History for Amnesiacs: Our stolen Social Security taxes

In this lesson, I have to ease off my usual how-could-you-forget tone. I had to do a bunch of research to confirm, and in some cases correct, my own memory of events.

Social Security (SS) was born underfunded. Maybe I should have researched why the founders in 1935 thought 1% per year were adequate savings, but I didn't. However, as far back as I can remember, which goes into the 1960's, SS was in trouble and in need of rescue. The employee contribution rate went from 1% in 1935 to 7.65% since 1990.

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I remember the series of SS crises, as collections failed to keep up with current and projected pension demands. The Greenspan Commission in 1983 was supposed to fix SS for good. I guess politicians and voters bought the story, or maybe just felt that the taxes were as high as Americans could stomach, because the rates haven't been raised since the commission set the rate at 7.65%.

One thing that didn't happen was isolating the surpluses and making sure the money was available when the bulge of retirements started to tax the SS fund in the 2020's. This is where my research went off the rails. I expected to find that because there was no "lockbox" for the surpluses, they had been frittered away through tax cuts and deficit spending during the Bush II years. That's the Democratic narrative, anyhow.

The Twist

What I found instead is that the SS trust fund never had a method of securing its surpluses. It always handed them over to the Treasury in return for IOU's. Unlike a normal pension plan, the SS trust fund not only didn't secure its surpluses, but it never invested them. It was always on the road to relying on US federal dollars for its own deficits when the baby boomers retired in droves.

The SS trust fund also funded most of our modest deficit spending for 3 decades. But starting in the 1980's, we ran significant extra deficits beyond that. So not only does the federal government owe the SS trust fund $2.6 trillion, but it owes non-government creditors nearly $10 trillion on top of that.

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One part of the Democratic narrative is correct. The SS payroll taxes were increased and that provided the federal government with ready money to fund extra spending and tax cuts and buy up yearly deficits, so that money was frittered away.

A more important truth is that, despite creating these surpluses, neither party in the 1980's had a plan that allowed the SS trust fund to use these surpluses. When you think of pension funds losing billions in hedge fund collapses, it's reassuring to know the SS trust fund isn't being used that way. But to find out that the money isn't even being stuffed in a mattress, that none of our top economists have ever figured out how to stash or invest or isolate or protect that much money, that is maddening.

All that time that I was being taxed, I was one of the many baby boomers who said "I'm not going to count on Social Security because it's not going to be there when I retire." However, finding out more of the mechanics now, it really hurts. OUUUUCCHH.

Even when the commission declared that the tax increases would keep the SS trust fund solvent in perpetuity, and it increased taxes ON ME and EVERYBODY to create much larger surpluses, THEY NEVER HAD A PLAN. Those surpluses were just thrown down the same rabbit hole. What the hell was that commission for? Why the f**k didn't the commission work on that part of the problem? My respect for Greenspan, which started dropping after he retracted his "irrational exuberance" comment and kept pumping up the bubble, just hit a new low. It's now tunneling its way to China. How appropriate.

Values and Judgment: Judging the values

This is the capstone on my series about values and judgment. It will sum up my philosophy on values, making judgments, and on argumentation. First, a quick review:

• Values aren't absolute.
• There are good values on both sides.
• Both sides can admit that the opponents have some strengths and good qualities, and are not total jerks despite how you feel about them sometimes.

I hope you're staying with me this far, because the meat is coming up. What makes one side's values so different:  A different emphasis. That is, the sense that certain values are much more important than other values. So the key is not that the opponent's values are bad, corrupt, or stupid, but that they're not the right values to emphasize.

The best way absorb this point is through a handy example--the difference between progressive values and conservative, as illustrated by these morsels from the web.

Progressive Values from Progressivevalues.org

• Progressives emphasize values that support the human family, that is, values such as inclusion, compassion, community, and nurturing. Lesser, but still important values are fair markets, active citizenry, and rule of law.

Conservative Values from conservapedia.com

• Conservatives emphasize values that support self-reliance, truth, hard work, and the ability to resist lots of human weaknesses such as addiction, depression, and fear. Lesser, but still important values are humility, open-mindedness, and a tempered respect for authority.

Conservatives can look at the progressive's list and agree that the values are OK (maybe with a few exceptions), but not the most important. Ditto for the progressive looking at the conservative's list.

So, what separates the conservative and the progressive is what values they think are most important. However, this has a huge effect. For example, the ideal conservative world probably looks quite different from the ideal progressive world. (I won't actually engage in considering these ideal worlds because I don't waste my time on politically-tinged fantasy worlds.... gag!)

