Who Benefits? (Guess)

The other day I had a conversation with a guy who I would characterize as a "sane conservative". What I mean by that term is that he wasn't spouting conspiracy theories or bigoted hatred, just some old school conservative Republican positions regarding government regulation and fiscal responsibility. We were having a civil conversation, agreeing on some things and politely disagreeing on others when he brought up Trump. He mentioned that many in big business were looking forward to Trump being back in office, since he is for getting rid of regulatory overreach and is generally business friendly. I responded that that's a traditional Republican policy position that they could have had with some other Republican instead of  a dementia-ridden, hate-filled, ignorant self-dealing lunatic.  And that's the (or one of the) problems with the heads of large corporations - they're willing to accept the disruption to the economy and the erosion of freedom, the gradual conversion of our democracy to an authoritarian state if it will swell their bank accounts and inflate their stock valuation. 

Regulations have to be balanced. They can't be so restrictive that businesses cannot operate, nor can they be so toothless that businesses will do harm. Regulations often cost money to implement, and costs, any costs, reduce profit. All other things being equal, a business's primary goal is to maximize profit, and anything that stands in the way of that goal is an enemy to be resisted. Fair enough, but government's job isn't to maximize profit, but, at least according to the Constitution, its job is to "establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty". Government is not in the business of business, its goal is not to be profitable, but to facilitate a society where all can flourish. If that's the socialism or communism that some rail against, your argument isn't with me, it's with the people who wrote and ratified the Constitution. 

Profit-seeking has it's place in a free nation. Profit is the reward and motivation for taking risks. Government will often subsidize research and development for things that are necessary but not profitable, but so many inventions are the result of risk taking. Those who took the financial risks should benefit when their risks pay off, but not at the expense of the "general welfare". Many of our largest and most profitable businesses not only derive their riches from a return on their investment, but on government largess. Most states have incentives programs that reward companies for locating their factories, or data centers or headquarters to their cities. In Nebraska we have a several incentives programs, most which reward companies for doing what they would have done anyway, and are subject to manipulation by smart accountants. In one program we give the owner of a building being restored to historical standards a credit worth 20% of construction costs. Included in construction costs are developer fees, which can be as high as a quarter of total costs. In many cases the building owner is the developer, so they are paying a $1 million effectively to themselves and receiving a $200,000 tax credit for moving $1 million from one ledger to another. Good work if you can get it. The reason most incentives programs exist is because the next state over has them. 

It's becoming abundantly clear, even to the minds addled by MAGA promises, that the only people who will benefit from Trump's second term will be the people who are already rich. People in his inner circle are already floating ideas to increase certain types of immigration, the kind that benefits big business, despite the rhetoric about immigration being bad for America. We've heard much about how the tariffs Trump wants to enact will increase inflation, but surely Trump's billionaire friends will be able to secure waivers. The billionaires will land on their feet no matter what happens. 

And this brings me back to my point about gutting regulations being a traditional Republican position. The difference between the old guard Republicans and Trump is that the old guard understood that balance had to be maintained. They actually listened to economists, and even if they did prioritize their wealthy donors, they understood how everything was interconnected, and certainly understood who paid for tariffs. A Nikki Haley, or even a Ron DeSantis administration would shape up much differently than the upcoming Trump presidency, even if many of the basic policies would be the same. Eliminating regulations and tightening up immigration enforcement would likely still be priorities, but it's doubtful that there would be the threats of retaliation against political opponents or speculation about buying Greenland or taking over the Panama Canal. Yes, both Haley and DeSantis have sucked up to Trump, and DeSantis in particular has attempted to out MAGA Trump in the way he has governed in Florida, but tellingly they both campaigned hard against him in the Republican primaries when they thought there was a chance of taking him down. Despite the proliferation of Trump sycophants in all levels of the Republican Party, a powerless Trump (or a deceased Trump) would restore some semblance of sanity, even if the core goals are largely unchanged. 

Now? We're just dealing with chaos for chaos' sake. 

 

Can "They" Take Away Our Social Security?

