Can a Commission Straighten It All Out?
Should there be a special commission with the power to propose solutions to the nation’s financial crisis that Congress must fast-track and give an up or down vote to?
(I know that was a mouthful; it would have been worse had I not ended it with a preposition.)
The answer is: yes and no.
Yes, the financial crisis is dire. It needs our immediate attention. Every President since Ronald Reagan has acknowledged that entitlement spending is on an unsustainable course. And the longer we put off reform, the worse the problem gets.
No, not if the cure is worse than the disease. And it will be, unless we first agree on what the problem is. Yet, as in the case of health care, we often find that the two sides are not even talking about the same subject.
Here’s what we should be talking about: Ponzi schemes. The only difference between Social Security and Medicare and Bernie Madoff’s funds is that Madoff is in prison while the overseers of these two federal programs are running around giving speeches, going to parties, and acting like they have done the rest of us a huge favor.
All else is secondary. The composition of the commission. The short run deficit crisis. Whether or not taxes are part of the solution. All these concerns are minor relative to the overriding need to end our chain-letter approach to funding Social Security, Medicare, Medicaid (which mainly goes to seniors) and other elderly entitlement programs.
Since Social Security’s inception, the President, the Congress and even the Social Security Administration itself have told workers that their “contributions” were being “invested” and held in completely safe “trust funds,” when in fact those funds have all been spent — usually the very minute, the very hour, the very day they were deposited in the Treasury Department’s bank account.
The trust funds consist of nothing more than IOUs the government has written to itself. In the case of Social Security, the IOUs are actual pieces of paper kept in filing cabinets. In the case of Medicare they are mere computer entries. Although we call these IOUs “bonds,” they really aren’t bonds in any meaningful sense of the word. They cannot be used to purchase anything. They cannot be sold on Wall Street. They cannot be sold to foreign investors. They are no more valuable than the IOUs Bernie Madoff wrote to himself.
Were a fire to break out in the Social Security Administration office in Parkersburg, West Virginia, and burn up all the IOUs, the nation would not in any way be financially worse off. Were the President by Executive Order to double or triple the number of IOUs, the nation’s finances would not be improved by one whit.
Contrary to the Madoff-like promises of our leaders, neither money nor any other valuable asset has ever been deposited in the entitlement trust funds. Every employer payroll tax check is written to the U.S. Treasury. Every Social Security check comes from the U.S. Treasury. The Trust funds neither receive funds nor disburse them.
(By the way, in this respect the entitlement trust funds are no different from almost every other federal government trust fund. But somehow it doesn’t seem as bad when the government steals from the highway trust fund. At least as a voter/taxpayer I feel no moral obligation to pay the money back.)
But here’s the problem. We can’t fix this problem until we first acknowledge it exists. Who denies it? Paul Krugman for one. The editorial page editors of The New York Times are others. Throw in most members of Congress and then there are a whole raft of EINOs (Economists in Name Only) who routinely obfuscate. Let’s call them the entitlement spending deniers.
And here’s the danger: If we don’t first agree on the nature of the problem, the “solution” is likely to make things worse.
Consider the Greenspan Commission in 1983. Instead of acknowledging the need to move from pay-as-you-go finance to a funded system, the Greenspan reforms were designed to patch up the Ponzi scheme and give it more years of life. So we raised the payroll tax rate and ever since we have been spending those additional taxes on everything from art subsidies to a bridge to nowhere and piling up more and more IOUs in the process.
So, I’m against any new commission unless we state in the preamble that its purpose is to end chain-letter finance and set the nation on a path toward a funded system in which each generation pays its own way.
To make sure that we stay focused, each Commission meeting should begin like an AA meeting — going around the table, with each member saying the following: “My name is _________. I’m a member of Congress and I’m a spendaholic.”
Give Obama credit for bringing the issue up, despite stong opposition from his own party.
But you are right about the commission. It will be pointless unless everyone acknowledges the need to end the Ponzi schemes.
Question: why can’t we send the powers that be to prison to keep Madoff company? They’re all cut from the same cloth, aren’t they?
Wonderful, John! Bob
As long as the Deomcrats control Congress, nothing is going to be done about this.
John:
I am so glad you wrote about this important issue.
I have accumulated quite a few documents over the years regarding the history, financing, and accouting for Social Security and Medicare.
By providing the excerpts and links from reputable third parties, the untruths can be more effectively exposed.
