Social Security Part 2

The previous blog post addressed some of the misconceptions regarding individuals' social security benefits. Let's look now at one of the myths about how the program is run overall.

As mentioned in Part 1, Social Security is and always has been a pay as you go program. In other words, current benefits are paid out from current contributions (i.e. payroll taxes, aka FICA taxes, aka Social Security taxes). Money for individual retirees isn't sequestered in personal accounts. Until fairly recently an annual surplus was created due to contributions exceeding benefit payouts. These funds were held in what is referred to as the Social Security Trust Fund. Most people understand that much. However many people harbor the misconception that the Trust Fund is similar to a bank account with a pile of money setting in it, waiting for Social Security checks to be distributed. 

By law, any surplus must be invested in interest bearing US Treasury bills. Just like when your bank uses the money in your savings account to make loans at interest, the Social Security administration is using the money in the Trust Fund to earn interest. Not only is this required by law, but it makes good fiscal sense to put the funds to work. The Social Security Administration could theoretically invest in the stock or bond market, with all the attendant risks, but instead, the money is invested in securities backed by the full faith and credit of the US government. The government is required to, and does, pay back the bills with interest when they mature or when the payouts exceed the contributions. 

It could be looked at, pejoratively, as nothing more than an IOU that hasn't been paid back so that Congress, or the President, can "raid" the Trust Fund, leaving it unable to meet its obligations. While it's true that the cash that is freed up each year when contributions exceed benefits is used as part of the general fund, that's an incorrect way to look at it. The government typically runs an annual budget deficit, meaning that tax receipts are exceeded by expenditures. These deficits are covered by borrowing in the form of government bonds. If some of that borrowing can be from itself rather than from private individuals or even foreign governments, wouldn't that make more sense? 

One of the pervasive myths is that a President or Congress, usually one that the spreader of the myth doesn't like, "stole" money from the Trust Fund in order to fund a war, or a social program, or whatever action the myth spreader is against. It's true insofar as some of the money used to pay for whatever nefarious project we're talking about came from cash obtained by selling Treasury bills to the Social Security Trust Fund. But it's untrue in that this happens every year when there is a surplus in Social Security contributions vs payouts. It's partially true that it's not been paid back, but it's untrue since it's not supposed to be paid back until the instruments mature. In each of the years since the Trust Fund has been running an annual deficit the general fund has been making up the difference by redeeming Treasury bills and/or paying interest. 

They will keep doing this until there are no more Treasury bills to redeem. That's when we'll have a problem, not because money was stolen and not paid back (it was borrowed and will have been paid back) but because the annual deficits finally used up the accumulated surpluses. Even then, based on the projected contribution levels, the Social Security Administration will be able to pay around 70% of benefits just from payroll tax collections. Congress will then need to decide how to handle it. Reduce benefits? Political suicide. Increase payroll taxes? Probably not popular. Start collecting payroll taxes on 100% of income, not cutting off at a certain point. Something will need to be done, but the coming crisis isn't because someone you didn't like stole money and didn't pay it back.

Social Security Part 1

I've blogged about this before, but occasionally I have to re-address the topic. 

One of the misconceptions about Social Security is that it's "your" money that "you paid into" in the same way that the money in your bank account or 401(k) is yours. 

Another is that it's not an "entitlement". let's start with "not an entitlement". 

People who are anticipating receiving social security benefits often like to draw a distinction between their benefits and what they disparagingly call "welfare" benefits. Some of them don't even like the term "benefits". And there is a distinction. Benefits such as SNAP, or TANF, are strictly need-based, while social security benefits are based on lifetime wages. Both are termed "entitlements". "Entitlement" is a term of art that simply means that you are entitled to the benefit if you meet the requirements. The benefits are written into law and are cannot be defunded if the current Congress doesn't like them. Future Congresses can reduce benefits or change requirements, and have done so several times over the years. 

The idea that because you "paid into" social security leads some people to believe that any benefits that are less than the amount of FICA taxes that you have paid over your lifetime has been stolen from you. people wonder aloud "where that money went". This misconception arises from the belief that each person has an account, where the money you paid in is tracked over your working life and when you retire, is paid out from that account. It's true that they amount that you receive as social security benefits upon retirement derives from a formula based on your highest earning years, which is related to the amount you paid in social security taxes, but is not identical to it. Social Security has always been a pay as you go system. Current retirees' benefits are paid from current wage earners' payroll taxes. The amount that current retirees "paid in" has long ago been used to pay for a previous generation's benefits. As far as recouping what you've paid in payroll taxes, an extremely long-lived person could conceivably receive more in benefits than they paid in taxes over their working life, while someone who died before retirement age would receive nothing (although a surviving spouse could receive benefits equal to what the deceased would have received). The person who died early doesn't have a surplus of unused money and the centenarian doesn't stop receiving benefits when what they "paid in" runs out.  

