One Simple Measure That Would Save Social Security and More

By Joe Firestone
(Cross posted at Correntewire.com)

The Fiscal Times is a digital rag funded by Peter G. Peterson to propagandize the ideology of neoliberal austerity. Today, a Post by Josh Boak highlighted the proposal of “fixing” Social Security by lifting the cap on payroll taxes.

”Social Security already appears to be running aground, just two decades before the program — which accounts for about 20 percent of federal spending — is projected to crash into insolvency.

“The program launched during the Great Depression — keeping millions of senior citizens from sliding into poverty — has steadily been paying out more in benefits than it collects in taxes, relying on the interest earned on federal bond holdings to help bridge the difference. Social Security costs are estimated to total $789 billion this year, paid for by $623 billion in payroll taxes.

“There’s an easy repair, but it involves drastically hiking taxes, so voters aren’t hearing about it on the campaign trail. Under federal law, millionaires and billionaires get to dodge payroll taxes on a substantial percentage of their salaries. Employers and workers are charged payroll taxes on salaries up to $110,100 a year, meaning anything above that — a category that includes some of the middle class — is payroll-tax free. Simply lifting that cap would cover about 90 percent of the projected shortfall over 75 years, according to forecasts by the Social Security Administration.

Boak then goes on to point out other difficulties with, as well as benefits of, the proposal. Even though this proposal is very simple; there is an even simpler solution the problem, without the drawbacks. Stephanie Kelton outlines it this way:

“Every year, the Trustees of Social Security and Medicare issue an annual report that examines the financial status of the various “trust funds” that purportedly sustain these vital programs. Social Security’s (OASI) and (DI) Trust Funds, as well as Medicare’s (HI) Trust Fund all face chronic problems, some in the not-too-distant future. In contrast, Medicare’s (SMI) Trust Fund always receives a clean bill of health. Why is that?

“The answer is so simple it apparently escapes notice, but here it is, straight from the annual report:

“The Hospital Insurance (HI) Trust Fund is expected to remain solvent until 2029. The Disability Insurance (DI) fund is projected to become exhausted in 2018. And the Old-Age and Survivors Insurance (OASI) Trust Fund is considered adequately financed until 2040. In contrast:

Part B of Supplemental Medical Insurance (SMI), which pays for doctors’ bills and other outpatient expenses, and Part D, which pays for access to prescription drug coverage, are both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet the next year’s expected costs.”

“In other words, it is sustainable — INDEFINITELY — because the government is committed to making the payments. Indefinitely.”

“And, as we have argued many times on this site (and elsewhere), the same commitment can easily be made to sustain Social Security (OASI and DI) and Medicare (HI) in their current form.  There is no economic justification for cuts to either program. The decision is entirely political.”

So, the simple solution to the Social Security solvency “problem” (if something with such a simple solution can be called a “problem”) is for Congress to make the financing for Social Security (OASI and DI) automatic.

Of course, the first thing anyone will say about this simple solution for Social Security is that it’s not really a solution to the SS solvency problem because it just transfers the financing problem from payroll taxes to general tax revenues, and the solvency problem from SS alone to the whole Federal Government. However, as I’ve been at pains to point out in many, many posts in the past, for example, here, here, and here, there is no solvency problem for a Government like the US with a non-convertible fiat currency, a floating exchange rate, and no debts payable in currencies it doesn’t issue. For example, here’s how automatic financing of SS by Congress could easily be managed.

First, the President should use the authority provided by a 1996 law to mint a $60 Trillion coin and deposit it at the Federal Reserve.

Second, Congress should make SS funding automatic.

Third, Congress should also provide for imposition of the payroll tax at the discretion of the President, with the maximum payroll tax set at what it is today, but with the payroll tax salary cap removed to reduce the regressive character of the payroll tax.

Fourth, the President should reduce the payroll tax to zero for both employers and employees, until full full-time employment is reached. At that point he or she can use the authority provided by the Congress to gradually re-impose the tax if and when inflation reaches 3%.

The effect of these changes would be to immediately add $625 Billion plus to the Federal deficit, but not to the Federal debt because the increased deficit spending would be covered by credits issued by the Federal Reserve to the Treasury upon depositing the $60 T coin. We can use this increase in the Federal deficit to move the economy forward, since we know that most SS recipients would just spend the additional money, and since the Federal deficit is projected at about $1.2  – 1.3 Trillion right now which is at least 3% of GDP UNDER where the macroeconomic sectoral financial balances model says it should be for full employment, assuming that the trade deficit will be about 4% of GDP and savings will be at 6% of GDP. I say, at least, because so much of the deficit spending is tied to subsidies for well-off corporations and individuals and so has low fiscal multipliers, providing more space than otherwise for even higher deficits before demand-pull inflation becomes a problem.

Apart from the extra stimulus provided by using deficit sending to finance SS, the changes I’ve proposed would provide an additional automatic stabilizer to the economy. SS would contribute much more stimulus to the economy on a continuing basis to the economy than it does now. But in addition, and unlike the situation from the 1980s until very recently SS would provide a fiscal drag on the economy, only when a fiscal drag was needed to fight inflation. Otherwise it would provide only continuing stimulus.

So, there we are a simple solution for SS solvency, and an accompanying answer for those who are worried about “how we gonna pay for that?” In both cases, there really is no “problem.” Just a few simple things to do to change a “problem” into an “opportunity!”

<Updated 8/23/2012 14:25 by Devin Smith repairing missing links>

123 Responses to One Simple Measure That Would Save Social Security and More

  1. What is the purpose of the trillion dollar coin? Why not just fund those services? The trillion dollar coin seems to be some type of public messaging magic. Isn’t the core purpose of this site to explain policy using an accurate understanding of our monetary system?

    Thanks.

    //cheers

    • The Fed can use the coin to eliminate the “debt.” It just demonstrates how useless the debt/GDP ratio really is.

    • I don’t advocate the Trillion Dollar coin because it doesn’t send a loud enough message. I want that $60 T coin because it says: Look folks, the ultimate source of money is the Federal Government and there’s no limit to the amount that can be created.

      So, there’s no solvency problem, and let’s never hear that nonsense in politics again. If you’re opposed to a particular fiscal policy because of its effects, then let’s debate that. But don’t ever tell us we can’t afford that because we’re running out of money. Don’t ever tell us the Federal Government is like a Household when it comes to money. Don’t ever tell us that we’ll burden out grandchildren if we deficit spend. Don’t ever tell us we can’t afford entitlements. These are all core messages of MMT, and we need to deliver them loud and clear.

