Tell your representative to leave Social Security alone

By L. Randall Wray
Ok, here is the dumbest headline the NYTimes has run in recent days:

Social Security Payouts to Exceed Revenue This Year

The system is expected to pay out more in benefits this year than it receives in payroll taxes, a tipping point toward insolvency.

Social Security is a federal government program. Government pays Social Security benefits by crediting bank accounts. It can continue to do this even if payroll taxes fall to zero. The payment is an entry on the balance sheet of the Social Security recipient’s bank. Please write your representative and tell her or him to stop this nonsense right now.

Just as Wall Street went after healthcare, you can be sure that it is now going after Social Security. They hype is just starting. It comes in waves—whenever Wall Street loses a bundle, it looks to government bail-outs. What happened after the bust? Wall Street got President Bush to talk about an ownership society, proposing to dismantle Social Security to give households “ownership” over their own personal retirement accounts. The nonsense was obvious at the time: Wall Street had a big hole to fill, so it wanted households to “invest” payroll tax receipts in Wall Street managed accounts. That way, the same bozos who had just wiped out private savings by inducing gullible households to invest in would be able to wipe out retirements investing in other Wall Street schemes. Wall Street lost that round.

But now it is back. Wall Street’s latest excesses managed to destroy the economy. Those who lost their jobs or who had to take paycuts are paying less in FICA taxes. Hence, Social Security’s “revenues” are lower. That is a big boon to Wall Street—which will now whip up hysteria about Social Security’s looming bankruptcy. This is to direct attention away from the true insolvencies—which is all of the major private banks. It is also designed to scare the population about Social Security: will I ever get my Social Security pension?
Make no mistake about this. Unless voters tell their representatives to keep their dirty hands off Social Security, the Democrats and Republicans will work out a “compromise” to turn it over to Wall Street—just as they did with health insurance “reform” in the HIBOB (health insurer’s bail out bill). This is priority number one for Wall Street now, since it has lost trillions of dollars and is massively insolvent. It needs more government bail-out and it wants your Social Security.

9 responses to “Tell your representative to leave Social Security alone

  1. "Government pays Social Security benefits by crediting bank accounts. It can continue to do this even if payroll taxes fall to zero."So lets repeal every bit of all FICA taxes since they seem totally unnecessary to paying out benefits.Even if Wall St. takes it over and loses every dime, the government can still credit the bank accounts.And while we are at it, why bother with the income tax? I assume all government employee's payroll can just be "credited".And interest on those treasury bonds can just be "credited" to whatever bank account.Better yet, just credit everyone a $500k stimulus check to pay off their mortgage or buy a new house…Sorry to be so impish, but you really deserve it for failing to properly address the issue – there is no free lunch, and the "trust fund" is going negative, and the revenues have to come from somewhere, and I don't think Zimbabwe is a good alternative).Instead of suggesting mailing 4 word post-cards, how about an actual proposal that explains how to pay for the benefits going forward?

  2. OK, let's take them at their word that we need to bring SS expenditures in line with revenue. The healthcare reconciliation bill that the Senate just passed (the House has to vote on it again to fix some technical language) adds unearned income to the Medicare side of FICA. If Congress and the White House honestly believe that Social Security is threatened with insolvency, then the solution is simple– expand the unearned income tax to include the Social Security side of FICA. I won't hold my breath. The key changes affect individuals earning more than $200,000 annually, and households earning more than $250,000… High net worth households meeting those income thresholds also will face a 3.8 percent Medicare tax on such unearned income as interest, dividends, and capital gains under the reconciliation bill.

  3. The real problem here is there was never a trust fund, only more money for the government to spend. Interest on the trillions should pay some of the shortage, but it won't put any money under the table for Congress to spend. There should have never been a Social Security surplus, but a year to year adjustment. Those that paid it in now still owe it. This is all part of the debt bubble.It isn't a matter of what Social Security is or how it is paid, but when do we collapse. The real danger is "when does the world realize the US isn't going to honor its debts or for that matter even set itself up to where it will pay a reasonable amount back to them in return? A Social Security check won't mean much when all we are doing is running consumption off a printing press. Congress' answer won't be to continue to pay Social Security, but to move the tax to where they have more stealth money to spend.

  4. The logic is impecable, Randall. And when I read the first part of your piece, I thought to myself, when will it be that he fits insurance care into this schema. Well, there it is in the last paragraph, just as I'd expected. They never quit, do they? And by "they" I'm not talking about our resident financial interest filth alone, but more specifically about the entire, noxious coterie of political whores and Wall Street, AIPAC, arms, and drug industry johns that run the United States of America. Long before our present problems were economic, they were political. One future day just might attain to an authentic "peoples' moment" in which this irremediably corrupt system is swept away and replaced by the restoration of our democracy. Andrei Vyshinsky

  5. thanks for comments.Impish TZ: to say that govt spends by crediting bank accts and taxes by debiting them, and that it does not need tax payments in order to spend (ie credit accts) IS NOT THE SAME THING as saying that govt ought to just credit everyone's acct with $500k. Of course the govt could do that, but that does not mean it is my proposal. I do (and have MANY times) advocate eliminating payroll taxes. I would not mind eliminating income taxes. But we need taxes to drive money. Hence we need to substitute a tax. I prefer a cubic foot of dwelling space tax. It is progressive, mostly unavoidable, and encourages conservation.And I have indeed over the past 20 years written MANY pieces explaining how social security works and how to reform it. many are at; some are at And since there appears to remain confusion, I suppose i will post a blog on this in the near future.LRWray

  6. Few things would make me happier than to see Social Security go by the wayside. As a member of the health care community I have also watched Medicare increase health care costs as well as diminish access. I have even watched public education create a nation of idiots (the popularity of jokers like Sarah Palin and Paul Krugman is proof of this). Every econ course that I have taken has pointed out that when one group gets an entitlement, another group is penalized to pay for it.By the way, let's also do away with the FDA, EPA,HIPPA,CLIA, and any other regulation that causes more harm than good and punishes those that create.Finally, Ayn Rand believed that taxes should be voluntary in a nation founded on the protection of property rights. After all, why should the government come and take some of my personal property every April 15th. (I'm sure you are aware from reading the Federalist that the primary purpose of our Constitution is to ensure property rights.)

  7. Wow, where did all the newbies come from? Clearly, NONE of you (except of course LRWray) have ever run across Modern Money Theory (MMT) before. I would suggest you all study up a bit on it before you dismiss outright what the article is saying. Remember, just because YOU don't understand it doesn't make it untrue.As for the statement: "Every econ course that I have taken has pointed out that when one group gets an entitlement, another group is penalized to pay for it." ~~ The only thing that would make this true is if a POLITICAL decision were being made to pit one group (the entitled) against another (the unentitled). As MMT demonstrates, no such direct relationship exists economically in a non-convertible fiat currency. It's too bad none of your professors understood this.

  8. " (I'm sure you are aware from reading the Federalist that the primary purpose of our Constitution is to ensure property rights.) "Actually, the Articles of Confederation did that just fine. The Constitution was written so the federal government could fund its operations itself instead of relying on negligent state tax collectors, see Univ. of Texas law professor Calvin Johnson's book Righteous Anger at the Wicked States. be fair, I'm sure every slave owner would have agreed with your sentiments completely.

  9. Good, let the US government pay everyone's salaries, indeed erase the world's poverty, be the world's policeman, and we will all take a long vacation.