You may pat yourself on the back that your social security benefit was earned (which it was in part) which makes you better than a SNAP or TANF recipient, but it's still a "benefit" and it's still an "entitlement". 

I Just Can't Bring Myself to Be Optimistic

The future of American democracy doesn't look very good. I'd like to be optimistic, but despite bright spots here and there, there's little reason to be. 

Let's not fool ourselves though; participatory democracy was never very high on the to-do list of the rule-making class in this country. It shouldn't be a surprise to anyone that there wasn't a right to vote in the original version of the Constitution and that white, male landowners were generally the only ones who could vote. The post-Civil War 15th Amendment prohibited denying the right to vote on the basis of "race, color, or previous condition of servitude", but women still couldn't vote until the 19th Amendment was ratified. Jurisdictions quickly put laws on the books that effectively denied Black Americans the vote by imposition of poll taxes, literacy requirements and even violence. It wasn't until relatively recently that the dominant parties' candidates stopped being chosen in the proverbial smoke-filled rooms and primaries became the rule for choosing candidates. But we have fooled ourselves. We have convinced ourselves that our system is strong and resilient enough to resist the attempts by dishonest politicians to corrupt it. We thought if we just cajoled enough like-minded people to get out and vote, then we could at least elect people who somewhat represented our interests. There's so many things wrong with our assumptions.

First of all, the system itself is weighted. It was designed to be weighted. The Senate gives equal representation to every state, no matter the population. When the Constitution was written each state was more or less its own separate country, its own culture, sometimes with little in common with the other states, so the Senate was designed so that the more populous states couldn't dominate the smaller states. Senators for many years weren't even elected, but were appointed by each state's legislature. Of course the House of Representatives, ostensibly representing populations, was weighted in favor of enslavers, since enslaved people were counted as 3/5th of a person, even though they couldn't vote. The undemocratic nature of Congress spilled over into presidential elections, since the electoral votes that each state had was based on the number of members of Congress. In recent elections we've seen how the Electoral College distorts the results. In the last six elections, we have had two where the losing candidate received more votes than than the winner, and at least one where a few thousand votes in a handful of swing states could have changed the results, awarding the presidency to the candidate with almost 8 million fewer votes. 

The current population distribution makes this tilted system even worse. Democratic leaning voters, in general, tend to be clustered in urban centers, while Republicans dominate the rural areas and smaller states. Even though the current Senate is divided evenly, 50-50, the Democratic half represents 40,000,000 more Americans. This is never going to change. You might think that this would be offset by the House of Representatives, where representation is by population, but in many states the House delegation is becoming increasingly undemocratic. In many states the state legislature has control over how district borders are drawn. A party that has control of the redistricting process after a census can, and often does, draw the district lines in such a way as to maximize the chances that their party will remain in power. (Both parties do this, but in recent years Republicans provide the most egregious examples). You can see this in several states that have elected Democrats to statewide offices, yet retain a Republican majority in their legislature and a majority in the Congressional delegation. Often the party in power controls a much higher percentage of seats that the percentage of votes received. By not only gerrymandering the Congressional districts, but the state legislative districts a party can theoretically remain in power indefinitely. 

Another anti-democratic feature that we saw several times in recent years involved Republican legislatures reducing the power of Democrats who had defeated Republicans in statewide races. This happened to at least two Republican governors signing laws on their way out to limit their successor's authority. Perfectly legal, if shadily unethical. This predilection of Republican lawmakers to craft laws to retain power has been picking up steam since the 2020 election. I'll get back to that in a moment after a brief return to the US Senate.

The United States Senate has a institutional rule called the filibuster. It used to be a way for a bill's opponent to delay a final vote on a bill he opposed by talking it to death. Since it took 3/5th of the Senate to effectively end the filibuster by ending debate, this meant that there was always the danger of a bill being sunk by minority opposition. In recent years the requirement that a filibusterer take the floor and speak has morphed into a bill needing 60 votes to pass if the opposition merely signals their intent to filibuster. In theory the filibuster ensures that there is broad support for a bill and that a slim majority cannot run roughshod over the minority. In theory. In practice it has become a tool for obstruction. Exceptions to the filibuster have been carved out over the years - it no longer requires 60 votes to confirm federal judges or Supreme Court Justices for example, but in general a minority as small as 41 Senators can kill a bill. Currently, Democratic initiatives are being held up due to united opposition by 50 Republicans and reluctance by several Democrats to eliminate the filibuster. 

