Letter 2 America for December 7, 2012

Dear America,

It's important to understand how the Republicans can claim that reduction of Social Security benefits can alleviate some portion of the federal budget deficit.  And it's important because it is a wolf masquerading as a sheep, and it will eat up some Social Security recipients one way or another by taking from them what is rightfully theirs and they cannot afford to lose.  To start with, there is the way in which the Social Security Trust Fund is being used to justify the need for such reductions in benefits.  Before I go on, I have mentioned before that even Ronald Reagan knew that Social Security has nothing to do with either the national debt, and though it may seem redundant to say it again, he even used that fact in his own defense in the presidential debate with Walter Mondale that took place on October 7, 1984.  It's useful to know that date because you can pull the debate up on the internet and listen to and watch Reagan say it; you don't have to take my word for it.  The same is the case with Erskine Bowles and Alan Simpson of Simpson-Bowles fame.  They have both observed that there is no relationship between Social Security and the debt at various times, including on page 43 of their report.  You can get that on the internet too.  So how are the Republicans getting away with this assault on the single most progressive program ever created by the federal government?  It goes like this.

By law--that is under the 1939 amendments to the Social Security Act--there is a trust fund that receives the payroll contributions of American workers without them ever becoming part of the federal general fund.  That money is not tax revenue.  It is strictly dedicated to the Social Security program and can be used for no other purpose.  That is why it is collected separate from your income tax withholding.  But the Social Security money, again by law, has to be invested in order enhance its ability to provide for recipient benefits, so it is used to buy special bonds from the U.S. Treasury.  The money comes into the fund and it is used to buy those bonds to the extent that it exceeds the need of the fund to use the money to pay benefits.  Well, within the past couple of years, the flow of cash into the fund, which has over $2 trillion in it by the way, has dipped below the amount expended each month for benefits, and thus, the amount that the fund lends to the federal government by buying those bonds is less than the government has to pay back to us each month on bonds that are maturing from the past.  In fact, the amount we can now lend is zero.  In other words, it is not enough for the federal government--Republican congressmen in particular--that we lent our money, two trillion of it, to the country in the past.  They want to delay paying us back beyond what their obligations permit by reducing the benefits paid out so that those benefits no longer exceed what is coming in month to month, and thus, they can borrow from our trust fund at least as much as they are paying back from past obligations, and thus they can eliminate a portion of federal expenditures that requires them to borrow money from some other Peters to pay us Pauls and make the claim that they have reduced the deficit.  But it doesn't reduce the national debt, and it really doesn't reduce the deficit either.  It just requires us to pay some of it with the benefits we lose.  Here's how they want to do it.

First, they want to change the method of calculating how the cost of living increases that Social Security recipients get...and count on...every year that there is inflation, and that's every year.  The CPI (Consumer Price Index) has been used thus far.  As its name suggests, it is the rate at which a specific bundle of products have increased in price.  But the Republicans want to use the chained CPI, which doesn't include the entire price increase for those goods, but rather includes only the increased price of goods that people tend to substitute for them when prices go up.  So, the retail price of beef won't be factored into the chained CPI, but the price of chicken will because people, the elderly in particular, eat chicken in place of beef when the price of beef gets prohibitive.  In other words, to carry the notion that this is fair out to its absurd conclusion, the cost of living increase could be calculated on the basis of the rise in the cost of canned dog food rather than beef because in the past, seniors on very low fixed incomes have been known to eat dog food because they couldn't afford beef or chicken.  Hell, we could even use the cost of dry food for that matter.  I'm sure one could survive on it.  So, that is one way in which the Republicans want to use "entitlement reform" to balance the federal budget.

The second way is to discontinue the reduction of the payroll tax we pay into the Social Security Trust Fund.  If more money comes into the fund, there is that much more for them to ste...uh, borrow from us.  That is why they opposed the cuts in the payroll tax in the first place.  Cutting those contributions to our fund effectively makes more money available for their use via the same mechanism that I just explained with regard to the CPI and the Social Security cost of living increases.  But there's a consequence to all this that goes beyond the reduction of Social Security benefits and an increase in middle class tax payers' largest payroll deduction--the Social Security payroll tax--that they fail to mention.  The less the federal government pays us back, the longer the national debt goes unpaid.  Thus, when they stand in the well of The Senate and the House of Representatives and claim that we are burdening our grandchildren with the national debt, they are leaving out the fact that they are the ones doing it...at least to the extent I have just described.  In other words, not only is the "reform of entitlements" a scam, it is outright hypocrisy, and someone should call them on it...you.

Your friend,

Mike