Can Trump and Company actually "take away our Social Security"? 

Maybe.

Before we all start screaming "It's my money!" or "I paid into it since I was twelve!" Let's look at some facts.

The money that came out of your paychecks over the years is long gone. It was used to for Social Security benefits for the people who had retired while you were working. You're eligible for benefits when you retire, not because "your" money is in an account somewhere with your name on it, but because an algorithm based on your lifetime earnings record calculated how much your monthly benefit will be.  

It is true that until very recently the amount being paid out in benefits was exceeded by what was collected in payroll taxes, creating a surplus. That surplus is what is called the Social Security Trust Fund (SSTF). Currently the SSTF balance is $2.7 trillion. 

Every year that there has been a surplus it has been invested in "non-marketable government securities". This means that the SSTF isn't a Scrooge McDuck type vault full of money, or even a bank account with deposits equaling $2.7 trillion, but what amounts to $2.7 trillion worth of IOU's that are earning market rate interest. Until recently the balance grew each year as revenue exceeded benefits paid out. Since 2020 benefits have exceeded revenue through payroll deductions, so the SSTF balance has been reduced for the last three years. The deficit has been financed through the redeeming of the  "non-marketable government securities", aka "IOU's", which reduces the SSTF balance and is accounted for in the same way as any other government debt obligation, i.e. it is an expense against the general fund. The SSTF deficit for 2023 was $41 billion. 

A popular myth is that Congress, or various presidents, have "borrowed" from the SSTF in order to fund various tax breaks for the rich or foreign wars. While it is true that investing in the securities provides cash to the general fund, all that transfer accomplishes is to lower the amount of outside borrowing that needs to be done to finance the general fund deficit. Congressional or presidential pet projects are funded the way everything else in the general fund budget is funded, by deficit spending fueled by borrowing. 

A related myth is that Social Security will be "broke" some time in the next decade. It is true that by 2035 the SSTF will be depleted. What that means is, not that there will be no money to pay benefits, but that revenue from payroll deductions of then-current workers will only cover around 83% of benefits to then-retirees. Some action in the next ten years will need to be taken to cover the remaining 17%. 

Congress and the president have several options, increasing the cap after which FICA deductions are no longer assessed is one. A small 1% increase in FICA deduction on both employer and employee is another. Raising the retirement age is an unpopular option. Something needs to be done, sooner rather than later. (As unpopular as it was, Reagan's taxing some Social Security benefits when combined income exceeds a certain level, contributed to extending the life of the program)

Or Congress and the president can simply decide to kill Social Security by refusing to honor the debt obligations from the general fund to the SSTF. This would immediately reduce to zero the SSTF balance, effectively eliminating it and reducing benefits to whatever is brought in via payroll deduction. This would immediately reduce the national debt by $2.7 trillion (the total is currently around $31 trillion) They can change the formula by which benefits are calculated. If they only did it for new retirees, we'd never know - how many people know how their benefits are calculated anyway? Whatever solution, some people's benefits will be less than they would have been if no changes are made. 

It's unlikely that there would be enough support to totally kill Social Security. That doesn't mean that the 2025 crowd won't try. Lower and middle income Americans, the ones who depend at least in part on Social Security are far from the administration's priority. Everybody, including Trump, says they won't touch Social Security, but we've already seen how much a campaign promise from Trump is worth.

So, You're Saying That You Aren't Going To Lower Prices?

A few weeks ago I wrote about "What Will He Do?". I think that even with the inauguration more than a month away, we have some more information on what he will, won't and can't do. He made a lot of promises during his campaign, and we're already seeing some of them go by the wayside and other horribly coming to pass.