Another big difference is how to promote or achieve these values, what methods are effective, and what are appropriate spheres for taking action or addressing needs. Even then, you won't find total disagreement. Conservatives think that the federal government is the right vehicle for certain tasks, and so do progressives. It's just the tasks are different, say national defense versus providing healthcare.

So, to recap again:

• There are good values on many sides.
• There is no absolute way to show one set of values is better than another.
• The differences in viewpoint often come down to a different emphasis on what is most important, how to achieve goals, how to provide for needs, and what spheres or methods are most effective.
• None of these can be judged absolutely, so judgment is always subjective.

Nonetheless, people can and do make judgments and choose the most important values to uphold and promote. With consideration, you can weed out the bad ideas. With even more consideration, you can weed out good-but-not-good-enough ideas. This is what I try to do.

Conclusion

1. I'll present my values, but not as dogmatically correct. I'll explain why I think they're best.
2. I'll try to find the best reasons for opposing values and present those too.
3. Usually I'll be able to choose what I think is best, and explain why I think so.
4. I won't expect everyone to agree with me, but they should explain their reasoning as I explained mine.

More progressive values from The Daily Kos. More conservative values from William Buckley and the American Conservative Union.

Non-Candidate-Non-Coverage Pledge

I, ModeratePoli, pledge that I will not write about non-candidates who are already getting too much media attention. That is all.

Well, not quite all. I have no respect for a drawn-out, will-he-or-won't-he media-tease. So I will be ignoring politicians engaging in that behavior.

The Next Tax Fight

Maybe I'm ahead of the curve on the news for a change: There's a fight brewing over a pending increase to the Social Security payroll tax. As part of the December 2010 tax deal, Congress passed a temporary 2% reduction in this payroll tax. It is now set to expire, and the Republicans are ready to wave goodbye to it. Democrats are ready to attack Republicans for tax cut favoritism. The talking points are being prepared, with number of households that don't pay income tax sure to be part of barrage.

Bonus analysis/historic perspective

Update 9/9/11: The House Republicans were sounding more conciliatory on this even before the jobs speech on 9/8. With a matching cut to SS taxes for small employers, I'm not sure how the Republicans can turn it down. Well, maybe they can--it all depends what else is in the package.

Whipping Boy: The Working Poor

 

This talking point makes me really, really angry. But first, let's correct an error--lots of lower income people pay no income tax, but they do pay: social security tax, medicare tax, sales taxes, property taxes, state income taxes, excise taxes, gasoline taxes, thruway tolls, etc. They haven't been given a get-out-of-taxes-free Monopoly card.

The big complaint stems from two aspects:

1. Some people have such low incomes that their deductions (same as your deductions, not different ones) totally wipe out their income tax liability.
2. Some people have such low incomes from working that they benefit from tax credits that reimburse even more than they paid in from income tax payroll deductions. These credits include the Earned Income Tax Credit, Making Work Pay Credit, and Child Tax Credit. In many cases, these credits pay back even more than the person paid in social security tax and Medicare tax.

I don't think critics dislike the standard deduction and exemption amounts, because they are based on estimated costs of subsistence living in this country. So let's focus on the credits.

• Making Work Pay Credit is small, about $400, and is part of the stimulus to get more money in the pockets of most lower and middle class working people. I like it, but it wasn't meant to be long-term, but I'm not going to defend its continuation.

• The Child Tax Credit is a family-friendly support to low and middle income families that support children under age 13. Kids are expensive, and low income families struggle to support them. These tax credits make it a bit easier to stretch your $380 weekly paycheck to help pay your bills and still have some money left to buy your kids new shoes from a store instead of searching vainly for decent shoes that are the right size and not hideous looking from the Salvation Army thrift store. The Child Tax Credit maxes out at $1000 per child, up to $2000. Families making under, say, $25,000 yearly really need this extra help, but the credit has been extended to families making up to $110,000 a year to sweeten it for the middle class. If the credit should go, take it away from the top first, and maybe keep for the under $50,000 a year people. 

• The largest target for the critics is the Earned Income Tax Credit. Here is potted history per Wikipedia: it started under President Ford. The amount paid out increased under Presidents Reagan, Bush 1, and Clinton. Reagan in particular expanded this credit (actually a subsidy) to make low-wage work pay more than welfare. Not because welfare was so generous, but because many low wage jobs pay so little, but require a family to take on more expenses such as transportation, slightly better clothing, child care, etc. The Earned Income Tax Credit maxes out about $5700, but that is only for families with under $50,000 income. 

Critics who are offended by these subsidies are hard-hearted, and perhaps hypocritical. They bash people on welfare, then bash them again when they work. I guess they have no idea how hard it is to be a low-wage worker. These subsidies, particularly the EITC, may be what keeps people in the workforce, contributing their labor to the economy, instead of on welfare or on the street. I personally know workers who put their refunds aside to pay for auto repairs, just to ensure that they can continue to get to work.