One of the hallmarks of our system, even at its nadir, was the concept of a peaceful transfer of power. Even when we were more of an oligarchy than a Democratic Republic we could always congratulate ourselves on the fact that the loser always gracefully stepped aside and made way for the winning candidate. This all changed in 2020 when President Trump not only refused to concede, but stirred up his many supporters by claiming that it was really him that won. And not only won, but won by a landslide. He claimed victory on Election Night while votes were still being counted in closely contested states and spent virtually every day through Inauguration Day and beyond casting doubt on the results, refusing to attend his successor's inauguration. This could have been chalked up to a whiney rantings of a petulant loser if not for the fact that thousands (if not hundreds of thousands) of his supporters believed him. Some were so convinced by his easily debunked lies that they attacked the US Capitol in an attempt to stop the counting of the electoral votes, the last (mostly symbolic) step in the lection of President Biden. 

Since last January 6, Republicans have been busy changing the rules, throwing up roadblocks to voting, purging voter roles and reducing the types of identification needed to register. They have been rewriting election procedures, taking authority for vote counting out of the hands of trained professionals and giving it to legislatures and other partisan bodies. Officials who refused to listen to Trump's entreaties to "find" votes were punished by having their authority curtailed, or by being primaried. All over the country people who vociferously called the last election stolen have been elected to local and state lection boards. The former president continues to call the election stolen, calling for some unspecified action to prevent it from being stolen again. Over a hundred members of Congress voted to not accept as valid electoral votes for President Biden in swing states and continue to back up Trump's lies. With all of these actions, some in plain sight, some hidden away, how can we be sure that these believers in the Big Lie won't do more to overthrow an election than they did in 2020? 

Then there's the purely political. Due partly to a razor thin majority and constant obstruction from Republicans, President Biden 's administration is being perceived in many quarters as failed or incompetent, peeling away support that might make the difference in the 2022 Congressional elections. What will happen if the Republicans turn over enough seats to regain the House majority? Impeachment? What about the Senate? With Republicans in charge Biden can say goodbye to confirming any federal judges, let alone any Supreme Court vacancy that might come up. 

The biggest reason that our democracy is in danger is the credulousness of so many Americans - willing to believe lies, indulge in conspiracy theories and vote against their own interests. That's the main reason why democracy is all but dead.

Are We Snowflakes?

To follow up on my earlier post about "owning the libs", are we whiny little snowflakes?

That's the opinion of some folks: Republicans think it's true of Democrats, Baby Boomers think it's true of Millennials (a lot of Boomers think Millennials are all pimply-faced teenagers, while the oldest of them are approaching 40), straight White men think it's true of women, Blacks, Gays, Transexuals, and city dwellers, Trumpers think it's true of everyone who isn't a Trumper.  But is it true?

I'm going to concede that some people take it too far, but I'm not going to draw the line for everyone else. That's a discussion for another day. Judging everyone in a certain category based on the outliers in that category is a logical fallacy. Something you hear a lot is how certain movies couldn't get made any more, because someone would find them offensive. You hear that no one has a sense of humor any more. That those people get offended too easily. You hear about "cancel culture", which supposedly is the mechanism by which "woke" (used ignorantly as a pejorative) people punish people who say (or even think) things that they don't like. Let's look at "cancel culture" first. It's undeniable that there are occasions when a public figure makes an offensive statement which is followed by calls from some quarters to boycott that person. Yes it happens, and sometimes the offending public figure finds their career has been wrecked due to the outcry. Those who support the "cancelled" person are shocked and outraged and call it censorship. But the thing is, no one is forced to participate in these boycotts or to join in excoriating the cancellee.  The target of so-called cancelation is still free to perform, to play music, to tell jokes etc, but they aren't entitled to an audience. In many cases the record company, television or radio station or other employer chooses to fire them. This again is called censorship. And again, no one is forcing an employer to cut their losses and bow to popular pressure, but they certainly know how the free market works. 

Okay, sure, "cancelation" only works if enough people are "offended" at you, (there's that pesky free market again) but what about all these people who get offended at every little thing? I'm not saying that there aren't people who are oversensitive, but those are the outliers. In general, people call out offensive words or behavior for several reasons. It may sound incredibly obvious, but it's because it's offensive. The people who deride those who call out offensive language emphasize the one doing the calling out, mocking them for being offended, when the problem isn't that someone is offended, but that someone is being offensive. It's a classic case of victim shaming, even though it may not be obvious that anyone is being victimized - so let's just say that it's similar to victim shaming. A favored tactic of those who oppose calling out offensive speech is to point out old television shows and movies that supposedly couldn't be made today. Two go-to examples are Blazing Saddles and All in The Family. Those who cite them seem to be oblivious to the way they poked fun at racists; All in The Family also mocked liberal Mike, who despite his disdain for Archie's right wing views, had no problem living rent-free under his roof. And the idea that comedians don't push boundaries today - have they never heard of Dave Chapelle or South Park? 