      The $60 T coin does that. Not just through words, but through a dramatic demonstration that the no solvency problem message is true. Yes, it’s messaging magic. But it’s necessary messaging magic because the answer to “why can’t we just fund those services?” is that our messaging is very difficult to get through the screens and the skepticism. We can’t explain things because no one will listen.

      On the other hand, if the President has that coin minted, then suddenly people will start listening to a school of economics that says there’s no solvency problem and then goes on to explain its understanding of the monetary system and macroeconomics.

    • If minted in gold at today’s price of $1650/oz the $60T coin would weigh approximately 257,060 tons.

    • Congress has legislated the approval of a platinum coin being minted with any face value so long as the net proceeds (face value minus cost of production) be turned over to the US Treasury for the use of congressional appropriations.
      I would hope that it be a magnificent coin. Since the coin itself is merely a physical representation, it could be placed on display along side the Liberty Bell and US Constitution, after “the created from air” dollar amount is “electronically” deposited.
      Knowing that in fact this may be done the question becomes “What amount of dollars should the coin represent?”
      May I use what I believe Frederick Soddy had in mind, “… the value of all the goods and services of all the people and assets of the sovereignty”.?
      Isn’t that what the dollar is, “Money …is the Nothing you get for Something before you can get Anything”
      May I add that “Nothing” money is backed by the good faith and credit of all the American people and its US Constitution.
      What would you say is the value or wealth of this nation today ?
      And of course you should also recognize that no matter what that number is, it will increase simply because of mankind’s ability to expand “goods and services”.

      I would hope that coin be $ ONE QUADRILLION !
      But how foolish of a fool am I, if such a coin were to be and the net proceeds (read $1 quadrillion minus perhaps $1 million) being turned over to the US Treasury for Congress to spend, why would we need federal income taxes ?
      Would this answer ”
      (as stated on ” 60 minutes” (12/11/11)”
      President Obama said,”You can’t raise revenues by lowering taxes unless you get the money from somewhere else.” ?
      Yes, but perhaps the real question should be,”Isn’t this really appropriation of all the goods and services of the people?’
      For the solution:”We cannot solve our problems with the same thinking we used when we created them”.Albert Einstein
      “Perhaps the answer lies in how you redistribute the wealth of a nation; as well as how you acquire it”.Justaluckyfool
      Challenge it,Improve It, Endorse it:
      http://archive.org/stream/roleofmoney032861mbp/roleofmoney032861mbp_djvu.txt
      THE ROLE OF MONEY by Frederick Soddy

      Challenge it, Improve it, Endorse it:
      http://bit.ly/MlQWNs
      Read what William Black has to say about banks and Michael Hudson about compound interest (excerpts are in the article).
      An explanation of where we went wrong with a solution to how we can fix it.(a complilation of interent articles)
      Challenge it.
      Improve it.

      May the “Invisible Hand” continue Its guidance of this great nation.

  2. For a related take on this subject see:

    http://newpol.org/node/537

    • Thanks, I like that piece a lot. You seem to have read and absorbed a good bit of MMT somewhere along the way. You may be interested in this previous piece of mine on the SS as ponzi scheme charge.

    • Barry,

      The author said, “As long as the sum of productivity gains plus the rate of growth of employed workers exceeds the growth in retiree claims, Social Security benefits in real terms can expand without any increase in inflation adjusted taxes.”

      Actually, Social Security benefits have no — and need have no — relationship to employed workers. In the unlikely event that every man, woman and child collected SS, and none of them worked, the government still could pay full benefits — even triple benefits. (Of course, there would be other economic problems, but paying SS benefits isn’t one of them.)

      A Monetarily Sovereign government can pay anything. No limit.

      Rodger Malcolm Mitchell

  3. political economist

    When the “problem” of the Medicare or Social Security Trust funds comes up in my local newspapers, I have several times written expressing the same sentiment bu using the following tongue-in-cheek idea: We should establish a “Trust Fund for Military and Defense Spending” to assure that we will be able to finance spending into the future.
    Needless to say, I have never had one of these letters published.

  4. The economics are sound, but the real reason Social Security is combined with the FICA tax is so that it will not be perceived as a “welfare” program. Recipients can say that, having paid into the fund during their working lives, they are simply getting back their investment, not getting money “for nothing”.

    It is morally and financially prudent for people to save for their own retirement, so things like accepting lower wages in return for a defined benefit pension, or contributing to a 401(k) plan, or simply just saving some money “for a rainy day”, is a good thing — for people, if not for macroeconomists. Limits on taxation of such savings should be raised, so that individuals and companies can provide what Social Security now provides for people’s retirements. That’s known as “privatization”. In addition, the poor, whether elderly or not, will always need government support. In that vein, government might make the employee’s contribution to the 401(k) and Roth IRA for low-wage workers.

    The current system propagates a fraud on the people, by concealing the true inner workings of SS funding. It is pay-as-you-go, with no connection between the FICA dollars paid by an individual and the benefits received by that individual. Most seniors don’t realize that. A morally superior system would be more honest about that, while preserving the economic virtues of your solution.

    Give people an immediate option:

    1. A cash payout of previously-paid FICA taxes with a reasonable interest rate, in return for forfeiture of future SS retirement benefits.
    2. Ability to transfer that payout to a ROTH IRA.
    3. A subsidy of low-wage-earner retirement savings
    4. Proper management of the deficit to achieve full employment, which might include reduction or elimination of the FICA tax

    I do like the idea of being able to re-impose a FICA-like tax without Congressional action in the event of excessive inflation. However, it should be more specifically mandated in terms of the amount and timing of any tax rate changes, and administered by an economist not a politician. And I’d call it an Inflation Tax, and not let it be associated with Social Security benefits.

    • Yes, yes, yes. I really wish we could get people to understand the essential pay-go nature of Social Security and the inter-generational contract it involves.

      But for that matter, the same is really true of private financial assets as well. Real income is always paid out of the current production of goods and services. In our economy, very little of real economic value is literally “saved”. When you invest in a financial asset, the recipient of your invested money uses the revenue to pay their current liabilities. And when you get paid in the future when your asset pays out, you are paid out of revenues collected from a new crop of investors.

      • Dan,

        Social Security is not paid by FICA. That’s the whole point.

        • I didn’t say it was paid out of FICA, Rodger. What I mean is this: Money is a kind of undifferentiated claim on the nation’s output of goods and services. If you have $1000 in your wallet, you posses the power to purchase goods and services currently priced at $1000 in value.

          Those goods and services don’t come from nowhere. They are the result of human work, applied by your fellow citizens, to various kinds of resources already in our combined possession. So when you are paid money in any way, what you are really being paid is a share of the work output of your fellow citizens. It doesn’t matter whether the government pays you the money or your boss pays you the money or a friend gives you the money. In each case what they are giving you is a larger claim than you had previously on the country’s real output. You are being paid a quantity of goods and services.