Here are a few examples:
Regarding the relation of taxes to benefits:
“Taxes are collected as are other internal revenues, and are not allocated as was proposed to an Old-Age Fund, but are merged with the general funds of the Government in the Treasury.”
“Benefits are paid based on the status of a worker, measured by wages. Should no taxes be paid , the worker still gets his annuity.”
“Government’s obligation to the Old-age account is not dependent upon enough revenue from taxes to reimnburse the Treasury for the appropriation to the Old-Age Account.”
“The original bill made the receipt of benefits contingent upon payuing taxes. Under the Social Security Act, there is not interdependence between the taxing and the appropriation of benefits paid. Even if no taxes are paid, he still receives his benefits.”
Reports and Studies, the Committee on Economic Security, Social Security in America, Part 2, Old-Age Security, Chapter 10.
http://www.ssa.gov/history/reports/ces/cesbookc10.html.
“The money will go into the Treasury – the General Fund. The tax money does not go into the Social Security account, but goes into the Treasury. The collection of the tax is one operation. Spending regular appropriations for benefits under Title 2 is another operation – under other powers.”
Congressional Record – House
http://www.ssa.gov/history/pdf/h417.pdf.
Don Levit
Keep banging the Ponzi Scheme drum! The public doesn’t get it because the politicians and their lackeys, the media, hide it. Once the public hears the drum, the game is over. Never mind the Commission, another scheme to fool the public. Bang the drum. Bang the drum.
Great analogy!
The reason Social Security is not fixed is because they have a separate plan. The reason there is no solution to the medical crisis is they have a separate plan. So, lets be clear about their investment in the solution, ZERO. Should we get Al Gore back and have him give us the “Lock Box” demonstration again?
Just so we know exactly what we are talking about, here are the major categories of federal expenditure for 2008 (numbers for 2009 aren’t available yet, but they won’t be much different):
Total expenditure $3000 billion
Defense 625 billion 21% of total
Medicare, Mecicaid, 599 billion 20% of total
CHIP
Social Security 617 billion 21% of total
Other safety net 313 billion 11% of total
Interest on the debt 253 billion 8% of total
Everything else 593 billion 20% of total
So all types of income support taken together constitute 52% of federal spending. The major growth in federal outlays is forecast to come from Social Security, Medicare, Medicaid, and CHIP, which constitute 41% of all current federal expenditure.
John obviously is right to emphasize the latter programs. Any talk about about balancing the budget or cutting taxes without discussing cuts in those categories of spending is meaningless at best and deliberately misleading at worst. The sine qua non in controlling the deficit and tax rates is reduction of spending. The only place to find the large cuts that are necessary is Social Security, Medicare, Medicaid, and CHIP. The other big ticket item is defense, but defense already is growing more slowly than gross domestic product and thus falling as a share of GDP. Social Security and the others have been rising as a share of GDP. Serious cuts in defense simply are infeasible.
John, why don’t I ever see the changes in life expectancy pointing out the Medicare model is obsolete. Its like saying the auto is the 1935 Ford.
1935 Social Security model, 1960’s Medicare Model.
Increase tariffs on imported goods and services. Prosecute and fine companies and corporations that hire illegals. Limit terms, salaries and benefits of senators and congressmen. How many billions (if not trillions) of dollars every year would those measures alone save this country? Award tax incentives to the healthy, allow pre-tax HSA’s, consumer-based health care, and casualty health insurance, just like John has proposed, and then we don’t need anymore “commissions”. Problems solved!
Absolutely brilliant, John.
John
I know you’re busy…this is your acquaintance from Heritage meetings.
Is it possible to know how much money would be required to do the following:
1. Call emergency rooms what they really are: free clinics… and establish a network of them staffed by public officials, charitable groups, whatever it takes, and
2. Let this be the source of “coverage”, or “free medical care” for the indigent, college students that think they don’t need insurance, all that part of the 30 or 40m “They” say don’t have coverage.
3. Do this and leave the rest of us alone, but do it with tort reform and competitive insurance practices and competitive medical practices [start with publishing prices for procedures and visits to docs office, day rates for levels of care at a hospital, etc. somewhere someone has to know what this stuff costs].
I’ve run this scenario by every personal friend I know based on the assumption that some kind of care would be provided for those who simple don’t want to buy insurance or can’t afford it, and based on some kind of VAT or Federal Sales tax at a guess of .5 or 1%, and they all agree it is a way to go to get this monkey off our collective backs and end it forever.
