Defenders of the Social Security system will do almost anything to cover up the fact that it is going bankrupt. Statistically, there is no place for it to go except bankruptcy.
Of course, the debate over Social Security is economically irrelevant, because the magnitude of the unfunded liabilities of Medicare are so gargantuan that these will bankrupt the federal government long before the Social Security system goes belly-up. I mention this to remind you that the defenders of the Social Security system are always also defenders of the Medicare system. They are peas in the same pod.
Because of the inevitable default of Medicare, due to the present value of its unfunded liabilities, which is in the range of $200 trillion, I really do not pay a great deal of attention to Social Security, since the system is utterly doomed because of the effects of Medicare. Both systems will go belly-up. Both systems will be part of the Great Default. The bankruptcy of both systems will finally expose their lifelong defenders as deceivers, cheats, and incompetents. They are people who have spent their lives defending the idea that the federal government has a moral right and legal obligation to send out someone with a badge and a gun and take your money for the sake of buying votes, but all in the name of charity. As you may suspect, I do not think highly of these people. "You paid for it," they tell the fleecers and the fleeced. No, they didn't. And now that this gigantic Ponzi scheme is moving into the inevitable negative returns phase. Its defenders grow more frantic to cover up the economics of the most widely trusted fraud in actuarial history.
Among this group of promoters of political plunder, Alicia Munnell is high on my list. I have followed her career for about 35 years. She is probably the most well-known expert in Social Security who is on the Democrats' side of the debate. Whenever a mainstream news media reporter wants a few favorable words about the Social Security system, the obvious choice is Professor Munnell. Let me cite the entry on her from Wikipedia. She has academic credentials and an employment history that identify her as one of the major figures who operates on behalf of the federal government and the Federal Reserve System.
Alicia H. Munnell is the Peter F. Drucker Professor of Management Sciences at Boston College's Carroll School of Management. She also serves as the director of the Center for Retirement Research at Boston College. Munnell is a leading authority on retirement income policy, including Social Security, employer-sponsored pensions, and labor force activity among older workers.Alicia H. Munnell earned her B.A. from Wellesley College, an M.A. from Boston University, and her Ph.D. from Harvard University. Munnell spent 20 years at the Federal Reserve Bank of Boston (1973--1993), where she became senior vice president and director of research in 1984. From 1993-1995, she was the assistant secretary of the Treasury for economic policy. She then became a member of the President's Council of Economic Advisers from 1995-1997. Munnell joined the Boston College faculty in 1997 and founded the Center for Retirement Research in 1998.
She has published many articles, authored numerous books, and edited several volumes on tax policy, Social Security, public and private pensions, and productivity. Alicia Munnell was co-founder and first president of the National Academy of Social Insurance and is currently a member of the American Academy of Arts and Sciences, Institute of Medicine, and the Pension Research Council at Wharton.
In 2007, she was awarded the International INA Prize for Insurance Sciences by the Accademia Nazionale dei Lincei in Rome. In 2009, she received the Robert M. Ball Award for Outstanding Achievements in Social Insurance from the National Academy of Social Insurance.
With a lifetime endowed chair at a major college, plus a pension from the Federal Reserve, Dr. Munnell does not have to rely on Social Security, however old she may be. (Her Wikipedia entry is politely silent regarding her age.)
Recently, Paul Solman of PBS interviewed her. He often interviews Prof. Lawrence Kotlikoff of Boston University, who is the Dr. Doom of the Medicare and Social Secutity trust funds' unfunded liabilities. Solman does present both sides of the story. To give the government's side of the story, he interviewed Prof. Munnell.
Paul Solman: So right now, the payroll tax for Social Security is 12.5 percent, split between employer and employee. So it would have to [be] up to something like 15 percent?Alicia Munnell: Yes. Half. Right. So that's 1.2 percent more from you and 1.2 from the employer. Now think about that number. We recently had a payroll tax cut of 2 percentage points, and I couldn't even tell. And then they raised it again by those same 2 percentage points, and again I couldn't tell. I think some low earners felt it, but there wasn't jubilation when it happened and it wasn't cataclysmic when it went back. From the employee's perspective, the change that we're talking about is half of what we just went through in terms of this payroll tax cut and then increase.
It all seems so easy, so pain-free. Why, she barely noticed it. When you have an endowed chair at a major university and are paid a six-figure salary, things like this are barely noticeable.
Let's look at the numbers. An increase of 2 percentage points in 2013, when the tax rate was 4.2%, which it was in 2012, is a 47.6% increase. But she did not notice this.
She knows Kotlikoff's figures: as of summer, 2012, the present value -- not the lifetime value, but the "collect it this year and invest it" value -- of the combined Medicare and Social Security deficit was $222 trillion. Kotlikoff will release the 2013 figures soon. They will probably be in the $235 trillion range.
How does she handle this? With rhetoric. She does not say "present value unfunded liability of $222 trillion." She says "200 zillion trillion dollar shortfall."
And that's if you say, I'm going to solve this whole problem just by raising the payroll tax. If you do anything else -- raise the taxable wage base or do any number of things -- the amount you need to raise from the payroll tax becomes smaller. I think that's a more sensible way to think about Social Security's finances than this $200 zillion trillion dollar shortfall.
In short, she ignores it. She pretends it is not there. No problem!
What can be done? "Raise the taxable wage base." It is already at $113,700. I ask:
1. Raise it to what limit?
2. How many taxpayers will pay the tax on wages above $113,700?
3. How much extra revenue will be collected annually?
She does not deal with these specific issues. She says: "Do any number of things." What things? She does not say.
Then the government can raise taxes.
So if you just solve the problem for 75 years, it's not enough. To really solve it, you've got to have something like a 4 percent increase in taxes, 2 percent for you, 2 percent for the employer. But I think solving it for 75 years would be just fine and all those numbers are manageable.
We are back to "percent." What happened to percentage points? They are missing in action. This is a tax increase of 32%: 2 percentage points added to 6.2%.
No problem! She won't even feel it.
For over two decades, Alicia Munnell has been widely recognized as the #1 academic defender of Social Security. Yet when it comes to specifics of plausible reforms of the program, she invokes Judy Garland: "Somewhere, over the rainbow, way up high."
Solman closed the interview.
In other words, a lot can happen from here to eternity. We can grow the economy like mad. We can raise taxes. We can cut expenses. Or, we could just keep owing ourselves and others and borrowing against the future.
"We can grow the economy like mad." How? The economy is in its fifth year after the recession of 2008. Unemployment is at 7.6%. Economic growth is in the 2.5% range -- under the normal 3%, which is not "like mad."
"We can raise taxes." Congress can raise taxes. Want to bet on that outcome? Want to bet on what effect that will have in a low-growth economy like ours?
"We can cut expenses." Let's call this what it is: partial default. Think "AARP." Congress surely will.
"Or, we could just keep owing ourselves and others and borrowing against the future." Count on it. Congress will continue to do what it has done for years: kick the can down the road. If Solman thinks otherwise, he needs to get involved in a local AA chapter.
© 2022 GaryNorth.com, Inc., 2005-2021 All Rights Reserved. Reproduction without permission prohibited.