Considering the huge and growing disparity in wealth and income between the 1% and everyone else, most Americans are more financially insecure today than ever in their lives. Against that background the renewed talk of privatizing Social Security takes on an especially ominous quality. The possibility that large numbers of seniors will be plunged into poverty by this profiteering scheme of the financial elite is horrifying. But two factors are at play that give us cause to believe the threat is not what it seems.
To begin with, Social Security, Medicare and Medicaid are categorized non-discretionary, or mandatory expenditures in the federal budget. Here’s why you should care. A mandatory budget item, as the name implies, is one that is written into the law as a more or less permanent appropriation of funds that does not have to be renewed year to year by Congress. A discretionary expenditure, conversely, is one that must be re-appropriated, usually annually, at the discretion of Congress. Military spending, for example, is a discretionary budget item. As such, that status enables Congress to readily increase the allowance every year. Something that makes military contractors very happy. Imagine, however, that the military item was a mandatory expenditure, like Social Security. The dollar allocation would be relatively stable year-to-year, with Congress’ ability to change the amount limited to, say, the number of service members on the payroll.
Consequently, Social Security and the other mandatory items are more secure and farther from the interventionist reach of Congress than discretionary items. Congress cannot directly change the amount of money allocated to the SS program. Since 1935, they have tweaked around the edges of SS, making adjustments to payments, cost-of-living adjustments and changing the retirement age. Perhaps the worst of these have been increasing the retirement age and implementing the taxation of SS benefits. The taxation threshold for couples is a formulated income of just $32,000.
So, all the noise coming from the Republicans (and the crickets from the absent Democratic “defenders”) about blowing up Social Security and privatizing it is by and large bluster.
Wealthy interests in the US started trying to dismantle New Deal programs even before the ink was dry on their establishing documents. And they have indeed succeeded in some instances. But after 83 years Social Security still stands essentially intact. The most recent serious attack on SS was led by George W. Bush. In 2005–6 he vigorously promoted legislation to privatize the program. However, in a very successful example of the power of a mobilized and vocal public, the blowback was so fierce the bill never got a full hearing. As the old folks used to say, Bush, and his rich sponsors, got their ears boxed, and good.
Our mandatory social programs are not only reasonably secure because they are insulated from the budget-cutting scissors of Congress, they have the added benefit of being a federal program in a monetarily sovereign nation. The bottom line, contrary to conventional wisdom, federal spending, including spending on Social Security, is not funded by federal taxation or borrowing. Spending is not dependent upon the amount of tax receipts or how much the government is “allowed” to borrow. Spending is only constrained by real resources: available labor, goods and materials. (For an introduction to the tenets of modern money cited here please view this video presentation by Prof. Randall Wray: https://www.youtube.com/watch?v=i35uBVeNp6c )
The FICA taxes that come out of workers’ paychecks are a device, favored by Franklin Delano Roosevelt, that he believed was necessary to gain public acceptance of the program. Remember, it was a new tax being imposed while Americans were struggling mightily with the ravages of the Depression. One can imagine how unpopular that tax must have been. In 1941, an FDR advisor, Luther Gulick, suggested that he consider discontinuing the payroll tax. FDR responded, “I guess you’re right on the economics. They are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics”.
“…….aren’t a matter of economics,….”. Here, FDR was clearly acknowledging that the taxes were not collected to pay for the program, but for political and psychological reasons. In the intervening years numerous Federal Reserve officials have reaffirmed the facts of how Social Security (and ALL federal programs) is funded. Here is Alan Greenspan responding to Paul Ryan at a Budget Committee Hearing in 2005: Ryan asks Greenspan if he believes that personal (i.e. private) retirement accounts could improve the security of future SS benefits and add to the solvency of the system. Greenspan’s answer: “I wouldn’t say the pay-as-you-go benefits are insecure in the sense that there is nothing to prevent the Federal Government from creating as much money as it wants and paying it to somebody. (italics added)
Congress is on a privatization tear because it no longer views the American people as its master or its constituency. Its policy decisions are principally oriented toward satisfying the desires of its patrons, the individuals and corporations that comprise the ruling oligarchy. False narratives that paint a picture of the dire financial straits of our government and include privatization proposals offered as solutions, are used to manipulate us into consenting to their greed-based schemes and to discourage us from expecting or demanding more from government in the way of programs that the people desperately need.
To combat the blatant anti-people plans of the Administration and Congress it is critical that we are armed with information that puts the lie to their agenda. It is not information that the corporate media offers. In fact, as the propaganda arm of the State, it controls just about everything we see, hear and read. Consequently, it serves to echo the government line on the so-called deficit and debt.
Understanding money operations at the federal level arms us to refute the false claims and devious plans. With that understanding we can call out our Senators and Representatives. We can let them know we are on to their deception, that we know that they have far more budgetary leeway than they let on. Congress decides how much the government spends and on what. It has the freedom to authorize funding tomorrow for Medicare for All, a Job Guarantee, free college tuition. The government can create whatever amount of money Congress authorizes. Mechanisms are in place to control inflation. As Greenspan said, the only constraint on government spending is the availability of real resources; labor, goods and materials.
I urge you to view Prof. Wray’s video linked above. Then go deeper into Modern Monetary Theory to fully arm yourselves.