          The country’s government has an unlimited capacity to create and disburse money. But it does not have an unlimited capacity to create goods and services. Certainly if it creates and disburses more money it can stimulate the production of more goods and services, especially in an economy like ours running woefully below capacity. But that process cannot be continued indefinitely, because there are always real limits on a country’s ability to produce goods and services, limits that are unrelated to the amount of money in existence and its distribution. Once the country has reached those limits, then the mere creation and disbursement of additional money does not stimulate additions to the country’s real wealth. It only redistributes the wealth that already exists by redistributing purchasing claims on that wealth.

          When we send a person a Social Security check, we are sending them the power to purchase goods and services currently available for sale. And these goods and services are always almost entirely produced by the people who are currently working. The country never sends a retiree a lawnmower that was produced 30 years ago and locked in a warehouse. It sends the retiree an undifferentiated claim on output that can be used to purchase a lawnmower that was just recently produced, likely by people who are currently working. The same is true of almost anything they might choose to spend the money on instead.

          So what is happening here? A share of the country’s output is being sent by the generations of people who are currently producing that output to retired people who are no longer producing output. Retirees are being paid a share of currently produced goods and services.

          That’s a good thing. It’s the way our social contract works. People who are no longer working were working in the past, and a share of their work output back then was sent to support retirees back then. They are being rewarded for that social contribution now by receiving a share of the nation’s current output, even though they are no longer working. The output they are receiving is not being produced by the retirees they supported back in the day, since those retirees are long dead. The output is being produced by a new generation of producers. Current retirees are not being paid back by mortal individuals who owe them an individual debt, but by the nation – which abides beyond the lives of the individuals that comprise it, and which owes them a social debt.

          So the issue we need to focus on is not money, but on goods and services and how they are produced and distributed. The fact that a country can produce unlimited money, and distribute it according to a pattern of the country’s choosing, is not all that relevant. Unlimited money-generating power does not equal unlimited wealth-generating power. What is relevant is the choices we make about the distribution of goods and services among ourselves, and between generations.

          • “When we send a person a Social Security check, we are sending them the power to purchase goods and services currently available for sale.”

            Correct, if you add the word, “worldwide.” A hypothetical nation producing $0 worth of goods and services, could buy unlimited goods and services, so long as its currency was accepted in international trade. Last year alone, Americans used dollars to purchase about $600 billion worth of goods and services more than we produced.

            Had the federal government created twice the number of dollars, and not increased domestic production, we still could have used dollars to purchase goods and service.

            In short, U.S. dollars are not just “a claim on the nation’s output of goods and services.” They are a claim on the whole world, and not just goods and services, but mountains, rivers, lakes and land. One day, dollars will buy moons and asteroids. Dollars are a claim on the universe, which is why there never can be a shortage of claims.

            • “so long as its currency was accepted in international trade”

              Aye, there’s the rub. Many sovereign currencies are not generally accepted in international trade, nor do other governments wish to hoard them as they do dollars. More generally, a country must produce at least some things that foreigners want to buy, else they are not able to buy from foreigners using their own currencies.

            • Currencies are traded in currency market. For every transaction there is counterparty, or the transaction does not happen. There is supply and demand on these markets, and when the supply of dollars go up, bid price for them goes down.

              Now if foreign government fixes it’s currency agaist the dollar it stands ready to buy any dollar amount at fixed echange rate, and you can sell it any amount of dollars to gain purchacing power at it’s local currency, as long as that policy lasts.

              That’s the explanation why US:s imports exceed exports. But for the general rule of thumb, exports pay for imports as they create demand for country’s currency in the currency markets.

              • “There is supply and demand on these markets, and when the supply of dollars go up, bid price for them goes down.”

                Other things being equal, but they never are, are they?

              • “Other things being equal, but they never are, are they?”

                What happened in Weimar republic is that the state had large foreign currency debts, the WWI war preparations to pay, and they tried make payments simply by issuing their own currency and going to the currency markets to buy foreign currency, but soon they found out there was no takers for deutschmarks. Bid prices soon sunk so low that anyone could get hundreds of trillions of deutschmarks by simply exchanging one British pound or French frank, and therefore gain practically unlimited purchasing power on anything that was on sale for deutschmarks. That lead to hyperinflation and rendered deutschmark practically worthless. Same thing happened in Zimbabwe.

                So I would call it one of the fundamental laws of economics.

      • True, at the macro level there is not a savings (hoarding) of real assets, very much, merely an exchange of real assets for financial assets between those who are spending more than their income and others who are spending less.

        But at the micro level the saving (and subsequent divesting) of financial assets is an important and useful activity of life planning, and should not be discouraged. Those flows must be accommodated at the macro level, however, and that is the important message of the sectoral balance equation.

        • I agree with the general point. But we have all sorts of things in place to encourage savings; but not institutional arrangements to encourage consumption, and if we don’t have enough AD then few people can save.

          • Seems to me only a few years ago we had a negative savings rate, lack of institutional encouragement notwithstanding.

            • Golfer

              Maybe you are confusing savings rate with savings. Seems to me the rate of savings can be quite variable and probably depends on the level of private debt.

              Thinking about my own balance sheet the last few years. Ive stopped putting into my 401 k for the most part (down to 250/mo) I have paid off my cars and my sons college. My debt to income ratio is much lower, the amount in my 401 k has grown (not as fast as it was) and I still have some money in a savings account. I am in much better shape, meaning I could suffer some income loss and still easily pay my bills, but it might look like Ive been hemorrhaging savings when in fact Ive paid down debt and overall improved my position.

              • Federal Deficits – Net Imports = <strongNET Private Savings

                Paying down your debt didn’t affect your NET savings.

                Rodger Malcolm Mitchell

              • John O'Connell

                The rate of savings (domestic private savings) is variable, but almost never negative. The stock of private svaings hasn’t been negative for over 160 years.

                A negative private domestic svaings rate is unsustainable. Eventually people would run out of their stock of savings and their ability to borrow.

                Your savings rate is the change in your net savings stock (savings account and 401(k) are positive, loans are negative). Using your savings account to pay off your loans doesn’t change your net savings stock. If that’s what you did, and added to your 401(k), your savings rate is still positive. In the year that you refi and take a big chunk of money from your house, and use it to buy a new Mercedes, your savings rate is negative.

                I think adding to your 401(k) is wise, and borrowing against your house to buy a car is unwise. I would prefer to see government encourage the former, not the latter.

