The Economist no longer buys the anti-European hype | 69 comments (69 topical, 0 editorial, 0 hidden)

Re: Social Security mimic a pension system ... (none / 0)

I'm with you down to here:

Social Security is PAYGO on its own functions direct transfer between the current generations paying in and the generation(s) receiving payment. Since the 1980's, it also collects a surplus on top to shift the tax burden from progressive corporate income taxes to regressive payroll taxes.

I would have preferred that SS surpluses were "banked", probably invested in the US stock markets in an index fund. It was a little late, but both Clinton and Bush suggested programs that would have started doing that (I prefer Clinton's). But our wimpy leaders, particularly Congress, have always "kicked the can down the road" until forced to do something. But SS is what it is, what we've made it, and the leaders that we've elected have done--both sides of the aisle, liberals and conservatives. There are no heroes here.

And yes it pushes the burden down to the younger generations, particularly with the baby boom bulge getting ready to retire.

But as the article I quoted points out, SS is just not regressive. I think it's even worse than the article points out, since the higher wage earners have their SS payment deducted from their earnings; then they pay the higher federal (and state) income taxes on that money they didn't get; then they get 60% of the money they put in; and they pay taxes again on that 60%. If you do the math on that at a 35% tax rate, it shows they lost their entire SS contributions--40% they just don't get, and the 60% they do get got eaten up by the two tax bites. I'm not crying for the high income earners here,,,I'm very comfortable with this redistribution of income. I just don't like people pretending it's a regressive tax that benefits the high income earners--that's just not true.

If you are also suggesting the rest of the budget should be balanced over the years, I agree with that. There are a number of ways that could have been achieved--lower government spending, higher personal income taxes, higher corporate income tax, more excize taxes, etc. etc. I don't agree with your choice of a higher corporate tax, because of the economics arguement that you are taxing the money twice. The corporation pays money on the earnings, and then what is distributed as dividends (as opposed to reinvested in "real assets" <snark> in the business), is taxed again.

So we double tax social security as I showed above (which I agree with as social policy), we double tax with the "death tax" (which I agree with as social policy as long as the levels are adjusted upward, which i expect will be the compromise in 2010), and we double tax corporate earnings (which I don't agree with, not on the basis of social policy, but on the basis of not allowing free markets to operate to the overall benefit of our society).

by wchurchill on Wed Dec 6th, 2006 at 01:56:12 PM EST
[ Parent ]

Re: Social Security mimic a pension system ... (none / 0)

The argument against simply using the government's money issuing power to fund social insurance is that if the economy is in an inflationary environment, this injection of liquidity destabilizes the economy. So in line with the payments being made, which creates purchasing power, an equivalent amount of purchasing power should be destroyed via taxation.

The idea that the government has to "fund" spending of one class of its own "IOU"s by either demanding some of its IOUs back or by issuing a different class of its "IOU"s in order to bribe holders of large amounts of its IOUs to hand them over is a quaint holdover from previous economic systems.

There is, however, no reason for it to "fund" future entitlements in financial terms, because the constraint on whether it can meet future entitlements is not a financial constraint. If there is adequate productive capacity to provide the goods and services, at terms of transfer that the working generations of that day can live with in return for the promise that they will be taken care of when they retire in turn, there is no problem.

Buying private sector securities is simply a means of inflating the value of those securities and provide additional commission income to those in the financial sector. That funding can never actually be allowed to be drawn down, because then that would depress the value of private securities.

If the government wishes to hold a claim on the private income stream of corporations, there is no reason to engage in a transfer of value from the lower 80% to the top 20% to do so. Regressive income transfers increase economic volatility, increasing the size of both economic upturns and downturns, and both excesses cause economic damage.

