The Rich Are Behind Trust Fund Myth

IJ Reilly

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When even business writers grow weary of the cynicism, you have to know the Republicans are overreaching.

Michael Hiltzik

One can reliably conclude that a political policy is failing when the stage business used to promote it gets more elaborate.

Thus, the bit of cabaret that President Bush engaged in this week at the Bureau of Public Debt in Parkersburg, W.Va., may be the surest sign yet that his campaign to dismantle Social Security is in trouble.

Bush's subject du jour was the Social Security trust fund, which currently holds roughly $1.7 trillion in U.S. government bonds. Beginning in the 2020s, this fund (which will be worth more than $6 trillion by then) is supposed to be liquidated to help pay retirement benefits for the baby boom generation. The process will take a couple of decades. At the end of that period, the fund will probably be exhausted, but most of the baby boomers will have moved past retirement anyway to, um, celestial pursuits.

Bush's purpose in Parkersburg was to portray this mechanism, which was painstakingly designed by a 1983 reform commission headed by Alan Greenspan, the current chairman of the Federal Reserve Board, as a fraud. The trust fund is basically fictional, he suggested; it's just a bookkeeping device that conceals Social Security's true fiscal crisis. By suggesting that Social Security has less money on hand than it seems to, he's hoping to win support for his highly unpopular plan to privatize the system.

Accordingly, he staged a photo-op pilgrimage to the four-drawer cabinet in the Parkersburg facility in which the trust fund's bond certificates are filed and briefly riffled through the pages. Then, smirking inanely for an audience of handpicked supporters, he ridiculed the idea that "the retirement security for future generations is sitting in a filing cabinet."

"There is no 'trust fund,' " he added, "just IOUs."

Bush's performance came straight from the right-wing playbook for the attack on Social Security. Its essence is that because the trust fund assets are merely bonds owed by the U.S. government to itself, they don't exist in any normal financial sense. When the time comes to redeem the bonds to pay benefits, the argument goes, the only way to come up with the money would be to raise taxes sky-high, which would destroy the economy. No one wants to do that, so it's best to pretend that the bonds have no value.

Plenty of otherwise thoughtful people have been taken in by this reasoning, as well as by the risible image of trillions of dollars of assets reduced to a few sheets of paper in a file drawer. (It has never been clear to me why the file cabinet should elicit such disdain. In what form do people expect to find the trust fund — gold bars piled in a corner of Ft. Knox, like the ingots James Bond saved from destruction in "Goldfinger"? I suspect that the brokerage statements, oil leases and government securities that represent the Bush dynasty's wealth are stored in file cabinets very much like this one.)

What's really insidious about Bush's ridicule of the trust fund is that it skirts a couple of crucial points — where the money in the fund came from in the first place, and how it has been spent over the last 20 years. The truth is that it has come from the paychecks of average American workers, and it has been spent to subsidize the wealthy. All the talk that the country won't be able to redeem the bonds in the 2020s, and therefore that Social Security benefits must be cut or privatized, really boils down to a refusal by the rich to repay decades of loans from the middle and lower classes.

To see how this has worked, one must understand that since 1983, when Congress last raised the Social Security payroll tax rate, the system has been taking in more money each year than it spends on benefits. The Social Security trustees have invested the surplus the only way they're permitted by law — in U.S. government bonds. In effect, they have lent the money to the federal government. Four successive presidential administrations (Reagan, Bush I, Clinton and Bush II) have used this windfall to keep a lid on income taxes without having to cut the federal budget.

But because the payroll tax is paid mostly by the middle class and poor, and the income tax disproportionately by the rich, the result has been a redistribution of wealth from the bottom up. Roughly three-quarters of all workers pay more in Social Security tax than income tax; because all wages over $90,000 are exempt from the payroll tax, it's the wealthy who get the break.

On the other hand, if income taxes are raised to pay off the trust fund bonds after 2020, it's the wealthy who will be hit hardest. They don't want to pay, which is why their mouthpieces in the administration are whining that the trust fund is a myth and that the country can't afford to redeem the bonds.