Skin in the Game

The outcry arises because these worker don't have "skin in the game" because they don't pay income tax. The argument is that they don't care about income tax rates because they don't pay. There is some logic in this argument, but it isn't strong. Anyone can be accused of caring only about their own tax rate, and not about any other tax rates. Many times this is true. Lots of people want their own rates low, and everyone else's higher. This isn't a vice you can pin only on low-wage workers, because it applies equally to middle class, upper middle class, well-to-do, and the rich.

I suspect that this is a dog-whistle that goes along with the conservative talking point that the Democrats are trying to increase the number of people dependent on the government. However, low-wage workers aren't getting a free ride. They work AND they pay payroll taxes, which are a huge contributor to the federal budget (40% in 2010).

Make Them Pay

If you want to make life harder for the working poor, by all means, protest the EITC. But maybe it should be the last program you try to eliminate since it gives recipients the most control over how they allocate the money. If you want to reduce government spending, you may want to target direct welfare, medical payments, food stamps, rental subsidies, public schooling, social programs, training,  and higher education first.

If you're angry that some people pay less tax than you do, get over it. EITC recipients will never contribute as much to federal revenue as middle-class workers who pay both payroll and income taxes. They just don't earn nearly as much, so they don't have the money to contribute. But what should they do, just disappear? Work 80 hours a week just so that they can pay more? I think only a selfish lout would demand that.

[Original post accidentally deleted, then reconstituted from salvaged bits. What a pain. An instance where one wrong move creates a ton of new work.] 

Update 10/11/11. Read my thoughts on a fairer tax code.

Values and Judgment: What they don't tell you

Values are a difficult topic, requiring more abstract discussion than other topics. Nonetheless, I'll try to make the ideas as clear as I can. Start with this question:

What is the best way to live your life?

If you have a thoughtful nature, you've spend time thinking about what makes for the best life, the fullest, the most meaningful life, the most enjoyable life. Different people come up with different answers and the answers change over time.

Even if you think you have the answer, how do you know for sure? You can't go to Wikipedia for this question. Religious books aren't precise in their answers or we'd have fewer denominations. You can't subject the answer to logic, because classic logic (if A, then B) is too limited and simplistic for this kind of question. When it comes down to it, there isn't a clearcut test, though philosophers and theologians have worked on answers for all of human history.

So the answer is that there will not be a definitive answer. You cannot be sure. You can arbitrarily decide that one test or another (the tenets of a particular religion, the  greatest good from John Stuart Mill, or universality of action from Kant) is the way to determine the best values, but you have to admit that there's an arbitrary choice in selecting which test to use.

When it comes to values, you will never have a guarantee that you're right. That's doesn't absolve you of making decisions, however. It just means that certainty won't be part of process. Have I proven that sufficiently? If so, welcome to my world in shades of gray. I'll remind you, though, that it hasn't prevented me from forming strong opinions. But it has guaranteed that I question everything.

What they don't tell you: 

There are no absolute answers.

Why they don't tell you:  

So you'll stay, keep listening and hoping, and maybe be convinced.
Also, they might have suppressed their doubts and bought the whole story.

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Just for fun, I asked Google, "what is the best way to live your life?" Some of the answers:

• Follow these 7 tips
• Follow these 101 tips
• Find yourself a Jesus-lovin’ grateful man
• Rent this condo in the Caribbean

The Shredded Safety Net

I was thinking about what could loosen the purse-strings and get people spending again. Now, I'm not an advocate of profligate spending at any time (my family will confirm that), so I wouldn't want people to falsely feel safe to overspend.

For some people, having a bonus in their pocket is enough stimulus to spend, but most of us take a longer view. We want to feel sure that we won't regret the expenditure, so we have to believe the money will keep coming in.

It's hard to do that now with the job market as lousy as it is. Being able to count on our jobs or the good chance of getting another job is the safety net for most people. Rather, it was the safety net. No other safety net is going to take the place of a robust job market. Even if we once counted on our home equity or credit lines, no one these days realistically believes they can live on their home equity, credit cards, or savings for very long.

With the job safety net so tenuous, most of us are going to try to bulk up our other safety systems--our savings and any other income streams -- and pare back our obligations so we can live on less if the dreaded event occurs and we lose that job.

The renewed focus on jobs by all political parties is welcome, but I'm not hopeful that we can stimulate job creation by supply-side methods (lowering taxes) or by government programs. Both methods will raise both the deficit and doubts about our future, which isn't good for our job climate. I eagerly await the job proposals by all serious national leaders.