All it has to do it to demand that all corporations engaging in interstate commerce hand over a proportion of their debt and equity instruments on issue. Since corporations cannot function without the special privilage of limited liability that they are granted by government, they are in effect a limited extension of the powers of government into the private realm, and there is no reason they should not be required to pay for the privilage.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Dec 6th, 2006 at 04:39:53 PM EST
[ Parent ]

Re: Social Security mimic a pension system ... (none / 0)

(btw, I didn't mean to imply that the funding of social security would be the only solution to the looming crisis--I don't think you took it that way, but just saying to clarify.)

There is, however, no reason for it to "fund" future entitlements in financial terms, because the constraint on whether it can meet future entitlements is not a financial constraint. If there is adequate productive capacity to provide the goods and services, at terms of transfer that the working generations of that day can live with in return for the promise that they will be taken care of when they retire in turn, there is no problem.

But isn't that highlighted point exactly the problem. The incredible size of the baby boomer generation has caused enormous problems (starting with class sizes exploding and school facilities not ready for the bulge 50 years ago) as it has gone through the demographic cycle. I'm under the impression that the combined impact of SS and Medicare, coupled with longer life spans and wonderful, but costly, new medicines and medical procedures, will not allow the generations following to pay for the boomers.

The argument against simply using the government's money issuing power to fund social insurance is that if the economy is in an inflationary environment, this injection of liquidity destabilizes the economy. So in line with the payments being made, which creates purchasing power, an equivalent amount of purchasing power should be destroyed via taxation.

This policy would use monetary policy to further aggravate and stimulate an inflation (the opposite of what central banks have learned to do to control inflation), and add to that a negative fiscal stimulus that would slow the economy and raise unemployment. I think you've shot both Friedman and Keynes with this policy--got 'em with one bullet.

Buying private sector securities is simply a means of inflating the value of those securities and provide additional commission income to those in the financial sector. That funding can never actually be allowed to be drawn down, because then that would depress the value of private securities.

There is an investment policy that would work here.

Some of the funding of social security could be done as it is today--a certain %.
An appropriately conservative portfolio approach would be used considering the needs of the retiring. This would certainly mean using more financial vehicles than US Equities. Liquid international markets with transparency should certainly be included. And the portfolio should have private bonds as well.
And I would think there would be a transition into this approach. you wouldn't take 50% of the "social security trust", such as it is, and put it into the markets tomorrow. And the great thing about demographics is that you can see what is coming--so you won't need panic withdrawals, as an individual might need.

But the approach would certainly relieve the stress on these pay as you go systems,,particularly with population bulges like the boomers.

by wchurchill on Wed Dec 6th, 2006 at 11:51:46 PM EST
[ Parent ]

Re: Social Security mimic a pension system ... (none / 1)

But isn't that highlighted point exactly the problem. The incredible size of the baby boomer generation has caused enormous problems (starting with class sizes exploding and school facilities not ready for the bulge 50 years ago) as it has gone through the demographic cycle. I'm under the impression that the combined impact of SS and Medicare, coupled with longer life spans and wonderful, but costly, new medicines and medical procedures, will not allow the generations following to pay for the boomers.

No piles of pieces of paper, no matter how high, and no sequences of entries in computer databases, with the most significant bit no matter how far to the left, helps with the problem.

There is no finance problem. There is a capacity to support a given retired population with a given working population problem, sure ... but neither trust funds where the government holds its own IOUs as if they were assets nor funds where the government holds promises from corporations and individuals to fork over government IOUs at some time in the future addresses that problem.

In the US, Energize America addresses that problem ... in Europe, Energise Europe would do. Reversing the other massive dependency, the dependency of the US Empire on the US Economy, would free up substantial resources to do so. But the issue is food and clothes and housing and heat and transportation, not financial assets.

In an economy where the government's IOU passes as money, the constraint on government spending is its impact on the economy ... there is no finance constraint of the sort that a business or a household faces in that system.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Dec 7th, 2006 at 11:03:42 AM EST
[ Parent ]

The Economist no longer buys the anti-European hype | 69 comments (69 topical, 0 editorial, 0 hidden)

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