I don't know much about Stockman's history, but he was Regan's
budget director so that is a hit to credibility. And then when he had a
"falling out" with Ronnie over tax cuts and spending, he went to Wall
Street (whom he blames a lot for the Great Recession in his recent
book). So that is strike two. But he did become disenchanted with Wall
Street, then sobered up, and is trying to be Paul Revere about our
political and economic woes.
We have heard most of his arguments before, but he approaches
it as a conservative who is trying to save "real" capitalism from the
forces of corruption.
Some points that I found especially interesting:
-Neither Obama or the GOP dare to challenge the military
industrial complex, even with all the discussion about debt worries.
Maybe the sequester was the best thing for us on the military end (but
not on the public services and investments side). So many Americans are
now dependent and suckling on the teat of defense (quite a mental
image!), defense is "too big to fail" and they claim that any cuts will
cause us to slide back into recession. And many politicians are OK with
that because their re-elections hinge on defense jobs and contracts in
their states. And we get basically zero ROI on most defense spending -
they are just cash outlays that go poof. I guess the same can be said
about food stamps, but that program is a grain of sand compared to
defense. I am all for spending on infrastructure and *smart* research
that will actually give us positive ROI.
-The Fed's monetary policies from Greenspan to today have been
disastrous. The super-low interest rates did not ease borrowing or
promote growth, but only allowed Wall Street to lever up and make more
profits during bubble cycles. And for the retirees and others who "did
it right" and saved responsibly all their lives - their fixed income
reserves are producing nearly zero returns to live off of now.
-Stockman thinks that the Social Security Trust Fund is raided
and just a confetti IOU. I have heard various assessments, so I am not
sure what to believe - Is Social Security OK? One thing is clear -
wealthy retirees should not be getting SS benefits, even if they paid a
lot into the system for decades. It makes no sense to burden younger,
productive, debt-laden working people with large payroll taxes to
subsidize older, richer, secure folks who don't need more security. But
you have the AARP out there, so that's that.
Clearly our financial and monetary woes are not a Democrat or
Republican problem. They are an American problem (to borrow an
Obam-ism). Both parties are now in love with irrational tax cuts and
loopholes as the best way to bribe voters (especially rich voters). Both
parties think that we need to spend as much on defense as the Pentagon
asks for (like asking your kid the open ended question "What do you want
for Xmas?" and being surprised when they say "Unicorn!!"), even though
our military is built to fight threats that do no exist. Also, a moral
hazard associated with a bloated military is the fact that we may feel
more inclined to use it because we paid for it. If we had a scaled-down
military on par with Scandinavia and such, then it would have been
obvious that we couldn't occupy Afghanistan or Iraq. In that case, we
would have devised more feasible, economical solutions to fight
terrorism. And probably they would have been just as effective if not
more so.
--------
I think Stockman is basically wrong. If you're concerned about the
long-term health of the nation, what you need to be worried about is
getting us out of this recession and repairing the damage done. There
was a recent paper looking at the job health of the long-term
unemployed, and the basic answer is that being out of work for 6+ months
doesn't just mean you lose that time. It impacts you essentially for
the rest of your career. There's an understandable stigma about hiring
people who've been out of work for long periods, which makes it harder
to get back into the workforce, when you come back it's at a lower role,
etc. This is a big deal for recent college grads as well: young people
who graduated in the last 3-5 years have been screwed, big-time, by our
economy, and may never get back on track. This idea that reducing the
deficit is "for the benefit of young people" is shenanigans.
On Social Security …
Legally,
the Social Security Trust Fund is a separate organization from the
federal government. It has its own dedicated revenue (payroll tax) and
expenses. For a long time it ran a surplus, bringing in more revenue
than it paid out. It invested that surplus prudently, in the world's
safest and most liquid asset class: US Treasury Bonds. Anyone who calls a
US Treasury Bond an IOU, like we're talking about a 10-year old's
lemonade stand borrowing money for sugar, is deeply misinformed or
trying to scam you. These are the highest-quality assets in the world.
Now,
it's possible that the US government could choose to default on those
bonds, causing Social Security to lose its trust fund. But a default on
US Treasuries would be catastrophic. The debt ceiling threat was over a
short-term, technical default, with every understanding that the debt
would eventually be paid, and even that roiled financial markets. A
decision to default on the US debt would, with very little hyperbole,
end the world financial system. Every bank, hedge fund, money market
fund, etc, would be insolvent.
Moreover, the
folks who talk about Treasuries as IOUs describe this as being specific
to Social Security, so now you're talking about a selective default on
just the debt held by the Social Security Trust Fund. That is, the
government (I think it's under Sec-Treasury, so executive branch) would
have to decide to default only on debt to US seniors, while continuing
to pay the Treasuries owned by China, by investment banks, etc. Can you
imagine the political fallout, from deciding to stiff just seniors? That
President's political party would likely become a swear word (if
seniors swore).
Social Security has money to
pay all projected benefits through 2037, at which point the oldest of
the boomers would be 92. Beyond that, it's projected to be able to pay
80% of projected benefits through the end of the CBO's 75 year scoring
window (nevermind that a 75 year economic projection is usually
shenanigans - imagine someone in 1938 projecting US revenue in 2013). By
law it cannot impact the US debt when it runs out of money. Now,
Congress could decide to make up the shortfall out of general spending,
but that's a choice they'd have to make (and political coalition they'd
have to build).