            • Yes, but savings requires more than institutional encouragement; it also requires other external facilitations. A few years ago people were going into debt to consume much more, true. But they also thought they were “saving” by investing in real estate that would never go down. So, I don’t think the motivation to save was absent or lower; it was just being channeled into real estate which people viewed as a savings opportunity. For a long time that faith did seem to produce paper profits and “savings.” But, of course, we all know what happened to that.

              In any event, after the crash, the savings motivation kicked in again for those who had the opportunity, and overnight positive savings rates were restored, showing that regardless of savings encouragement, savings won’t occur if competing incentives better match affordances in one’s environment.

              • John O'Connell

                Buying a real asset is spending, not saving. Doesn’t matter if people didn’t know that.

    • Hi, Golfer1, my perspective is that SS for a decent living in retirement is a human right. This isn’t the 1930s anymore and I don’t feel bound by the perspectives and politics of FDR is trying to justify SS. I also have no wish at all to privatize it and open up SS to risk or place full responsibility on individuals to provide for themselves in retirement. There’s a big element of luck in economic life and I don’t believe that competence or hard work is the biggest element in success or even in saving enough for retirement. So, I want SS benefits and the eligibility age lowered for the future.

      I have little patience with moral fiber arguments because I don’t think these are big elements in success or wealth, so I don’t believe that it would be good to end SS for the purpose of character-building in America. There are many ways to build character in people, we shouldn’t do that by creating conditions that make people risk a decent livelihood when the time for retirement comes.

      Since MMT teaches us that we won’t run out of money if we provide a decent living and good medical care for seniors, I’m for entitlement programs that do it. I see no good reason not to provide and maintain such programs, since the American economy has long since developed sufficient productivity to provide the real resources that people on such programs consume.

      • Well, then, is it still necessary to provide entitled benefits to those who have had the “good luck” in their working lives, such as the Steve Jobs and Bill Gates and Warren Buffets of the world? Or even the “luckier” middle-class types who have managed to work long enough and saved enough that the SS income merely adds to their luxury spending capability?

        Lowered retirement age (rather than raised) might become advantageous if RMM is right about disemployment. (Wish it had happened 10 years ago, though :)

        I don’t have a problem with a relatively small “decent living” sort of entitled benefit for those without other means. We pretty much have that already. Actually, my only problem with the current arrangement is that I (and others of my generation) would have done much better on my own, even including all the market crashes during my working life. My preference is for everyone to have the option of saving for retirement or not, regardless of income, according to their own judgment. For someone who has been diagnosed with a limited lifespan, the benefits of Social Security may be totally imaginary, and their financial planning would be very different from mine.

        • Since FICA doesn’t pay for Social Security or Medicare (nor any other taxes), how do you feel about receiving SS and Medicare at $0 cost to you? That, in fact, is the case. The dollars taken from you for FICA serve no purpose.

          Rodger Malcolm Mitchell

          • I don’t receive it yet, but soon (a few more years for Medicare), and it won’t bother me. True, on a macro level, the taxes taken from me all my life didn’t serve any purpose except to impoverish me. On a micro level, I’m not ashamed to be reimbursed. I’ll need to live to a ripe old age before I break even.

            But, when the program was introduced, there was a stigma attached to receipt of welfare, and still is. That’s why, mainly, it is coupled with FICA. Not economics, politics. Even under the gold standard, they could have done it without any tax, or with any other sort of tax they chose, but coupling with FICA gives the impression that it is funded mainly by the recipients themselves. And that’s the political rhetoric applied to it, still, by those who don’t understand MMT or opt not to acknowledge that they do.

        • “Well, then, is it still necessary to provide entitled benefits to those who have had the “good luck” in their working lives, such as the Steve Jobs and Bill Gates and Warren Buffets of the world? Or even the “luckier” middle-class types who have managed to work long enough and saved enough that the SS income merely adds to their luxury spending capability?

          Yes, it is necessary because 1) it is an entitlement and 2) since there’s no issue of limits in the supply of Federal financial assets we have no reason to deny them their due, which is the same treatment as other citizens get with respect to entitlements. This is only justice!

          • “Their due”?? Lots of entitlements have conditions about them. You can’t get Medicaid or food stamps just because it’s an “entitlement”, you have to qualify. Why not SS, too?

            • There is an age qualification for SS, and amount of benefit is related to what you earned, and you don’t get it unless you apply for it.

              • John O'Connell

                If your benefit is related to what you earned, then it is an earned benefit, not an entitlement. It’s like saying your car is an entitlement, but only after you give the car dealer a bunch of money. That’s not how entitlements work.

  5. Awesome! I’d probably take out step one as the Fed can just print the money as needed anyway and the number 60 trillion is a death sentence, politically speaking. Thanks for the perspective.

    • The $60 T is key, rather than a political death sentence. The reasons are 1) the President can mint the $60 T coin without going outside the Executive Branch and deposit it at the Fed in secret; 2) once the President mints the coin, and deposits it, then the game for the deficit hawks is up. There will be $60 T in the TGA, the President can pay down 40% of the debt subject to the limit within a week, and probably another 40% in a year, meaning there’s no debt to speak of and about $48 T left in the TGA. Since 3) the President is eliminating the debt he/she will be a hero; Congress can complain all it wants to, but the President will have taken a perfectly legal action, and nothing will look so good to the public as low public debt trending toward zero, and $48 T still left in the public purse, for use in spending deficit appropriations in the future without issuing any more debt. So, 4) when the President goes to Congress and demands that it make SS funding automatic, and also demands the rest of the above program, he/she will get that sooner or later because the $48 T in the TGA will exert a continuing pressure on Congress to spend money to solve various compelling problems we have. After all, it’s one thing to say we can’t afford Medicare for A; when there’s no money in the banks, but entirely another to say that when there’s $48 T sitting there and the President has just demonstrated graphically that spending is a matter of Congressional appropriations, not a matter of acquiring the money to spend from sources external to the Government.

      So, given the description I’ve just given you, please explain to me what the political argument might be that would create a “political death sentence” for the President if he did what I’ve proposed.

      • I’m not talking about rational argument, I agree with what you’re saying. But 99% of voters won’t get past the first sentence of this explanation. They’ll just see the number 60 trillion and lose their shit. That’s why everyone knew to make TARP 800 billion as opposed to putting it in the trillions. Theoretically I guess a president could do it in secret, but I’m not sure what the significance of the 60 trillion number is or why you couldn’t just print the money directly the for purposes you mentioned and the amounts that are needed in each case.

        • First, I guess I just don’t believe they’ll “lose their shit.” I think when they hear what the President has done and that he or she is paying off the debt; I think they’ll say it’s about time someone did something like that. I also think a simple speech introducing what the President has done will go a long way to allaying anxieties. Here’s the speech.

