THE ATTACK ON OUR SOCIAL SECURITY & MEDICARE IS JUST STARTING.

ARM YOURSELF WITH THE FACTS

This year there are persistent efforts afoot to change & trim Social Security benefits .. the very benefits that we working types have been paying for our entire careers. There are the usual tinkering at the edges like reduced cost of living adjustments, raising the retirement age, etc, as we have come to expect from a Republican controlled government. House Majority Speaker Paul Ryan lives to cut these programs and in the Senate Rob Portman (R, OH) was the architect of the failed attempt by President Bush in 2005 to privatize these plans which would send these huge funds to Wall Street. What could go wrong with that?

This time around they have floated some more sinister plans which could undermine the very nature of our Social Security program. One method being floated is to cut/wipe out the FICA tax (AKA the payroll tax). Great, you might say. I hate paying FICA! Understand though, that so far we haven’t had big cuts in Social Security and Medicare programs precisely BECAUSE they have been paid by this separate tax. In case you are unaware FICA is what funds Social Security and Medicare. FICA is a regressive tax, meaning that percent wise it’s impact is primarily felt at lower incomes because it taxes only the first $118,000 in income.

Ditching the FICA tax will roll Social Security and Medicare into the general fund, where it can be cut and benefits gutted, long term.

Understanding the threat .. Our Debt, Our Tax Code, Your Benefits

From a distance their arguments will sound logical and even sound. “We must preserve Social Security for future generations”, “Congress has spent the money, it’s not there”, etc. You’ve no doubt heard all of this before. Let’s look at some facts before we choose to believe what they are pedaling. Let’s look at the debt, our taxes, and our monetary policy. These will be the weapons they will attempt to use.

Our debt .. $20 Trillion dollars .. can we envision a number that large? Let’s try to give it some scale. Let’s start with a thousand dollars. Do you remember the last (maybe first) time you actually held a thousand dollars? Most won’t as we live in an electronic economy these days and large sums like this are usually digits on a screen. But let’s start there .. one thousand dollars. If we multiply that thousand by a thousand we are now talking one million dollars($1,000,000), a number only seen on computer screens. Maybe you’ve driven past a million dollar mansion. They are not all that uncommon. But a million is a FAR cry from our debt so let’s multiply that mansion by 1,000. We have now reached the rarefied air of a cool billion dollars .. difficult for most of us to visualize. Just picture driving past mansion after mansion as far as your eyes can see, spending many hours driving past that thousand mansions. But we are still nowhere close to the debt. Let’s take that billion dollars and now multiply it by 1,000 again. We are now at that nearly immeasurable amount .. a Trillion dollars. That’s akin to driving past mansion after mansion as we drive coast to coast, day after day, state after state, as we make our way from the Atlantic to the Pacific. Now as we visualize mansions from coast to coast we only have to multiply that by 20 more times. Yes, 20 more times!

So now you can visualize, to some degree, what a huge number 20 Trillion dollars is .. $20,000,000,000,000. From this you might conclude that the debt is way out of control, that it should be paid down, that we need to control it better. That’s a logical reaction, and one that lots of people jump to. Politicians are counting on this reaction.

But here comes the good part .. our debt is not all it’s cracked up to be.

What they won’t tell you ..

Our debt doesn’t just include debt from spending more than we take in .. the debt also includes Treasury Bill investments. That’s right .. any time a treasury bill is purchased for investing in the US Dollar that adds to the debt. And since 2008 in particular, Treasury Bills have remained the safest investment on the planet, and quite popular in these turbulent financial times. And there’s one more factor as well .. the money held in public funds such as our Social Security and Medicare funds is also stored in the form of Treasury Bills. Therefore debt from spending more than we take in is far less than the 20 trillion dollars we refer to as the debt. That spike you see in the graph from 2008? It’s largely Treasury Bill investments. But there’s even more .. this graph does not allow for the 2.8 Trillion dollars held for our social security and Medicare surpluses, nor does it take into the account the amount of Treasury Bills held by the Federal Reserve, which is NOT an arm of the government .. it’s complicated.