The "good old days", when it was supposedly perfectly fine to say whatever came into your head, were times when Black people, women, and other minorities didn't have the power to speak up. It was legal to sexually harass an employee; it was legal to refuse to serve a Black person; and what passed as humor was often just punching down at people who couldn't punch back without serious consequences. These days, right or wrong, people feel that they can speak up. They feel that they can point out sexist, racist, ableist, homophobic language and insist that it change. They feel that they no longer have to put up with being the butt of jokes or being marginalized by hateful language. 

So no. If we speak up about offensive language and actions, we aren't snowflakes, we're not the problem. 

Owning the Libs

Maybe this has been going on for longer, but I first noticed the politics of "own the libs" right after Losin' Donnie was elected. Sure there was name-calling and mud slinging before, but the politics of schoolyard taunting not coincidently corresponded to the rise of someone who didn't really have any other tools in his political toolbox. 

Donald Trump caught the imagination of Americans who felt that the "other" was overtaking and replacing them. He didn't invent, however, the exaggerated characterization of liberals as whiny "snowflakes" who get offended at anything and everything, the credit for that goes to Rush Limbaugh and his fellow "conservative" media personalities. Trump merely introduced it into everyday political discourse. He was so successful at this approach that it became a hallmark of his presidency. I first noticed the poisonous turn of conversation on Twitter. That social media platform is a bit rough and tumble to start with, but the taunting and insults as kind of shocking. Before long it became normal. Other Republicans, emboldened by Trump's success, began to imitate his approach. Even after his loss in the 2020 election (yes, damn it, he LOST) Republican candidates and elected officials imitated the strategy of doing nothing other than mocking and taunting liberal Democrats. 

The tactic of mindlessly obstructing anything a Democrat proposes in order to deny them a "win" wasn't new to the Trump era. Senator Mitch McConnell, during the Obama administration, used his position to block virtually everything that President Obama proposed, including a Supreme Court nomination. During Obama's first two years the Democrats held a commanding majority in the House and a filibuster-proof 60 seats in the Senate - which was the only reason the PPACA got passed. Once the Senate majority shrunk he was able, by unprecedented use of the filibuster, to frustrate any attempt for the Democrats to get anything done, even though they still possessed majorities in both houses of Congress as well as the presidency. Once the Republicans gained the majority he successfully blocked most of President Obama's judicial nominations. During Trump's final two years, when the Democrats retook the House majority, he refused to even bring to a vote in the Senate hundreds of bills passed by the House. 

What's happening now goes well beyond that.

While old school politicians like McConnell are still playing the long game, many of the newer members of the House and Senate seem content to refrain from legislating and act like media personalities, holding press conferences and issuing statements that are empty of any substance other than insults to Democratic politicians and voters. Liberals aren't the snowflakes that conservatives think that they are. They don't sniffle and whine when things don't go their way, but don't shy away from pointing out hateful and harmful actions and speech. However, a lot of Republican voters think they are, and cheer on the do-nothing Republicans whose whole platform seems to be to "own the libs", no matter what. Even the rare policy of legislative proposal isn't aimed at helping Americans, but rather at dismantling programs that liberals like, simply because liberals like them. Hey, if liberals are for something, it must be communism, right? 

Unlike some, I don't blame the politicians. I blame us, at least the "us" that craves the entertainment that "owning the libs" provides. The great majority of voters are just too stupid, or perhaps just too lazy, to understand the complexities and nuances of public policy. It's easier to boil it down to "it's socialism" than to take the time to understand the pros and cons, as well as the possible benefits and consequences. It's easier to cheer on a Republican Member of Congress who calls a Muslim House member a jihadist than to research the Muslim House member's policy positions. The circus-like antics of today's Republicans continue because they work. 

I don't anticipate it getting any better...there's just too many stupid voters.

Communism, Socialism, Marxism

It seems like every government initiative that aims to help people has been labeled as socialism over the last decade, and now, the opponents on the right have escalated their name-calling to include "communism". And it doesn't matter what Joe Biden or any Democrat comes up with, it's communism according to Republicans and other right wingers. Let's look at what it really is from two angles: (1) Is it really socialism (or communism) and (2) If it is socialism, is it bad?