          Second, I understand the $800B was a magic number at the beginning of the Obama Administration in Congress. However, this has nothing to do with Congress. Nor is it about spending. It’s about filling the public purse so that there’s no more need to issue debt and so that the old debt can be paid off. That’s why a big number like $60 T is appropriate. It removes the debt issue from the table for 15 – 20 years.

          And third, the Executive Branch just can’t “print the money,” and place it in the TGA because the Executive doesn’t have the legal right to do that. It is legal however for the Mint to create a $60 T coin.

          • Thanks for the follow-up.

            I get what you’re saying about the executive branch minting the coin (the link to this legislation in original article doesn’t appear to be working btw), so then they deposit it at the Fed. So you’re going to need Congress at the point where you actually start using the money in legislation.

            In a more sane world, perhaps our government might actually control its central bank, and then Congress could just create the money as needed as I said earlier. But it would certainly be interesting to see the reaction to an Obama speech regarding a 60 trillion coin. I hope you’re right about the public reaction to this, especially after the mass media spin that gets put on this kind of action. Hopefully MMT will become a bit more mainstream over the next couple years.

            • We’ve been having trouble with links here today. Should be fixed by now. To pay off the national debt the Executive doesn’t need Congress to approve its use of the PPCS profits for that purpose. Also once Congress appropriates the money for anything, then the Treasury can spend whatever money is in the TGA.

          • The idea is so good and so logical and so simple, it has no hope of getting through Congress, and since it would help the economy, the Republicans would hate it — unless they win in November, at which time they’ll love it and the Democrats will hate it.

      • What is TGA?

  6. Bravo!

  7. But why the payroll tax?

    Rodger Malcolm Mitchell

    • Good question!

      On another note, I have seen this trillion dollar idea many places and (amazing I know) I have also suggested the sixty trillion dollar coin. Why not, eh? If you are going to do it go big. But this will not happen anytime soon. The world is just not ready for it. Hell, we can’t even agree to fund spending to end unemployment. Think anyone is going to take this seriously? It is more distraction these days when people are worried, if at all, that Medicare will be cut. Others want Medicare cut to lower the very bad deficit. What a world!

      BTW someone said this trillion dollar coin idea could happen under the republicans. Who knows?

    • Hi Rodger. It’s just easy to cut when it’s plain we don’t need the money, and easy to re-impose when the President needs to control demand-pull inflation, and the impact of re-imposing FICA withholding on consumption would be immediate.

      • Hi Joe,

        The government never “needs” the money. and using taxes to control inflation has serious problems. Tax policy is too politically contentious, too slow to act (the effect really is not immediate), and not incremental enough. Repeatedly changing FICA would be a burden on business. Though virtually all taxes unfairly punish the low income groups most, FICA is the least fair tax imaginable. Finally, controlling inflation by causing a recession (that’s what removing dollars from the economy does) seems unwise.

        I much prefer raising interest rates to increase the value of dollars. This can be done instantly, in small increments, without political battles, and it doesn’t injure the poor. The Fed has proven it works and history shows it has no negative effect on GDP.

        Rodger Malcolm Mitchell

        • If it requires Congress to act, it is too slow. There needs to be an automatic mechanism, or at least bureaucratic authority (like the Fed’s authority to change the interest rate), and perhaps even controls on the frequency and magnitude of changes. I would say not more frequently than quarterly and not more than 1% of payroll at a time, and with maybe a 2 quarter waiting period after each change, before the next one. The burden on employers would be minimal, certainly less than keeping up with sales tax rates in every State and local jurisdiction in the country ;)

        • I really don’t like payroll taxes. It puts another burden on business. Just make it some part of the ordinary tax bill. BTW why do we need a 35% tax rate on corps plus the 7% +for payroll tax?

          I also sort of like the idea of interest. More interest would help fund pension funds as well. Would like to hear more on the pluses and minuses of that idea.

          • JonF,

            MMT suggests fighting inflation by reducing the supply of dollars (taxes). Monetary Sovereignty suggests increasing the demand for dollars. This is discussed at http://rodgermmitchell.wordpress.com/2012/01/02/a-reminder-about-why-modern-monetary-theory-mmt-is-wrong-about-inflation/ and at http://rodgermmitchell.wordpress.com/2009/09/09/low-interest-rates-do-not-help-the-economy/

          • Yes, I think the corporate income tax should be replaced by a corporate gross receipts tax. Much simpler to comply with and to enforce, would be a much lower rate, minimizing distortion of incentives, and corporations are already great tax collectors. You can get rid of FICA altogether, and the adjustments could be in 0.1% increments to the corporate tax rate. Look at all the non-tax things corporations manage now in their payroll calculations. They’re very adept at adjusting them.

            • All corporate tax is senseless — like stealing food from the goose that lays the golden eggs — but a gross receipts tax would be a real disaster. Every food chain in America (they have low margins) would go out of business, but jewelry retailers (they have high margins) probably would do O.K.

              • John O'Connell

                Besides sin taxes, what tax is not senseless? I remember one of your own (I think) blog entries showing how any tax can be perceived as unfair and harmful to someone.

                For all the food chains to go out of business, people would have to completely stop buying food. I think that’s unlikely. More likely there would be a one-time increase in food prices to account for the increased tax, if it increases. Maybe also a one-time reduction in jewelry prices. And have you considered the reduced cost of lawyers and tax accountants when there are no longer any deductions, credits, and loopholes? But the tax code is written by lawyers, so they are not likely to kill their own golden goose.

                • “More likely there would be a one-time increase in food prices to account for the increased tax”
                  Hey, I thought you were trying to cure inflation. Now you want to increase the price of food, the single, most popular commodity in the world? Yikes!

                  Meanwhile, every day, that increased FICA tax pulls dollars out of the economy — out of consumers’ pockets and out of businesses — like water running out of a leaky pail. That’s what federal taxes do, and that’s why deficit reductions lead to recessions.

                  Increasing taxes to cure inflation is like trying to make a car go faster by removing the gas tank.

                  And yes, all federal taxes are unfair to someone.

                  • John O'Connell

                    I didn’t say how much the gross receipts tax (not FICA) would collect relative to the current corporate income tax. In our current situation, I would prefer a reduction, but that’s not the point. The point is that it will be simpler, easier and cheaper to comply with, harder to evade, would have a lower tax rate that reduces distortions, and easier to enforce than the current corporate income tax. And for the purposes of this discussion, easily adjustable in small increments, if we design it to be so, and thus a viable tool for tuning the government deficit — just as easily as the Fed adjusts the interest rate.

                    A one-time increase in one price is not inflation. There has to be an ongoing increase of prices in general for it to really be inflation.