The pretense that the interests of wealthy taxpayers coincide with those of the entire community has become alarmingly popular among Republican officeholders. It's the basis of Gov. Arnold Schwarzenegger's argument that the state can't afford to raise income taxes, but somehow can afford to welsh on his debt to the public school system (which mostly serves the non-wealthy). There are encouraging signs that Californians have begun to get wise to the governor's scam; one can only hope that the rest of the country soon gets wise to the president's.
http://www.latimes.com/business/la-fi-golden7apr07,1,5238253.column
 

Thomas Veil

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The administration often relies on visuals to try to "tell the story" of Social Security. This week it's a file cabinet. Last week it was a vintage car (shown to illustrate the age of the Social Security program). The dog-and-pony show is phony enough. But this is new -- claiming that there in essence is no trust fund.

But at its core, it's the Bush folks relying on Orwellian propaganda again: tell a lie that's so big and bold that people believe it has to be true. I frankly get scared when I hear Bush lying in this way. I'm 48, and I've seen a number of presidents, but never one that lies as often, and is as comfortable with lying, as this man. I used to wonder how Bush could sleep at night. I've come to the reluctant conclusion that he is a sociopath.
 

mactastic

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Hmmm so any transaction not based upon physical currency is a sham now? Or only transactions related to the SS trust fund not based upon physical currency? As the article points out, where does Bush think the money that he is considered to be worth is held? Or does he keep bond certificates around?
 

pseudobrit

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And the privatisation scheme will result in IOUs for a chunk of a company that will be kept in filing cabinets. What's the difference?

Unless you buy gold coins or some ****.
 

mactastic

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iGary, it was widely reported (outside the LA Times, even in the WSJ) that Bush claimed the trust fund was a fraud. Do you doubt that sentiment is a GOP 'talking point' in their effort to privatize SS? And is the GOP not one of the two parties run by the rich?

Or do you just thing everything in the LA Times is liberal propaganda? :p
 

mischief

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zimv20 said:
i recall p'brit and i having that discussion about two years ago. we agree.
I'll add a vote to that column.

There's evidence enough that even family friends and his own father think he's unstable, potentially out of control and otherwise not fit for the job.

I find the most disturbing thing his trademark smirk at being caught. We've seen that smirk expressed as a sign of duplicitude by one of his college professors, a couple of family friends and his Guard Unit commander, not to mention those he "worked" with in Louisiana while others were being shot at in Denang.

There's a damn good reason I've been looking at this administration through the filter of history recently and even better reasons I've settled on the Reichstag for my parallels. What I find most disturbing is that nobody seems too concerned with the Republican attempt to use the filibuster bill to create a de-facto right wing coup that would disarm not only the Democrats but the dissenters within the Republican party.

We are living in very dark times. I would rather risk terrorism or worse than what will come of this facist, totalitarian takeover. The Judiciary is too overloaded to tackle all the laws passed that circumvent the Constitution and the Executive will soon not only have it's own secret police but a puppet Legislative the likes of which any founding father would have an aneurism over.

Perhaps it is, in fact time to move home to BC.... :(
 

Dont Hurt Me

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Thomas Veil said:
The administration often relies on visuals to try to "tell the story" of Social Security. This week it's a file cabinet. Last week it was a vintage car (shown to illustrate the age of the Social Security program). The dog-and-pony show is phony enough. But this is new -- claiming that there in essence is no trust fund.

But at its core, it's the Bush folks relying on Orwellian propaganda again: tell a lie that's so big and bold that people believe it has to be true. I frankly get scared when I hear Bush lying in this way. I'm 48, and I've seen a number of presidents, but never one that lies as often, and is as comfortable with lying, as this man. I used to wonder how Bush could sleep at night. I've come to the reluctant conclusion that he is a sociopath.
I agree with you , as a former Republican supporter have never seen so many lies,tales and spin from any president. Lies,lies,lies, thats the way i see it. Heck this president and sorry Congress still have not addressed a open border but they have made sure we strip search grandma's before they get on planes and have put in place another lie called the Patriot Act. I trust almost nothing from Bush's mouth, Iraq,Clean air initiative,No child left behind,Pharmaceutical drugs,SS. Lots of spin and lies. to push a extreme right wing republican agenda paid for by Corporations.
 