One of the processes that are different this time around is way he's putting together his cabinet and other key positions. In 2016 it was obvious that he and his core team had no idea how many slots needed to be filled or what qualifications were required. He ran the selection process like a small town job fair - taking applications and holding interviews, announcing on Twitter who the "finalists" were. (Who can forget the way he humiliated Mitt Romney, dangling Secretary of State and unceremoniously dumping him) This time around he's doing it more like the traditional way: deciding ahead of time who he'd want in various jobs, or sifting through those who expressed interest, then making an offer. A very much behind-the-scenes, opaque methodology. The difference between Trump's transition and an actually normal transition is that for many of these posts their qualifications are an antipathy toward the mission of the agency they have been chosen to lead.  The main qualification, however, is a servile loyalty to Trump himself. There are several nominees that would fit into any Republican administration, Senator Marco Rubio is one example, but even he has transformed from a typical Republican into a Trumpublican over the last eight years. In addition to cabinet picks who want to burn it all down, and traditional types, there are the truly unqualified. Loyalists whose only qualifications is loyalty. There are several potential appointees whose experience consists entirely of being a Fox News host. Even Pete Hegseth, nominated as Defense Secretary, whose qualifications appear to be National Guard officer and Fox News host, has no experience managing a large organization. This would be equivalent to viewing my nine years working for the Nebraska Department of Revenue as sufficient qualification to be Treasury Secretary. Let's not overlook the Attorney General and FBI picks who not only support the January 6th Insurrection and lies about a stolen election, but have made it clear that they plan on investigating, prosecuting and jailing political opponents. 

The biggest clue to what actions Trump will take came this week in the realm of economics. Many people who voted for Trump based their decision primarily on the economy. (Whether that was a rationalization to cover anti-immigrant bigotry or other categories of hatred is another subject). It is inarguable that inflation was high during most of Biden's term, compared to relatively low rates during Trump's first term. Anyone with a basic understanding of economics understood that a president has little to do with prices. (Not nothing, but the effect of presidential policies, with a few exemptions, is negligible). The inflation that we saw was caused by multiple factors: supply chain disruptions post-pandemic, increased demand for some items during Covid, and increased demand for different items after the pandemic died down, stimulus checks heating up demand, increased travel compared to a virtual shutdown causing shortages in fuel, widespread wage increases, opportunistic price increases by big corporations, and home valuations going up resulting in higher property taxes. 

Most people saw this as a binary economic choice. With inflation as the determining factor, Trump was good, Biden was bad, despite most other economic measures such as unemployment, stock prices, and job growth, being positive, people focused on inflation. They didn't want to hear the nuanced explanations from the Biden team and fell for the simplistic slogans from the MAGA camp. Trump doubled down on this, making all kinds of promises that would, if enacted, financially help most Americans. The problem was that it was all bullshit.

Trump promised to eliminate taxes on tips (Harris did this too) overtime, and social security. He promised to cap credit card interest at 10% and make interest on car loans tax deductible. Naturally he received loud cheers for this. But his most bullshitty promise was to reduce the price of gas and groceries. The price of a box of cereal is based on so many variables like supply chain increments, labor, and the cost of ingredients, that over the long haul prices go up but they never go back down. Deflation is not a good thing. Nonetheless, Trump has promised to bring down prices...quickly. The price at the gas pump has always seemed to operate under its own rules though. The trend is always upward, although there are peaks and valleys in the prices over time. The average gas price sunk to around $2.00/gallon in 2020 because people weren't driving. The peak prices of $4-$5/gallon in 2022 have since sunk back down to reasonable levels of under $3.00/gallon. 

Trump has already waffled on his promise to lower prices, which all of us who didn't vote for him knew was unattainable. In an interview last week Trump was asked if his presidency would be considered a "failure" if he didn't deliver on his promise to slash Americans' food bills. "I don't think so. Look, they got them up. I'd like to bring them down. It's hard to bring things down once they're up. You know, it's very hard”. Yeah. It's hard. How about it's impossible. Which we knew. Let's not forget that two of Trump's other promises, to increase tariffs  and deport millions of immigrants are among the few actions that a president that are guaranteed to cause inflation. 

What does this tell us? That Trump simply doesn't care about lower and middle income Americans once he has their votes. He can't run again, so he doesn't need to court the electorate, except to stroke his insatiable ego. We can count on any of his campaign promises that would have helped 99% of Americans to be forgotten as he prioritizes actions that help the 1% and smooth the way for revenge against those who tried to hold him accountable.