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shawa
CNO
Joined: 03 Sep 2004
Posts: 2004
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 Posted: Mon Feb 21, 2005 8:28 pm Post subject: Social Security 'Transition Costs' a Myth |
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This is the dirty little secret that the liberals and the media don't tell
the public. There is no Social Security Trust fund!
The Congress uses our FICA taxes to pay for all their programs
and replaces it with a treasury bond in the SOCSEC Trust.
A Treasury Bond is a debt, an IOU saying the government owes this
money. In other words, the 'transition cost' is actually already being borrowed.
There is no 'new' debt.
http://www.cnsnews.com//ViewSpecialReports.asp?Page=\SpecialReports\archive\200502\SPE20050221a.html
| Quote: | Social Security 'Transition Costs' a Myth, Say Economists
By Jeff Johnson
CNSNews.com Senior Staff Writer
February 21, 2005
(CNSNews.com) - Transition costs, trumpeted by Democrats as a chief reason not to support President Bush's Social Security reforms, are a myth, according to several prominent economists, including the 2004 Nobel Prize winner.
The trillion dollar totals that Democrats cite as "transition costs" are actually the amount the government is borrowing to pay current Social Security benefits combined with the massive debt already owed to the so-called Social Security "Trust Fund."
"We hear a lot about transition costs," Arizona State University professor Edward Prescott, 2004 winner of the Bank of Sweden Nobel Prize in Economics, said. "But I'm going to use some economic jargon, not 'political accounting' jargon.
"There are no transition costs," Prescott said at the Cato Institute Feb, 9. "Re-labeling debt is not a cost."
Lawrence Hunter, senior research fellow with the Institute for Policy Innovation, told the Cybercast News Service that he agrees with Prescott.
"There are no transition costs," Hunter said. "There's simply a cash flow crunch that exists and if Congress chooses to borrow the money to alleviate that, it has done nothing more than replace one form of debt ... with another. It's refinanced the debt."
Congressional opponents of President Bush's plan to move part of Social Security payroll tax revenues into personal retirement accounts tout the alleged "transition costs" as a primary basis for their opposition.
"The president's proposal would mean lower benefits, more risk to individuals and slower economic growth because interest rates will go up if he borrows $1 trillion to $2 trillion in order to fund the transition costs," liberal Rep. Tom Allen (D-Maine) told the Portland Press Herald.
Left-wing media pundits are trumpeting the "transition cost" concept as well.
"The plan will cost about $2 trillion in 'transition costs' just to shift from the current system," claimed syndicated columnist Molly Ivins. "That's $2 trillion we don't have, can't afford and will have to borrow, with horrid economic consequences."
Even some Republicans in Congress are reserving judgment on the president's proposal because of the alleged costs.
"I certainly am keeping my powder dry because I need to hear the projections on the transition costs," Rep. Jim Ramstad (R-Minn.) told the Minneapolis Star Tribune in January. "They're all over the board."
Prescott and Hunter are two of a growing number of economists who argue that the so-called "transition costs" are actually an accounting fiction, a misrepresentation of the current status of Social Security by those who do not want to see the system changed.
How Social Security works
To understand the argument, a basic primer on Social Security is essential.
Every employee has 6.2 percent of their income withheld under the Federal Insurance Contribution Act (FICA). Employers pay an equal amount so that the equivalent of 12.4 percent of a worker's income is theoretically "invested in the Social Security Trust Fund" for retirement. But the money is not invested.
"One dollar comes in, one dollar is borrowed. Eighty-four cents is borrowed to pay current benefits," Hunter explained. "Because we're taking in more than we need to pay current benefits, the government borrows the other 16 cents to pay for everything from paper clips to battleships."
The confusion begins in how the government accounts for its spending of FICA tax dollars.
"The 84 cents, they don't keep track of. There's no accounting of that. It's off the balance sheet," Hunter said.
Prescott added that the federal government is being less than honest when it calls the money it has borrowed from current FICA taxpayers to pay retired workers' benefits an asset rather than a liability.
"Firms are required to list pension fund liabilities," Prescott stressed. "I think the federal government should as well."
The 16 cent-per-dollar surplus from FICA taxes is listed on the government's books, in what Hunter called, "this silly IOU scheme." The government "borrows" the surplus from the Social Security Trust Fund by replacing it with a special Treasury bond, essentially writing itself an IOU.
"We've deluded ourselves into thinking that all of those Trust Fund bonds are assets," Hunter said. "They're not assets at all, they're liabilities."
Current workers only "agree" to have the payroll tax deducted from their checks, in Hunter's terms, because Congress has promised them a defined-benefit pension - their Social Security check - in the future. In other words, Congress is "borrowing" money from today's workers to pay for Social Security benefits it promised to yesterday's employees.
Not borrowing 'new money'
The so-called "transition costs" are, according to Hunter, really just the money Congress has to find elsewhere to pay for current Social Security benefits, the other programs it has been funding with FICA tax revenues and the amount already borrowed from the Social Security "Trust Fund."
Under a partially privatized Social Security system, "the balance sheet looks better because they're borrowing less money," Hunter explained. "But, in the short term, because they're not borrowing the [FICA tax] money, that means they've got a cash flow problem.
"If the government turns around and borrows money to alleviate that cash flow problem, it hasn't borrowed 'new money,'" Hunter continued, "because, by putting the [FICA tax] money in personal accounts, it's borrowed a dollar less [from current taxpayers]. Now, if it turns around and borrows a dollar [from another source] to cover the cash flow problem, all it's done is to replace that dollar in debt.
"In other words," Hunter concluded, "it's substituted one form of debt for another." |
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Another related story: Time for Congress to Touch 'Third Rail,' Senator Declares at:
http://www.cnsnews.com//ViewPolitics.asp?Page=\Politics\archive\200502\POL20050221a.html |
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srmorton
PO2
Joined: 07 Aug 2004
Posts: 383
Location: Jacksonville, NC
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| Posted: Tue Feb 22, 2005 3:04 am Post subject: |
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This is an excellent article that exposes the fallacy of the liberal
arguments. I wish that every American could read it! Thanks to
Rush, I have known for a long time that there was no SS "trust fund",
but I did not really understand how erroneous the 'transition costs"
mantra was until I read this article that explains it in such a simple,
straight-forward way. Thanks for posting it, shawa!
_________________
Susan R. Morton |
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shawa
CNO
Joined: 03 Sep 2004
Posts: 2004
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| Posted: Tue Feb 22, 2005 10:42 am Post subject: |
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srmorton said
| Quote: | This is an excellent article that exposes the fallacy of the liberal
arguments. I wish that every American could read it! |
I too am impressed with the simplicity of this explanation.
In fact, I have printed out copies of it and sent it to the editors of
all my local newspapers, urging that they enlighten the public. |
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