                  • John O'Connell

                    I hate to introduce a loophole so early in the implementation, but I am sympathetic to the idea of exempting food companies. Not ADM, but maybe Safeway. Maybe exempt any company whose profits are consistently less than 5% of gross sales. Yuck, that’s ugly. I hate it, but I might go along with it.

        • Rodger, in my proposal above the President would have the unilateral authority to gradually increase FICA from zero on up as demand-pull inflation occurs. I also specified that the payroll tax cap be lifted entirely, removing at least some of the regressivity. I don’t favor using monetary policy because history shows that’s a really blunt instrument in repressing demand. I lived through a small business experience when Volcker was trying to wring inflation out of the economy using interest rates as a mechanism. The process had no effect on my business for years. I just passed the higher cost of interest onto my customers. Then suddenly the interest rates reached a point where they just strangled business too much and my sales declined abnormally. My brother was hit much worse. his business was very dependent on people being able to get credit. As it dried up, he just reached a point where he had no sales at all. he had to walk away and do something else.

          In my view, gradually increasing FICA taxes, to regulate demand-pull inflation would be a much smoother process. If Treasury were careful and put the changes in a half point at a time, I think the economic shock on the economy would be far less disruptive than using monetary policy and would have a much more immediate effect on consumption.

          I think monetary policy is never as effective as fiscal policy, and that we should force interest rates down to zero and forget about it from that point on. Let the President, who bears the actual responsibility for poor economic performance have some control over that performance through fiscal policy.

          • Joe,

            Inflation can be predicted only a few months in advance. So every month or so, you would ask Congress to vote on a new level for FICA. Good luck on that.

            Then every month or so, businesses would have to pay more FICA. That’s better than paying more interest on a loan?? And every month or so, employees would have to pay more FICA. That won’t affect demand, which would “strangle” business.

            Visualize the realities. Increasing FICA would hurt the economy by removing dollars from the economy. Further, the effect inflation would be too slow, as changes in FICA are slow to take place. Visualize if Volcker had tried to cure inflation by increasing FICA. He would have destroyed the economy.

            Increasing interest rates does not hurt the economy. (See: http://rodgermmitchell.wordpress.com/2009/09/09/low-interest-rates-do-not-help-the-economy/) In fact, to a slight degree, increasing interest rates helps the economy, by adding federal dollars.

            By the way, I have a bit of trouble with the story about your business. You must have been borrowed up to the hilt to have an increase in interest rates affect your pricing so much that the “higher cost” lost you customers. If you had the typical 100% markup, and borrowed to pay for 50% of inventory production, and interest rates rose 6%, your price to customers would rise only 1.5%.

            Anyway, the Fed successfully has kept inflation very close to its target rate of about 3%, by using interest rates. Imagine trying to do that with changes in FICA. Yikes!

            (And this doesn’t even get into the fact that FICA is America’s most regressive tax, punishing the lower salaried worker. That’s how you want to cure inflation?? On the backs of poor workers?)

            • John O'Connell

              No, it won ‘t work if Congress has to vote every time.

              Lots of businesses are heavily dependent on borrowing to finance production,and interest costs are a big part of their overall cost. (Think of a farmer who borrows in the spring for seed and fertilizer, and repays the loan at harvest time.) When they can’t afford the interest anymore, they stop buying their input products. Their suppliers, then, are also hurt by high interest rates, even if they do not borrow at all.

            • Didn’t propose that RMM. I proposed that the President have the authority to vary the FICA taxes month-by-month.

              It was a very low margin microcomputer business. Didn’t start out that way, but after a couple of years found myself with very small mark-ups. Not a good business!

              • Raising FICA to fight inflation is exactly what the 1% would love to see. It punishes the lower paid, salaried people the most, and doesn’t lay a glove on the wealthy. Apparently, you have recovered financially, and now are part of the 1%. :)

  8. Great blog posting, sir, and god how I hate everything involving that Rockefeller stooge, Peter G. Peterson (let us never forget the two commissions he was on, the original commission on foundations, back in the 1970s, to redirect attention away from how tax-exempt foundations are used to hide wealth and ownership; the second being Bill Clinton’s commission to “end welfare as we know it”).

    Truly, an individual who defined himself when he was expelled from MIT for massive cheating.

  9. Good stuff Joe. In the end, the question is not which specific funds have what kinds of balances, but how much we as a society want to commit out of our current resources to the support of our current retirees. We have to make ongoing and ever-evolving decisions about the balance of work and economic support among ourselves, and between generations.

  10. Samuel Conner

    I wonder whether it might be that, until MMT concepts have become more widely recognized and embraced by the business and investing communities, a massive one-off seignorage event would be highly disruptive due to widespread perceptions that it must lead to high inflation. The rentiers might be terrified and flee US denominated assets, with bad consequences for pension funds and insurance portfolios. What would happen if every insurer in the country suddenly found itself in the position of AIG in late 2008? At the very least, I think one would need to game out the likely expectations of what such an event would entail and be prepared to intervene to counteract self-fulfilling dynamics in the asset markets. With $60T on deposit with the Fed, the Treasury could support asset prices until things calmed down.

    This post is a top-down proposal that seems unlikely to gain much traction among present political elites. I wonder whether there might be “bottom-up” things that municipalities, counties and states could do to exploit MMT concepts to stimulate economic activity within their respective jurisdictions. Not enough tax income to fund wanted services? Why not pay for the deficit by using local tax credits as part of the compensation paid to goods and service providers, or even employees who have a local property tax obligation? Employ out-of-work people threatened with loss of home due to property tax arrears in exchange for forgiveness of the arrears. A thousand small MMT flowers blooming across the land might change the terms of policy discourse in ways that gigantic but at-present politically impossible one-off solutions cannot.

    • Thanks, some good ideas here. And I agree that the $60 T coin will not have much initial support among elites. But it only takes one person to get it done. And if the President does so, then it will change the whole political landscape. At that point, then we can start planting all sorts of MMT flowers, since political opposition to them based on the plausibility of we’re running out of money arguments will be gone.

    • One more thing, I don’t weight the possibility of a negative psychological impact of the President’s minting the very big coin very highly. Think about it. There’s suddenly $60T in the TGA. In the first week the President pays off all the Intragovernmental debt and also the Fed held debt. That’s about $6.7 Trillion of the nearly $16 T of debt subject to the limit, or about 40% of it gone the first week with more to come, and a projection of very rapid payoff of most of the debt. Why would that cause a panic?