Thomas Veil

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mactastic said:
...it was widely reported (outside the LA Times, even in the WSJ) that Bush claimed the trust fund was a fraud..
Heh heh...another case of, "I know you are, but what am I?"

mischief said:
There's a damn good reason I've been looking at this administration through the filter of history recently and even better reasons I've settled on the Reichstag for my parallels. What I find most disturbing is that nobody seems too concerned with the Republican attempt to use the filibuster bill to create a de-facto right wing coup that would disarm not only the Democrats but the dissenters within the Republican party.

We are living in very dark times. I would rather risk terrorism or worse than what will come of this facist, totalitarian takeover. The Judiciary is too overloaded to tackle all the laws passed that circumvent the Constitution and the Executive will soon not only have it's own secret police but a puppet Legislative the likes of which any founding father would have an aneurism over.
We've discussed this before, too. Used to be that Nazi parallels to the president were one of the lowest forms of cheap shot, and were considered obvious trolling in forums. Now it's become, to everyone's regret, entirely fair game. The parallels are too obvious: drumming up the right with hysterical propaganda; violating whatever laws it feels like; rigging elections; waging wars of aggression rather than defense; making attacks on the independent judiciary.

Truly frightening. You know how one website has that running tab of the national debt? Maybe someone should do a timeline of the lead-up to the Nazi party takeover of Germany, and show how far along that we are at any given time.
 

Desertrat

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I've tuned out of the whole SS squabble. The reason is fairly simple. I've read analyses from both viewpoints of "It's broke!" and "No, it ain't!": Both written by folks with apparently-equal credentials.

I'm reminded of a public hearing before the Texas Water Commission, back in the 1950s. Two engineering firms were testifying about the impact of a proposed reservoir project; one for the proponents, one for the opponents. One of the Commisioners asked one of the engineers what different data was being used, as between the two firms.

"We're using the same data. The difference is in how we interpret it."

From where I sit, I just really don't know how to interpret the data.

"all wages over $90,000 are exempt from the payroll tax, it's the wealthy who get the break."

In the FWIW department, I recall a Time magazine article about some UAW folks at a FoMoCo parts manufacturing plant at Dearborn who take home an average of $106,000 per year. Seems pretty much like "wealthy" to me. :)

However, most folks who are accurately defined as wealthy aren't drawing wages. Wages generally don't make you wealthy. Well-off, yeah, but wages alone ain't gonna get you into Rich City.

'Rat
 

IJ Reilly

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So, 'Rat, you're having a hard time deciding whether Bush's claim that the Social Security Trust Fund doesn't really exist is the truth or a fraud?
 

pseudobrit

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Desertrat said:
However, most folks who are accurately defined as wealthy aren't drawing wages. Wages generally don't make you wealthy. Well-off, yeah, but wages alone ain't gonna get you into Rich City.
Do we need zim to beat yet another person over the head with The Millionaire Next Door?
 

IJ Reilly

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Actually, I agree with 'Rat's point on this one. Raising the cap on the SSI tax would have a limited impact, at least in terms of making the tax less regressive, since the more income you've got the proportion of it classified as wages tends to decrease. Anyway, I think that's what he meant...
 

pseudobrit

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IJ Reilly said:
Actually, I agree with 'Rat's point on this one. Raising the cap on the SSI tax would have a limited impact, at least in terms of making the tax less regressive, since the more income you've got the proportion of it classified as wages tends to decrease. Anyway, I think that's what he meant...
So the solution is what, then? Hit the capital gains with FICA taxes?

Just because raising the cap doesn't totally de-regressive-ize the nature of FICA doesn't mean it's not a good place to start.
 

IJ Reilly

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pseudobrit said:
So the solution is what, then? Hit the capital gains with FICA taxes?