We have an ace up our sleeve .. our reserve currency status. Unlike other governments, the US can create a nearly limitless amounts of money by selling Treasuries to investors and other governments around the world. Why is this? Two reasons .. the US Dollar’s safe investment status, and the fact that the US Dollar is the established currency of world trade. These make the US Dollar is the most trusted currency in the world, and no other currency even comes close.

To understand this more completely you might want to ask yourself “where does our money comes from .. what really is money”. It’s a complex subject that is beyond the scope of my writing here but should you decide that you would like to know more here is a pretty good video that explains it all in under 25 minutes. BTW, most office holders do not know this stuff .. sad, as our President would say.

So if our debt is not the problem what is? It’s called Trickle Down Taxation

Some History .. In 1980 our country was in financial stagnation due to high interest rates which were put into place to control inflation when too many dollars were put into circulation in the Nixon years and oil prices spiked in the 1970’s. This overprinting of dollars and inflated oil prices quickly inflated the dollar and it was running out of control. In order to gain back control of inflation we had to restrict the economy and the Federal Reserve uses interest rates to do this. It took nearly a decade to reign in inflation and it was painful as interest rates went into the high teens.

Ronald Reagan, running for President in 1980 had a plan. He would stimulate the economy by cutting taxes across the board, and especially for the upper income classes. He argued that this would not increase the debt because those high income earners would take those tax savings and invest them, in turn creating more and better jobs via the investment they would create. It became known as “Trickle Down”, (AKA Voodoo) Economics. And while Ronald Reagan tripled the total debt during his terms it became evident to all that Trickle Down did not work as advertised. While it could be argued that investment did grow, much of this money for investments went offshore. And of course if you look around for those jobs that were going to be created, well you would have to look long and hard and still wind up empty. It did not work. In fact, the first two years of Trickle Down were mired in recession.

But eventually we did get that economic holy grail, growth .. we had a lot of growth, and everybody loves growth, even me. This growth was more aligned with the reduction in interest rates after the Fed had fought and beat back the inflation problem than with any tax cuts.

Two lasting things did come out of Trickle Down Economics .. it was the Trickle Down Tax Rates, along with projections for ever increasing debt. The Trickle Down taxation rates cut taxes on upper incomes by half, So you might ask yourself, “if the debt is not a real problem what’s the big deal?”

The economic & social problems created by Trickle Down Taxation

Numerous tax policy studies since have shown that Trickle Down Taxation has been quite detrimental to our economy, which we all depend on. The nonPartisan Congressional Research Service (in the Library of Congress) issued a report in 2012, analyzing the effects of our tax rates from 1945 to 2010.

The CRS concluded that cutting top tax rates have no positive effect on economic growth, saving, investment, or productivity growth; reduced top tax rates do, however, increase income inequality: The reduction in the top tax rates appears to be uncorrelated with saving, investment and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. So cutting taxes on upper incomes is not just bad policy, it’s actually bad for our economy by hollowing out the middle class and bad for our society because it creates far fewer opportunities for citizens to advance to better incomes.

Then you have the cuts to spending on safety net programs like welfare, education, and other economic growth building programs. Reduced infrastructure programs have left us with crumbling roads, dam failures, bridge failures, water treatment systems, power grids, airports, ports, and other pieces of infrastructure that our economy depends on for daily commerce. We have passed up on investing in our infrastructure, to the point of economic strangulation all for the want of cutting taxes for the upper classes.

In the end, our policies create the world we live in. It’s time that we all understand what our trickle down tax code has left us with .. dilapidated infrastructure, limited economic activity, massive income inequality, and threats to the very retirement and safety net systems that we have paid for every hour of every day of our working lives.

Now you understand the arguments. You have the power. Push back.

So the next time your Representative or Senator tells you “we don’t have the money” or “we have too much debt” or my favorite, “we must preserve the future of Social Security” you tell them ..

“If you don’t have the money then take back some of those Trickle Down Tax Cuts”

“If we have too much debt for you maybe you should take back some of those Trickle Down Tax Cuts”

”If you truly want to strengthen Social Security for the future perhaps we need to raise the taxation cut off for Social Security.”

Authored by John Whitling

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