      The rest of the $60T would be spent very gradually. More payoff of debt held by the non-government sector would be like QE, we already know that’s not inflationary, and it would be hard to build a panic on that. What about deficit spending without bond issuance. Well, that would be very gradual, and with the output gap we have would not sustain inflationary expectations even if they occurred.

      • The platinum (by law, must be platinum) coin is an excellent idea. The out-of-office party would complain that it’s some sort of “fake” economics, and nothing really has been solved. Most people would believe it. (“How could we suddenly have no debt?”)

        But it would end the phony debt limit discussions, and the fear SS, Medicare, Medicaid et al will go out of business.

        Unfortunately, the discussion would turn from the federal debt to the federal deficit, which cannot be “cured” with a platinum coin. More education then will be necessary.

        But yes, we should use the coin solution.

        Rodger Malcolm Mitchell

  11. I do really like the idea of a variable tax indexed to the rate of inflation meant to reduce inflation.

    The way that we counter inflation now by increasing interest rates puts the burden of accomplishing a societal good, reducing inflation, onto a relatively narrow part of society, those whose businesses are sensitive to interest rates, construction, automobile manufacturing, white goods, etc. And in this narrow portion of society we further focus the pain onto those who lose their jobs because of the increased interest rates. The few suffer for the many.

    By fighting inflation with a tax increase we spread the pain out to more of society but make it less of a burden on any one person. It would enable us to maintain close to full employment and keep interest rates lower and more predictable long term, satisfying the confidence fairy, while fighting inflation, and would mean that the economy could recover faster from the battle. There are elements in society that feel that they profit from higher inflation and from the high interest rates used to fight inflation. I don’t think that there is anyone who feels they profit from higher taxes.

    And who knows, the certainty of having your taxes raised might just dampen everyone’s enthusiasm to raise prices and wages. Okay, this is a bit optimistic. In addition the people who suffer the most from high inflation, those with a lot of money, would have the satisfaction of finally being able to help in a material way to fight inflation, sparing them the guilt of seeing others suffer for their benefit. Okay, this is a more than a bit optimistic, it borders on delusional.

    I actually came up with this idea when I was trying to think of an example to show that the economy is not a naturally occurring entity, that it is the way that it is because of the choices that were made creating it. That there was no law of economics that tied interest rates to inflation, that this was just the way that we choose to fight inflation, that it is not the only way and that it is not even the best way to do it. This put the onus on me then to come up with not only a different way to fight inflation but one that was a better way to do it. Putting my lessons in MMT to good use it dawned on me this idea is was a better way to do it.

    • RMM would surely disagree, but it seems to me that the way an interest rate hike dampens inflation is by suppressing demand though reduced private sector borrowing. Each time the Fed seriously raises interest rates, a recession follows. No doubt tax increases can and do cause recessions as well, (also by suppressing private sector demand through reduced spending from income, rather than from borrowing) but in this instance we are talking about a fairly small tax increase that happens only when the economy is “overheated”, and is (as automatically as possible) immediately reversed when the inflation rate goes back down, hopefully before the recession starts. The Fed has been grossly unsuccessful at timely reversals of their inflation-fighting rate increases. Maybe something else should be tried, for that reason alone.

    • Merkin ” Okay, this is a more than a bit optimistic, it borders on delusional.”
      If you really would like, “delusional”
      you should read (Google): ” JUSTALUCKYFOOL ”
      Tax money,not people.
      Zero federal income taxes.
      The wealth of a nation is in how it re distributes its wealth.

  12. Alfabet starts from A: First things of all is to cut ties health insurance as employer benefit. According to Forbes Ohio in 2009 spent $600 mil on families of 50 biggest employers in state. They got business rest of us got welfare to pay. Health insurance by employer are money made by employees but decided by employer how to spent them and as tax cut. 1% owns everything arround so health care is run as scam- overpriced. If we cut it we fix loophole of partime as employer ain’t provide benefit even if person worx couple part time jobs. Then no matter how many part time jobs one worx- percanatge goes toward healthcare-SS.
    B: Check wikipedia Minimum wage and countries: Austria, Belgium,Mexico,Canada,Scandinavia. What you will find: Minimum wage must be decentralized and diversified as expenses to live are diferent. Then you will find that there is diferences by age and qualification. I would prefer 3 categories: to 18 current minimum wage, 18-25 higher, over 25 $15/hour- since we cut expences of employer on healthcare and we do not want to see father on minimum wage. Percentage from wage goes to healthcare and SS and will increase tax revenue. Health care and SS must be run as nonprofit cooperative with some percentage mandatory investment. Ontario, Canada pension fund owns HNL hokey team. Libyan pension funds partialy owned shopping centers in the west and soccer clubs in Italy and France.
    Look how many businesses owns Mormon Church. Why not turn it into healthcare and SS.
    One must consider that only single digit of US workforce is selfemployed compare almost 40% Greece, Italy, Spain. Check for Mondragon Cooperative and Bologna Cooperatives.
    Must be dramaticaly changed tax system as part of this.
    Becoming resilient in our personal lives. By learning how to make our own jobs. By becoming healthy and fit and helping others to do the same. By turning our homes into productive assets that reduce our expenses and increase our incomes. By connecting with our families and neighbors to build resilient communities and dynamic local economies. By producing most of the food, water, energy, and products we need locally. By learning to sell and trade artisanal products and services we make locally, to the world.
    Check Healtcare not wealthcare by gibiru.com

  13. We also need fix political system: decentralize and diversify. Multipolitical party state parliament with 5% quorum for political party to be in. This state parliament will elect reps to Washington. Direct presidential elections with 2 rounds if in first no one gets more than 50% of votes. No needs to register for vote, just by SSN and ID card. We must definitevely alternate Drivers license as Citizen card/birth certificate card= world standard. Elections 2 weekend days, with one day durring week with limited places. No machines at all.
    For 1% is easy to run ponzi schemes as it is enough to corrupt the few bravest in Washington and 300 milion people pay for that. Diversify and decentralize.
    Any business in the US must register on state level and pay taxes on state level from business made in state. There is cliche that North is supporting South. It looks like because all import companies are registered in North east so they acumulate wealth even on stuff sold in West Virginia, for example. Then of course those states run into bancruptcy.
    Personal income up to $250 000 goes to state, over this limit will be taxed as corporate tax. Part of corporate taxes collected by states will go to Fed for defense. Corporate tax will be flat for all states, no race to lower it.
    What we will get? Directly elected president. We must head toward direct decentralized diverzify democracy Swiss style. No more mercenary army- National Guard. State parliaments will do decions to use military by 2/3 of states decision.
    Big change

  14. http://www.praxispeace.org/conference12.phpPraxis Peace Institute is organizing its fourth 5-day workshop/seminar with the Mondragon Cooperatives in the Basque country of Spain. The purpose of the seminar is to learn about worker owned businesses from the leading consortium of cooperatives in the world.