In the early days of our Republic, the government had a limited role. Many people look nostalgically back to those days as a paradise of freedom (or "freedoms" as the faux patriots of today have taken to calling it). There was no income tax, there were few government regulations and there were places you could escape to where the government couldn't easily reach you, even if it was so inclined. There was also so slavery. And as industrialization grew and spread, freedom became a very elusive concept, not because the government was oppressing anyone, but because a small cohort of wealthy industrialists were. Little by little, often under pressure from unions, and women's rights groups the governement took on the role of protector of those with little or no power. Sure, certain freedoms were curtailed: the freedom to operate unsafe workplaces, the freedom to employ small children, the freedom to abuse workers, the freedom to operate monopolies. Government agencies sprung up to regulate food production, to oversee approval of drugs, to ensure workers' rights. Eventually the New Deal created the Social Security Administration; years later the freedom to discriminate based on race, gender or religion became illegal (although it just went underground - it didn't disappear). By the seventies the government took on the role of protecting the environment by curtailing the freedom to wantonly pollute. All of these things could be categorized as socialism, some more, some less, but can any of them (allowing of course for overreach at times) really be categorized as bad for the country? Aren't they all just establishing justice, insuring domestic tranquility, promoting the general welfare and securing the blessings of liberty? Aren't they good things?

The problem with tagging something as socialism is that most people will conflate social programs in a democratic, constitutional republic with socialist dictatorships. No progressive politician has ever called for common ownership of the means of production, for elimination of private property, or prohibiting the formation of for-profit businesses. No one has called for nationalizing major industries. No one is suggesting that the president should assume dictatorial powers (no one currently in power anyway). Mandating paid parental leave isn't going to turn us into Venezuela or Soviet Russia. With a wide swath of the electorate, all it takes is to call a plan "socialist" for them to be adamantly against it. But even the effectiveness of that epithet is fading, now, in order to really get people riled up, you have to ramp up your rhetoric and call things "communist", which has an even eviler association, especially for people who remember the Cold War. 

So yes, using a broad definition for "socialism", many Democratic programs are socialist, just like minimum wage laws, OSHA, Medicare and interstate highways...even police and fire departments and public libraries. But what they aren't are imitations of socialist failures like Venezuela or Cuba (although it could be argued that much of Cuba's problem is US sanctions) and they certainly aren't a harbinger of a replay of the Soviet era dictatorships. 

As always, thinking is hard work, but I recommend it.

Making the Rich Pay Their "Fair Share" of Taxes - How?

 The problem with the ultra-rich not paying "their fair share" isn't necessarily that they are doing anything illegal (although sometimes that's exactly what it is), it's that the tax code favors the ultra-rich. There are myriad ways to make your income and assets non-taxable, or taxable at lower rates, but most of these methods are only available if you already have a pile of money. I'll use Elon Musk for an example: he claims that he is not taking a salary & his net worth consists of stock, which won't be taxed until he sells it. So how is he living the billionaire lifestyle without any cash?

Debt.

The way our tax code works, income is taxed, but assets aren't. An executive or company owner can be paid in company stock, which isn't taxable until it is sold. The executive or owner then takes out a low-interest loan to finance his lifestyle, with his assets as collateral. Like the assets, the cash obtained through the loan isn't taxable either. Of course eventually these loans will have to be paid off, but in most cases the value of the asset has appreciated much more than the interest that was paid on the loan. Of course, if you're an alleged billionaire like former president Losin' Donnie, you can just default on your loans.

Then there's tax credits.

There are a long list of ways to earn tax credits and book net taxable losses while still bringing in plenty of cash. One shady, yet perfectly legal method is via consulting fees. A real estate developer buys a building and applies for federal tax credits to restore it to historical conditions. The federal government, in addition to awarding credits based on legitimate construction expenses, also allows a "developer fee". IRS standards are that 20% of total rehabilitation costs are reasonable. So the real estate developer creates an LLC for the building. Then, another LLC is created as a developer. The building LLC then pays the developer LLC the developer fee. Assuming the rehabilitation costs, including the developer fee, are $5 million, then the building LLC receives a $200,000 million tax credit for effectively moving $1 million from one account to another, since the building owner is a developer. The $1 million developer fee can also be used as an expense to offset any revenue that the building LLC earns, lowering its taxable income.

The answer isn't necessarily to raise the tax rate on the ultra-wealthy. The answer is to find a way to close the various ways that income and wealth can be shielded from taxation that are only available to the top 0.01%.