Social Security is always being raided. And some brave person – typically an elected official or someone aspiring to be – is always vowing to stop this outrage before our retirement system is drained to the dregs. That’s just how it is in mad-as-hell America, where righteous indignation comes slickly packaged and accurately defining one’s terms is an unnecessary formality.
“Don’t raid Social Security to reduce nation’s deficit,” pleads the AARP. Meanwhile, right-wing gold bugs are warning us that a “huge pot of U.S. Social Security money” is “vulnerable to being tapped by illegal alien workers.” And over on Capitol Hill, intrepid Sen. Jim DeMint promotes a “Stop the Raid” amendment, protesting that “It’s time for politicians to stop stealing from our seniors to secretly finance trillions in wasteful Washington spending.”
The Great Social Security Raid has become the Sasquatch of American politics: the creature that’s always out there but never clearly seen, the monster just under our noses or just beyond our field of vision. We think we know it’s there. But everyone uses the same word to describe something different.
Let’s see if we can chase this thing down. First of all, no one talked about a “raid” until the trust funds began to grow into a substantial amount pool of assets following the 1983 Amendments to the Social Security Act. Critics then began to complain that the trust funds had been “raided” because after using most of our payroll taxes to pay benefits to the current crop of retirees, survivors, and disabled, the Treasury Department borrows the remainder to use for whatever else it damn well pleases, sticking workers with a fistful – actually, a file cabinet-ful – of IOUs.
Another way to look at the transaction, however, is that the Social Security trust funds use the money left over after benefits are paid to buy Treasury bonds. Either the “assets” in the trust funds are worthless chits, or they are the safest investment in the world. But the excess tax revenues have to be invested in something.
Critics of Social Security like to point out that the Treasuries in the Social Security trust funds aren’t like the ones individuals or the Bank of Japan buy, because they’re not negotiable. The trustees can’t turn around and sell them to some other investor. Effectively, one part of the federal government – the Social Security system – has made a loan to another part – the Treasury. That’s not “real” investment, that’s a shell game. Or, stretching the definition, a raid.
The problem is that the commitments behind those Treasury bonds are legally just as enforceable as the ones that trade on the open market. Social Security receives interest on them. As soon as Social Security needs the money back to pay some of the benefits it owes, the Treasury is obliged to redeem them at full value (it’s been doing so this year, in fact, since the recession pushed payroll tax collections below the level needed to pay all current benefits). To not do so would be just as serious a legal breach as to change the terms of the deal on the bonds in the Bank of Japan’s vaults. Until that happens, there’s been no raid.
Often, what the critics really mean when they talk about a Social Security “raid” isn’t that something’s been stolen, but that they don’t like how those payroll taxes receipts have been invested. Safe and sound as they may be, Treasuries aren’t “real” investments, which would be in private-sector instruments like stocks and corporate bonds. But according to the critics, if the assets are to be invested in private-company securities, this shouldn’t be done through the trust funds, which are ultimately controlled by the presidential appointees on the Social Security’s board of trustees. As Alan Greenspan once put it, “even with Herculean efforts, I doubt it would be feasible to insulate, over the long run, the trust funds from political pressures.”
So here we have yet another form of “raid”: a culture of corruption growing up around the trust fund’s investments. The only way to prevent it, according to free market fans, is to give individual workers the right to investment some portion of their payroll taxes in the form of private accounts. The raid can only be stopped, in other words, if the money is given back to the people who paid it in.
But wouldn’t that lead to yet another kind of raid? Most privatization proposals wouldn’t actually give the people their money back. They’d be given a the choice of allocating their payroll tax dollars between a select group of investment vehicles, all run by prominent financial services firms. Is the purpose here to help working people earn a higher return on their investments? Or is it to prop up an overvalued stock market – and provide Wall Street with the steady, fee-based incomes it needs to cushion its high-stakes gambling – er, trading – desks? If the latter, who’s doing the raiding?
OK, let’s get realistic. If by “raid” we simply mean that Washington has been able to “use” our payroll taxes for something other than supporting Social Security, then there might be a case to be made. The Reagan administration famously used the hike in payroll tax receipts in the 1980s – which was already scheduled in the 1977 Amendments, Reagan and Congress just moved the dates up – to compensate for the tax cuts he’d pushed through in 1981, and which had ballooned the deficit. Since then, ordinary workers’ payroll taxes have essentially be used to pay for tax cuts for the affluent.
But even this stretches the definition of a “raid.” Those payroll taxes are still used to purchase Treasury bonds. It’s the proceeds from these that cushion the federal budget from the impact of income tax cuts for the upscale. They could be used for something else – education, green energy initiatives, anti-poverty programs, etc. – and the Treasuries in the trust funds still have to be redeemed. If the trust funds are going to invest in Treasuries, Congress is going to do something with that money. It’s not going to sit on it.
The real discussion, then, needs to be about whether Congress is using the proceeds from those Treasury in ways actually help the economy to grow. But this is never really addressed in the Discourse of the Raid, which most often obscures the fact that the assets in the trust funds have been invested, not stolen. Social Security – and the pool of assets that supports it – are the property of the working Americans who pay into it. Do we want our money to be invested in tax cuts for the holders of capital? wars in the Mideast? charter schools? health care?
As long as the Treasuries in the trust funds are redeemed – as long as the federal government honors the covenants behind the bonds – there’s no raid. Except, perhaps, for one thing:
Suppose Congress decides to cut Social Security benefits. Cutting benefits, absent a corresponding cut in payroll tax rates, would mean that less of the trust fund assets are needed to pay benefits. That would lower the required rate of redemption on those Treasury bonds. And that would mean more of the money from those bonds stays in the hands of Congress for a longer period of time to spend as it pleases.
That would be playing fast-and-loose with the social compact represented by the Social Security trust funds. Workers who had paid into the system for years under one set of expectations could now look forward to getting much less for their money. And that, in a sense, would be a raid.