What do you say? Ever thought of such a thing? You’re not going to change society overnight, and something is going to have to give to bring the lazy and ne’er do wells in to some kind of coverage, but surely in the name of God we don’t have to destroy it for everyone else. As a child of the 60s I remember the free clinics and how much the “other kids” liked them and used them.
Why not try a professional approach to it and let those that want that kind of service have it, and leave the rest of us alone to make our own choices. I would pay for that in a minute if it were established in law but administered by the states and local communities, and open to its own competitive practices, such as 501c.3 orgs and existing hospitals willing to take it on [which would likely be county districts]. I just don’t know what kind of money is spent today in emergency rooms, or “uncollected receivables” all totaled in the system.
Why can’t we do this or get an equally good idea launched by the conservatives?
Thanks for taking the time.
Folks:
As many of you know, the total debt is made up of 2 items – debt owed to the public and debt the government owes itself (intragovernmental debt).
An example of intragovernmental debt is debt that the Treasury owes to the trust funds for using the “monies” (actually, bookkeeping credits) for general governmental expenses.
Typically, intragovernmental debt is in an “inferior” position to public debt.
Public debt incurs current interest payments from general revenues, and, is thus a current budgetary expense.
Intragovernmental debt does not incur present interest expense.
In fact, from the budget’s perspective, intragovernmental debt is not even a liability!
From a paper entitled “Definitions of Elements and Basic Recognition Criteria for Accrual-Basis Financial Statements,” at http://www.fasab.gov/pdffiles/sffac5.pdf on page 31,
“The Board discussed the ‘settlement’ characteristic and concluded that if the government alone can determine whether and when to settle an obligation then it does not qualify as a liability. A liability is always between 2 separate entities (thus a loan from one department of the government to another department of the governmeny is not a liability, or an asset). There must be either an obligation and a requirement for settlement with the other entity (outside the government, like the public)supported in law or some agreement or ‘meeting of the minds’ between the government and the other entity (like the public)as to whether an obligation exists and what circumstances would trigger settlement.”
Therefore, if the federal government is short of cash, it is more advantageous to borrow from itself!
Don Levit
John:
Disappointing polemic. As someone who has actually been involved in balancing the budget and creating the first budget surpluses in a generation it is discouraging that you would use a number of near-truths to fan the flames but not shed much light.
The trust funds are in many ways accounting fictions. But social security and medicare (and the highway trust funds) have actually collected more money over their life than they have spent. The issue for the trust funds is future spending. Even without tax increases social security would still be able tod pay out over sixty percent of promised benefits. So the problem is not intractable. And truly pre-funding these programs on an actuarial basis is not a fool-proof solution either. When we had budget surpluses the then-President declared that it was wrong to keep surpluses to pay down the debt and build a fiscal cushion for the retirement of the baby boomers. So he cut taxes and spent the surplus. No doubt that future Congresses and Presidents will decide that truly funded trust funds are wonderful sources for future benefit increases or tax cuts. If you do not believe it just look at what happens in states that have fully funded pensions.
Balancing the budget will require guts and skill. Polemics will not help whether one is an economist or not.
John,
Start first with a commission that addresses only Social Security. That has the highest promise of success. You are correct that addressing health care makes no sense until there is a shared agreement about the problem Keep up the comparison with Madoff and other Ponzi schemes.
So let’s be clear–SS and Medicare were mistakes as originally designed and conservatives should stand up to those who challenge them that they would be against both were they up for a vote today. But, of course, they should vote against programs that guarantee taxpayer funded benefits regardless of income. (I know benefits do vary with income, but both SS & Medicare guarantee benefits to all over 65 and some other narrowly defined groups regardless of income.)
Both are bankrupting this country and are leading us down a path of more statism. Conservatives should use these as examples of the “slippery slope” of government interventionist socialist policies.
Response to Frank Raines:
I’m wounded. I thought I had risen to new heights of rhetorical flourish.
Seriouly, Paul Samuelson once described Social Security as a Ponzi scheme that works. We can argue about how well it works. But we should all agree that it is a Ponzi scheme coupled with the power to tax. It cannot pay a dime of benefits tomorrow or the next day — let alone 60% of promised benenfits — unless it collects more in taxes tomorrow, the next day, etc.
Again, there is no way we can solve this problem unless we first agree on what the problem is that we need to solve.