Social Security is fine. If you
want to talk about long-term US government debt problems, it's
basically a story of rising healthcare costs.
--------
Yeah I find that narrative more believable and realistic than what the
typical conservatives are claiming. As you said, there is no political
or legal way that the US gov't could default just on Treasuries held by
SS and keep its commitments to the other holders. That is good to know
that SS is independent of the debt.
But I think Stockman's other point was regarding working people and
the payroll tax that funds SS. It is the largest single tax item the
typical young-to-mid career American has to pay, and does reduce
purchasing power and ability to save/invest. Personally, I don't think
that anyone with a household net worth of like >$500K (excluding
primary residence and trusts) at age 65 should get any SS benefits
unless they encounter severe financial distress later. They paid into
the system, but now others need it more and they will probably be fine.
Call it patriotic sacrifice. That way the "truly poor" seniors can get
increased benefits (SS has fallen behind on COLA adjustments, and most
seniors can't live "securely" on $1,100/month minus garnishing for
Medicare premiums). The wealthy seniors will be OK, the poorer seniors
will be more secure (lowering the burden of care on their progeny too),
and the working people will have lower payroll taxes - which should
stimulate growth.
Also agreed that pretty much the entire conservative agenda isn't
designed to help future generations and often screws them, so I doubt
their debt ideas are so forward thinking.
--------
The problem with means testing is that it doesn't really save much
money, unless you set the threshold very low. SS benefits cap out pretty
quick, so cutting off benefits for the top 1% only saves you 1-1.5% of
the benefits.
The "is it Boomers" question is
actually pretty interesting. It's always fun asking people why we're
just talking about SS running out of money now, when the Baby Boom would
have been obvious to anyone in a maternity ward starting about 1946
(the standard answer is "government can't get anything done"). But
actually back in the 80s we solved the SS-demographic problem. Reagan
convened a blue-ribbon council with a big complicated name, which most
people knew as the Greenspan Commission after its head (before his Fed
days). They were supposed to figure out how to make SS handle the baby
boom demographic shift, they recommended a payroll tax increase, their
recommendations were accepted, and the problem was solved. Say what you
will about Greenspan, but the dude can do math.
So
why do we have this problem? The liberal answer is that it has to do
with income inequality. Through the 1970s, GDP growth was broadly
shared; post-80s most of the growth happened at the top of the income
spectrum. This impacts SS because it means that in Greenspan's
projections, GDP growth would occur for people below the SS payroll tax
cap, and get taxed. In fact, the additional income happened above the
cap, so it didn't get taxed. I don't know what the conservative
explanation is.
-------
Pardon my means testing ignorance. LOL the conservative explanation
is "blame the liberals and takers". In a sense they are right, but they
have the wrong takers.
“When [Social Security] was developed, 50 percent of seniors lived in
poverty. Today, poverty among seniors is too high, but that number is
ten percent. Social Security has done exactly what it was designed to
do!” - Bernie Sanders
If it's the case that only 10% of seniors are poor these days, then means testing should save a lot more, right?
http://thinkprogress.org/economy/2011/08/25/304387/bernie-sanders-introduces-bill-to-lift-the-payroll-tax-cap-ensuring-full-social-security-funding-for-nearly-75-years/?mobile=nc
As you said, raise or do away with the cap to get the system more in
line with Greenspan's projections. In 2012, 4.2% of a worker's first
$110K of wages went to FICA taxes. Let's say the avg. salary of the top
5% of workers is $250K (that may
not be very accurate, but the 95th percentile of wages was $100K in
2006) and the US labor force is 150M. At a 4.2% payroll tax rate and a
$110K cap, we are missing out on $44.1B per year. Total SS+Medicare
revenue to the gov't was $800B in 2011. Subtracting Medicare and
employer contributions, the employee portion of SS revenue is about
$268B (SS is about 2/3 of the $800B, and employer-employee split is
about 50/50). So lifting the wage cap would make SS employee revenue
increase 16%.
The tax is very unprogressive. I would rather have
employers and employees contribute only 1 or 2% of their first $40K of
wages towards SS, and then the % grows above that like income taxes. 4%
for $40-100K, 10% from $100-200K, 20% above that. Not that harsh IMO,
but of course it is not going to happen. A worker pays AT MOST $7K to SS
in a year. That is ludicrous for people making $200K+. The wage cap has
gone up about 3-5% yearly (it was static during the recession), yet
income for the top 1% have growth a lot more than 3-5% per annum. It
doesn't make sense to economically burden the most productive members of
society to subsidize the elderly who often have higher net worth. If
you let the younger generations prosper, they won't need to depend on SS
as much in the future. But as J said, the much bigger problem is
Medicare. I also would advocate a progressive Medicare tax and much
reduced benefits for seniors in higher wealth brackets (Obama is
proposing this I think, but I'm sure it's meager).
http://en.wikipedia.org/wiki/Social_Security_Wage_Base
http://www.financialsense.com/contributors/michael-shedlock/top-one-percent-received-income-gains-during-recovery
http://www.heritage.org/federalbudget/federal-revenue-sources (never thought I'd reference these guys!)
http://www.ehow.com/how_4736068_calculate-payroll-taxes.html
