are linked to rising economic growth (benefits being wage indexed), increased GDP growth does nothing to solve Social Security’s long range deficits. Finally, even if you take out the $1.5 trillion (present value), needed to redeem the Trust Fund, you are still left with unfunded liabilities of $10.4 trillion. Nor do you adress any of the other problems with Social Security: the low rate of return to younger workers, the unfairness to working women (because of the dual entitlement rule) and minorities (with shorter life expectency), the lack of ownership or legal rights to benefits (see Nestor v. Flemming), or the barrier to low and middle income workers from accumulating real inheritable wealth. Most successful government program? Only because that bar is so low.
My response:
Dear Mr. Tanner,
You may address future emails to Dr. Stewart. When you earn your Ph.D., I’ll return the courtesy.
The fact that you conveniently avoid is that if the federal government did not borrow from Social Security to finance its massive deficits during the ‘80’s and ‘90’s, then it would have had to borrow from other foreign and domestic sources. Are you arguing that it would not have an obligation to repay those creditors principal and interest when due? Social Security was compelled by law to finance the deficit because U.S. Treasury securities have no risk in that the U.S. government has always paid its debts. Now you argue that it doesn’t have to pay because it is only Social Security that loaned the money. With hope the absurdity of your logic is clear to you. Citing an authority such as the Clinton Administration fiscal year budget does nothing to change this logic or the conclusion. I might add that just because James Buchanan, whose ideological biases are well known, says something does not make it so.
I do not respond to your other criticisms about Social Security because you and others are not using them as evidence of the main “problem” with Social Security and thus, as reasons to “profitize” it. That is, they are not germane to the central issue we are debating and so I leave red herrings to the side. Most are irrelevant because you attempt to misrepresent the nature of Social Security. It is a social insurance program, not an investment vehicle.
After they pay their taxes, including FICA, U.S. workers are free to accept the inherent risk and invest in any stock or bond they wish. Why is privatizing Social Security necessary when all workers already have this freedom?
Your crocodile tears for workers not being able to build wealth is touching, but unconvincing. What are your positions on raising the minimum wage and legislating a livable wage? How many times have you stood with workers against management when they strike for higher wages, benefits and better working conditions all of which are direct ways to help workers accumulate wealth, but at the expense of corporate profits? Has this point been made clearly enough?
Admit it Mr. Tanner, your $12 Trillion unfunded liability is a lie. You cannot escape your responsibility for intentionally misinforming the public in the service of Wall Street brokerage firms and blind obedience to ideology.
Once again, I challenge you to publicly debate this issue any time, any place.
Sincerely,
Jeffrey T. Stewart, Ph.D.
posted by Mike at 1:03 PM
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