  15. Can someone clarify two things for me:

    1. Do banks and the Treasury settle with each other in the same way that banks settle amongst themselves, or does the Treasury take/make all payments with base money?

    i.e. if bank A and its customers owe $2 million in total to the Treasury (taxes, etc), and the Treasury owes bank A and its customers $1 million in total (wages, interest, etc), does bank A simply transfer $1 million in reserves to the Treasury in settlement? Or does bank A pay the full $2 million in reserves to the Treasury, after which the Treasury pays $1 million in reserves to bank A?

    Also, does the Treasury make payments out of its commercial bank Tax and Loan accounts? Or does all Treasury spending come out of the Treasury’s account at the Fed?

    Thanks!

    • Well, banks settle among themselves with base money. When Bank A makes a payment to Bank B, ultimately some quantity of reserves is shifted from the reserve account of Bank A to the reserve account of Bank B. And commercial bank reserves are part of the monetary base.

      The Treasury also has accounts at the Fed, and ultimately when the Treasury makes a payment of some kind, some balance will be shifted by the Fed from a Treasury account to an account of the commercial bank that holds the deposits of whomever the Treasury paid. However, while the balances in these treasury accounts with the Fed are classified as liabilities on the Fed’s balance sheet, they are not classified as part of MB – the monetary base.

      • http://wfhummel.cnchost.com/treasuryflows.html

        “All tax payments by individuals and businesses go into Treasury accounts at depository institutions called TT&L accounts. Government spending, however, is paid out of the Treasury account at the Federal Reserve. The Treasury must therefore replenish its Fed account with frequent transfers from its TT&L accounts.”

        • Thanks Dan.

          If bank A owes bank B $100 and B owes A $90, then settlement will involve A transferring only $10 reserves to B. The Fed will simply debit $10 from A’s reserve account and credit $10 to B’s reserve account.

          What about if the Treasury owes Bank A (and its customers) $90, and Bank A (and its customers) owe the Treasury $100?

          Does the Fed debit $100 from bank A’s reserve account, credit $100 to the Treasury’s account, then debit $90 from the Treasury’s account, and credit bank A’s reserve account with $90? Or does the Fed just debit $10 from bank A’s account and only credit $10 to the Treasury’s account?

        • Clonal Antibody

          Dan,

          Just to be clear, what happens to standard coins that are minted by the Treasury? (I am not talking of the $60T coin) A discussion on that may make the concept of the $60T coin clearer in mny people’s mind.

  16. Joe Firestone,

    Are you sure the Treasury can mint a coin of any value? Doesn’t it have to have an equivalent balance in its account at the Fed?

    i.e. if the Treasury has $5 billion in its Fed account, it can mint a $5 billion platinum coin. If it only has $1 billion it can only mint a $1 billion platinum coin.

    ?

  17. Joe,

    The law does also describe the coin as a “bullion coin”. Isn’t the value of “bullion coins supposed to be close to its bullion value (i.e. the price of the metal itself)?

    Does anyone know whether it is currently legal for the Treasury to issue scrip/ bills of credit, or tax credits as money? (I know the Treasury can issue a limited amount of “United States notes”).

    • Phil, I don’t think Treasury can issue scrip or tax credits without specific Congressional authority. On the bullion question, I think the law is clear that the coins can have arbitrary face value. Also, the Mint doesn’t have to make bullion coins; it can make proof platinum coins, thus, the term “Proof Platinum Coin Seigniorage” or PPCS to describe the method being used here. The proof platinum coins are already being created by the Mint with low face values for collectors. The same forms could be used to mint the Trillion Dollar proof platinum coins. Only stamping a different face value on them is necessary. That’s why the $60 T coin could be made within a single day and taken up to new York for deposit at the NY Fed.

  18. Thanks Dan,

    so if the treasury is owed $100 by a bank, it eventually gets paid $100 in reserves/ credit to its account at the Fed .

    If it simultaneously owes $90 to the bank or its customers, it doesn’t just ‘settle’ by taking just $10 from the bank in reserves…?

    • I don’t know how all that works. But I think the settlement only occurs at particular times – like once a day. So if there are multiple obligations going in different directions, they would be totaled up and only the total debit or credit would be applied.

  19. Joe,

    Only one of your links work.

  20. William Maliha, MD

    you have got to be kidding. I started working at age ten. Over my lifetime my various employers and I have paid over $250,000 in FICA taxes. Considering the high inflation of the 70s and 80s let us assign a reasonbale compounded interest rate return of 5% over the last 50 years starting with zero principal(remember, money markets were paying around 15% in the 80s) and with larger contributions the last 35 years. The result should be somewhere in the neighborhood of $1,000,000 in my account alone. I currently recieve $25,000 per year. Assuming I live another 20 years and again compounding for inflation at the current 3% or less per annum. I will collect somewhere around $700,000. Where is the freaking problem. Raise the darn tax a percentage point and you have no problem what so ever forever. You don’t raise the payroll tax ceiling as the system only pays back what you put in with interest with plenty left over. And please don’t tell us that the early beneficiaries in the 1940s didn’t contribute enough. More than enough was paid in the subsequent decades to make up for it. Both conservatives and liberals are freaking liars about this issue.

  21. Jacob Richter

    Many of the problems with US Social Security and its paltry returns could be solved by diversifying its investment. Of course, right-wing pundits don’t like the idea of government-based pension investment in publicly traded companies.

    • Contrary to popular belief, FICA does not pay for Social Security. The federal government pays for SS out of the General Fund. Even if FICA were $0, and there were no so-called “Social Security Fund,” SS could continue to pay benefits — even triple benefits — forever.

      The reason: Federal spending is not like state and local spending or even your spending. The federal government, being Monetarily Sovereign, never can run short of its sovereign currency, the dollar. It could pay a $100 trillion bill tomorrow, if it chose.

      The only thing that can “save” SS is the realization it doesn’t need financial saving. It needs understanding of Monetary Sovereignty.

      Rodger Malcolm Mitchell

  22. RMM, ” A Monetarily Sovereign government can pay anything. No limit.”, Rodger Malcolm Mitchell
    Justaluckyfool asks a foolish question in hope of receiving a profound answer, “Can a Monetarily Sovereign pay for the purchase of $1 quadrillion of assets”?
    And of course please include in that answer, “and no coin is needed, just a computer entry into the proper accounts.” A coin could be a majestic symbol placed along side the Liberty Bell and US Constitution.

  23. Pingback: Joe Firestone: Progressives Need to Up Their Game Against Social Security's Enemies | naked capitalism