Just because raising the cap doesn't totally de-regressive-ize the nature of FICA doesn't mean it's not a good place to start.
Sure. But I do see the basic point -- it makes sense to me to raise the cap, but I know it won't capture the really rich. The tax laws were written with the rich in mind, mainly (which brings us back to the column I posted at the start of the thread).
 

pseudobrit

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IJ Reilly said:
Sure. But I do see the basic point -- it makes sense to me to raise the cap, but I know it won't capture the really rich. The tax laws were written with the rich in mind, mainly (which brings us back to the column I posted at the start of the thread).
Social Security is for the middle and lower classes. As unfair as it is, we can bear this burden without the rich contributing their share.

With the middle class being inflated -- by the weakening dollar and, well, inflation -- the upper parts of the middle class will pay increasingly less of their share of the payout. It's the same reason the AMT is netting more of middle America.

And if Bush's plan goes through, the debt and deficit will increase astronomically, placing further disproportionate strain on the middle and lower classes, who will see their guaranteed benefits shrink as a bonus.
 

Desertrat

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"The Rich" make most of their money from buying/selling/trading real assets, and clipping coupons. Not from salary/wages.

And there just aren't that many people in a salary category above a couple of hundred thousand bucks a year. At some point, things like stock options come into play.

If you raise the capital gains tax, smart folks quit selling assets, which drives up the price of those classes of assets, which kicks the middle-middle and upper-middle economic classes in the billfold. Econ 101 sez that if the supply becomes limited, the price goes up.

My understanding of the "Trust Fund" thing is that originally it indeed was a dedicated trust fund. None of the FICA monies went into the general revenue fund AT ALL. (Possibly the "overage" went into some sort of Treasuries; I don't know.) Sometime in the 1970s (?), this was changed such that while the paperwork was kept, ALL FICA monies went into the general revenue fund and the overage got spent along with other tax-money income. I'm not pretending I believe this as "true fact"; it's just my sorta vague recollection from a timeline of the whole SS deal as written in a local newspaper.

At any rate, ever fewer people are supporting ever more recipients. There are more and more of us Old Farts living longer and longer. Heck, my mother is 95, although she was never covered by FICA. My father died at 94; he was drawing the max, whatever that is. When FICA started, Old Folks flopped over in their late 60s, commonly. Hit 65, draw SS for a few years, and sayonara. Now? Hit 65 and hang around another 30 years. I've been drawing my 80% for right at nine years; that $600 a month covers my overhead...

The whole deal's a Ponzi scheme, seems to me, and at some point folks just flatout can't afford the bite out of their paychecks. Right now, some level of government is working real hard to raise your taxes; income tax is almost a minor issue. FICA + state + local + "hidden" = 40+% as it is.

Ah, well. Given the history of fiat money, it probably won't matter. You won't be able to buy much of anything, anyway, except via long-term debt and a bunch of luck...

Ain't gloom and doom fun? :D

'Rat
 

zimv20

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Desertrat said:
"The Rich" make most of their money from buying/selling/trading real assets, and clipping coupons. Not from salary/wages.
as p'brit foreshadowed...

rat, read The Millionaire Next Door. you're right in that the self-made millionaires do leverage their assets with real estate and by being frugal, but the salaries are a major part of the equation.

they show how families w/ a combined income of $60k can become millionaires, and it's not through risky investments.
 

pseudobrit

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Desertrat said:
My understanding of the "Trust Fund" thing is that originally it indeed was a dedicated trust fund. None of the FICA monies went into the general revenue fund AT ALL. (Possibly the "overage" went into some sort of Treasuries; I don't know.) Sometime in the 1970s (?), this was changed such that while the paperwork was kept, ALL FICA monies went into the general revenue fund and the overage got spent along with other tax-money income.
The general fund has been borrowing against the Social Security surpluses.

They're still there.
 

IJ Reilly

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The "true fact" is that the trust fund is invested in US government securities, which I understand is the only way they are allowed to be invested. For Bush to suggest that these securities are "worthless" is to be cynical and disingenuous in the extreme. If he is planning on defaulting on this debt, the first time this would have occurred in US history, I think he should own up to those intentions, instead of trying to mislead the American people into thinking that American promissory notes are without value. Of course the dollar would become virtually worthless overnight and our interest rates would skyrocket, a deep recession would ensue. But otherwise...
 

zimv20

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let's review part of the 14th amendment:
Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
did bush commit an impeachable offense?