Social Security Aint Broke and, No, McCain Can’t Fix It

(11 am. – promoted by ek hornbeck)

A two part answer to the question of how McCain can fix Social Security. First, Social Security is not broken and does not need fixing. Second, McCain can’t fix Social Security.

Social Security and Medicare are often lumped together as “entitlements”, and the threat of Social Security not paying off to the current working generation is used to try to grease the wheels of efforts to allow Wall Street to gain income from Security taxes.

Ezra Klein capably addresses the point that Social Security is not “in crisis” in Social Security as Signifier, so I’ll focus on why John McCain can’t fix it. But to get the basic … look at that gentle slope in Social Security … look at that massive explosion in Medicare … Medicare, that’s an entitlement crisis. Social Security, not.

But, but, but … why do they keep talking about it?

Back in the 1980’s, Reagan and Tip O’Neill made a deal to “fix” Social Security:

  • They established a hefty increase in the regressive Social Security tax.
  • The fund would turn over its hefty surplus to the government in exchange for bonds.
  • When the Baby Boomer retirement caught up with the fund, and it was running on a deficit, it would cash in those bonds.

Now, since Federal taxes other than Social Security are more progressive, the implication over time is that while the Social Security fund is building up its surplus, handing revenue over to the main budget, the Federal Tax system will lean less progressive, and when the Social Security fund is drawing on its surplus, requiring the Federal Government to refund its bonds, the Federal Tax system will lean more progressive.

So obviously, those facing increases in the top rate of personal income taxation, or re-establishment of a new tier on the marginal rate ladder, and increases in the rate of capital gains tax, or re-establishment of the Reagan era capital gains tax on high income households, and increases in the corporate tax rate, or closing of the massive system of loopholes in a tax code that is more loophole than tax collection …

… they want to renege on the deal, before the Federal Government starts honoring the Social Security bonds.

That’s the tax brackets of the Tom Brokaw’s of the world, and the tax loopholes jumped through by the employers of the Tom Brokaw’s of the world.

I’m not saying that Tom Brokaw is biased or anything by his massive conflict of interest in covering the Social Security or anything …

… just pointing saying that the massive conflict of interest exists.

The Social Security “Hole”

The economy has not matched the 1980’s projections. Under 1980’s projections, economic growth gets divided up across the income ladder. Which means that income under (now) $100,000 a year, which pays the Social Security tax, gets a share of that growth.

Except, under Bushonomics, which is the completion of the original ambitions of Reaganomic, the median income earner got no part of the economic growth at all, with all of the gains from productivity and the invention of fictitious economic growth in the Finance Sector being handed over to the people at the top of the income ladder.

“Fixing” Social Security, in the end, only requires restoration of the division of productivity gains between wages and profits, and maintenance of Economic Growth.

John McCain Can’t Fix the Problem that Does Exist

Obviously, McCain has no intention to restore the division of productivity gains between wages and profits. He has a strong union-busting stand, strong support for the Bush tax cuts, strong support for reducing tax demands on corporations, cutting rates and opening more loopholes.

And the basic obstacle to real, sustainable economic growth in this country is quite obvious. This country has raced off to an unsustainable trade deficit, every since the adoption in the 1990’s of the Corporate Wealth Agreements to eliminate obstacles to flows of corporate wealth across national boundaries … the most famous Corporate Wealth Agreement goes under the name of “NAFTA”, but the trade concessions are only the incentive required to get low-income nations to surrender their national economic sovereignty on corporate wealth flows.

Unsustainable how? Well, by the time of the current White House Residency, we have been seeing trade deficits in the range of 4%-6% of GDP. A trade deficit means that we need to get funds from overseas by the sale of financial assets … government bonds, corporate bonds, title to real estate, etc.

It is quite obviously financially unsustainable for a household to be borrowing at 4%-6% of its income every year when its income is growing by less than that. In that scenario, debt must grow faster than income. And that is what the US economy has been doing.

Closing the Structural Trade Deficit

The most obvious point to attack the structural part of our trade deficit is precisely as identified by Senator Obama: Energy. A New Energy Economy, producing what is needed for energy efficiency and to harvest sustainable renewable energy resources, will help out trade deficit on both sides. It will cut away at our massive import bill. And it will establish strong growth industries with excellent export opportunities.

But John McCain? His position on a New Energy Economy is straightforward: he talks it up, but when it comes down to it, unless its Nuclear Power, he’s against it.

And without getting on track for a New Energy Economy, we are sunk. The small amounts of oil made available by a “drill here, there and everywhere” policy will be completely swamped by the rising prices of imported oil, long before that new oil can possibly start flowing.

Nowhere else does John McCain even talk about doing anything that will help create new industries that can fix our massive structural trade deficit.

And why? I reckon its because the political economy of the Republican Coalition depends heavily on financial resources from the Old Energy Industry, and they will not finance politicians who will really truly put government behind establishing a New Energy Economy. Hell, when John McCain won the nomination, he even had to abandon one of the few good “maverick” policies that he had in opposition to the Old Energy Industry, his support for the ban on close offshore drilling for oil.

So, in the end, John McCain won’t do anything to fix the grossly distorted distribution of Economic Growth, that threatens the growth of Social Security Tax payments … and can’t do anything to address the unsustainable current account deficits that will hobble economic growth over the next twenty years, even if we fix this crisis in the finance sector.

The Take-Away

So: there is no crisis, talking up the crisis is trying to renig on the 1980’s Social Security deal, but there is a long term problem to be concerned about, and McCain can’t do anything to fix that long term problem.


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    • BruceMcF on October 8, 2008 at 8:40 pm

    My brother asks, if anyone knows an excellently witty reply, drop it here.

  1. Some politicians and analysts will attempt to use the current budget deficits and the economic problems as the reason why Social Security must be destroyed.

    • TomP on October 9, 2008 at 5:50 pm

    Even as their God, the market, fails, they seek to destroy government for the people.

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