A Pledge to Protect Social Security and Medicare

It happens every few years. The Trustees of the Social Security Administration release a report projecting gloom and doom for the system’s “finances,” and the so-called reformers crawl out of the woodwork touting various schemes to “save” the system from bankruptcy.

For those that don’t understand how our monetary system works, the latest report is particularly alarming. The loss of millions of jobs has meant that fewer workers are paying into the system, and the Trustees have concluded that the Trust Fund will only be able to cover the emerging shortfall until 2037. After that, the Trust Fund will be exhausted, and payroll taxes will only be able cover about 75% of promised benefits. For those that want to destroy Social Security, this is welcome news.

But not everyone wants to run for the exits, handing the “problem” over to Wall Street’s financiers (i.e. privatizing the system), who will rake in billions of dollars in fees and commissions in exchange for creating and managing our new “personal savings accounts” (more on this here). For example, Sen. Herb Kohl, Chairman of the Senate Special Committee on Aging, has said that “modest changes can be made over time” to keep the system solvent.

The minor “tweaks” being considered by the Senate Committee include various schemes to keep costs down and revenues up. To reduce the costs of running the program, the Committee suggested that Congress could gradually increase the retirement age or reduce the annual cost-of-living adjustment. To boost revenues, the Committee suggested that Congress could raise the payroll tax or eliminate the income cap so that wages above $106,800 become subject to the payroll tax.

According to Sen. Kohl, D-Wis., reform is a foregone conclusion. “Modest changes,” he told the Associated Press, “can be done and will be done.” To soften the blow, he insisted that the reforms “are not draconian.”

The problem, as we have argued many times on this blog, is that the federal government is not revenue constrained. It can afford the promises is has made to current and future retirees. It cannot, as Alan Greenspan admitted, “go broke” as long as the payments are denominated in US dollars. This means that Social Security (and Medicare) face NO FINANCIAL CRISIS today or in the future.

Sen. Kohl’s heart may be in the right place, but he doesn’t understand how the monetary system operates. As a result, millions of Americans could be forced to suffer undue hardship in the years ahead – delaying their retirement, paying higher taxes and receiving fewer benefits.

We call on those in Congress (as well as those seeking Congressional office) to affirm their commitment to protecting and preserving Social Security by signing the following pledge:

“I pledge to vote against any piece of legislation that would reduce current or future benefits under Social Security or Medicare, whether through reduced compensation, reduced coverage or a change in eligibility requirements.”

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About Stephanie Kelton 24 Articles

Affiliation: University of Missouri

Stephanie Kelton, Ph.D. is Associate Professor of Economics at the University of Missouri-Kansas City, Research Scholar at The Levy Economics Institute and Director of Graduate Student Research at the Center for Full Employment and Price Stability.

Her research expertise is in: Federal Reserve operations, fiscal policy, social security, health care, international finance and employment policy.

Visit: Economic Perspectives

5 Comments on A Pledge to Protect Social Security and Medicare

  1. Unfortunately, I believe you have a completely juvenile outlook on the crisis and my generation is going to suffer because of your ignorance.

    You make the argument that the federal government is not revenue-constrained. Can you substantiate this? It seems to me that you are implying that we can simply print more money to meet our budget needs, but I feel that you are misled on monetary policy yourself if you think that this would carry no economic repercussions.

    Secondly, we are apparently looking at substantially different data if you believe that the system can be saved with "minor" tweaks. For instance, let's consider an increase in the payroll tax. Can you give me a number on what the increase should be to account for the trust fund shortfall? I've ran into figures of around 2-3%, which is not a "minor" tax increase by any means. Plus, this would essentially be shifting the burden onto the younger generations, as the people currently retiring would have put in a lower amount of taxes (2% at $106,800 over 47 years = ~$100,000 less) than the current working generation, while receiving the same benefits. Do you consider this fair?

    This argument crosses over to any other solution which raises government revenue. Why should the younger generation have to shoulder the burden for an older generation's lack of foresight?

  2. I addressed part of this question on the original blog (http://neweconomicperspectives.blogspot.com). Let me address the second part here (interested readers should visit the NEP site for the rest of my rather lengthy response).

    I did not call them "minor tweaks". That was the Senate Committee. Their report estimates that a 1.1% increase in the payroll tax (that's .55% to the worker and .55% to the employer) would be sufficient to eliminate the shortfall for the forseeable (75-yr) future. Is it "minor"? NO. Is it "fair"? Heck no! Should they do it? Absolutely not!

    It appears someone missed the point.

  3. Very similar and in some cases identical “the federal government is not revenue constrained… the federal government can’t go broke… doesn’t understand the monetary system…” verbiage is being posted to a number of blogs. It is really starting to smell like an astroturf campaign where an individual or individuals are paid to parrot talking points.

  4. In my opinion, one of the measures taken should be to reduce the benefit if the retiree has other income over X, and completely remove the benefit for retirees who have other income over Y. There should also be adjustments to benefits beyond Z liquid net worth. This would be in addition to payroll tax increases.

    This was meant to be a safety net and not another layer of income to the well heeled.

    Medicare should not be touched in any way. What Obama’s healthcare law did to retirees with cancer is shameful.


  5. In my opinion, Social Security is not fixable. Each "reform" measure just kicks the can down the road to create an even bigger crisis later.

    The program initially sold as a forced savings program, meaning "savings" would be set aside for citizens once they retired. The Inflation rate factor was figured in because the Government was printing money (counterfeiting), which destroyed the purchasing power of the forced savings.

    However, The government started spending that money on other items. So, under Nixon, the program devolved into a Ponzi Scheme, where future "contributors" paid for previous "contributors.

    But Government started spending that money too. So the next proposal was to increase contributions and, at the same time, decrease the offsetting effects of Government counterfeiting (The Boskin-Greenspan initiative in the '80's). The program would enjoy "surpluses" at that point.

    But Government proceeded to replace the "surpluses" with non-marketable Treasury Bonds (i.e. a Social Security credit card) and spend the money elsewhere. The surpluses now reported by the Government are in fact due to the non-marketable bonds.

    Reporting current surpluses in Social Security are the same as reporting credit card debt as income. It is money they "owe", not money they "own". If the Government cannot find the funds to pay those Treasure Bonds (with interest) then Social Security goes bankrupt THIS YEAR!!!

    Finally, to disregard the effect of inflation (counterfeiting) makes Social Security that mush more of a failure. It makes no sense to invest your wealth today in order to take REAL losses tomorrow. Ignoring inflation calculation does just that.

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