Social Security: The Real Connections, Lee A. Arnold

Come on, admit it, the Social Security discussion can be confusing at times right? Wouldn’t it be nice if someone put together an animation that explained the whole thing graphically and in plain English? Well my friends, look no further than the following piece courtesy of Lee A. Arnold of It is in Quicktime format and runs 12 minutes. The video is accompanied by a voice-over from Lee, the text of which he was kind enough to provide as well and which can be found below. Watch it and if you have any questions drop them in the comments section, maybe Lee with stop by and join the discussion!

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Full Transcript (Lee A. Arnold,

Is Social Security going broke? There’s so many things to know about–payroll taxes, carve-out, clawback, benefit cuts… How are these things all connected? Most of us don’t have the time to figure-out this stuff! So instead of using words, let’s show real things–the one with the flag can be the federal government; and this one will stand for all the people in the United States–so we can look at real connections, …like taxes. We all pay taxes down to the federal government. Let’s use red for the money.

But there’s different kinds of taxes. For example, there’s income tax and payroll tax. If we split-up the population, with the poorest people at the bottom, up through the income levels to the richest people at the top, we see that most everyone pays both income and payroll tax. But income tax is paid more by richer folks, while payroll tax falls toward poorer folks. Income tax, payroll tax. So people are connected differently to taxes. The crossover line is close to the payroll tax cap level.

Still of course it’s all money, and it goes to Washington, D.C. There, it is spent, on Social Security, defense, unemployment and welfare, Medicare, Medicaid and health, interest on the debt, and all the other stuff. A lot of connections! Right now, Washington doesn’t collect enough taxes to pay for it all. So this big white hole is called the budget deficit.

But Social Security itself is not in trouble. Why? Because payroll tax is dedicated to it. In fact, it’s leaving a surplus! Social Security is a simple, two-step connection. Payroll tax from today’s workers, goes immediately as benefits to today’s retirees; with some extra left-over, for the future. Taxes are paid, benefits go out. It’s pay; go… That’s why they call it a “pay-go” system. A simple connection, a transfer insurance program. Everybody pays in; and when they retire, rich or poor, everybody gets some. It’s discreet and dignified. Without it, 50% of retirees today would be below the poverty line.

Now in the future, with economic growth as always, Social Security is never going to have a big problem. This is the opposite of what we’ve been told: no big problem, because of new productivity. It’s why we can go from 16 workers per retiree down to 3 right now, and still run a surplus. It’s the same reason that one farmer used to grow food for ten people (or “consumers,”) but now can grow food for one hundred. Productivity multiplies the connections everywhere.

Now if we reset the clock, and forget productivity growth, the official projection says that in around 40 years a shortfall starts for a while: but even then, retirees will do better than today. Over 75 years, this will total about 3.7 trillion dollars. Still no big problem! The rest is in worse shape! Medicare alone will cost 27.8 trillion. Almost a third of this, 8.1 trillion, is President Bush’s new drug-benefit: really, a give-away to the pharmaceutical companies–a big connection you don’t hear much about!

And that’s all in the future. Right now the government is 7 trillion in debt–an immediate tax burden, and they plan to make it worse! Social Security is not the biggest problem–and in fact it probably won’t ever go into debt!

Okay,… so why is President Bush saying that Social Security will start to go bankrupt even sooner, in the year 2017? Because: remember that surplus? Since 1983, payroll tax was increased a few times, to make a surplus for forty or fifty years. Right now, there should be almost 2 trillion in there. This is your money! Where is it? Well, it goes into main budget to help cover the deficit, to help pay for the other stuff, and now, to help cover the Bush tax cuts totalling 11.6 trillion–leaving bigger deficits!

Now of course, in a tax cut you really pay less money–but that’s the same thing as getting some back, because “equals cancel out.” Yet President Bush didn’t cut payroll taxes; they stayed the same. He cut income taxes. Maybe the hope is, you don’t know the difference! Two-thirds of the tax give-away goes to the upper 20% of the people. One-third goes to the top 1%: that’s close to four trillion dollars, right there!

So: if we show the income-tax cuts, plus the payroll-tax hikes, and cancel-out all the equals, here’s what we get: they boosted payroll tax from the poorer folks–with the promise to “save Social Security!”–to pay for income tax cuts, and other tax cuts, back to the richer folks. Here is the real money connection: it’s the old switcheroo!… And it’s happening right — this — minute!

The shell-game works, because there’s two accounts: You see, when the politicians spend it, the trust fund is just part of the General Fund, but when they want to scare us about Social Security, now it’s a separate account, and doesn’t have any money. “Presto, change-o!” Now it’s just more tax revenue; now, it’s missing. Now “I’m cuttin’ the budget deficit in half;” now, “Social Security is going broke, and folks, we gotta problem!” …That’s another kind of connection.

So what about that surplus money missing from the trust fund? Well, they put in special U.S. Treasury bonds (we’ll color them blue) and now they say these are worthless, meaning I guess they don’t intend to pay ’em back. Well, a bond is a promise, and they should learn how to keep a promise.

What should we do? We should roll back the tax give-aways to the wealthiest people. It won’t hurt economic growth–it never did, at these rates! Then we can redeem the trust-fund bonds. It’s what President Clinton tried to do. But instead, Congress is cutting lots more taxes for the rich folks right now: they just cut the billionaire’s estate tax, which falls mostly on the top 2 tenths of one percent of the population. This little pimple gets a lot of grease!

So we’re going to have to vote them out! Because what they plan to do is: Borrow more money, increasing the deficit; Collect more taxes on everybody else to pay it off; and, Cut guaranteed benefits for Social Security. But don’t worry–you get a raffle ticket for a free lunch!

“What’s the plan?” It’s so complicated you need a PhD to figure it out, so let’s just draw it fast: The first new connection is private accounts. (Well, they call them “personal” accounts but we can use private: if that one scares you, maybe it should!) They will let you carve-out some of your payroll-tax money now, and invest it. (So we need one more new symbol, for the stock and bond markets.)

But at that moment, there will be less payroll tax coming in, to go to current retirees–so Washington has to borrow the money, right away–printing more bonds, of course–to make-up the difference. This is the transition cost: a big new connection–maybe $4 to $6 trillion more in debt over the next twenty years, and continuing.

And since bonds are government debt, they have to collect more taxes, up front, from you, to pay it all back. So this is just a big, paper, “money-go-round”– no new savings, no new economic growth path. It may drive-up interest rates, that’s about all.

Then, the new retirees are in a new position! You’ll get money from investments and Social Security. But–the plan is, to cut your benefits by the amount of tax money you took to invest–plus extra interest! They call this the claw-back of the old carve-out (it sounds like you are a turkey!) So, you don’t get any more money than if you stayed in the old system.

In fact, you’ll be lucky to break-even. Because up in the casino there are also stocks to gamble on, but there’s a lot of different stocks, and it might look like Christmas, but some make money and some do not–so the experts agree that this plan is a loser for 1/3 to 3/4 of all retirees. Washington is still gonna have to bail people out.

And the carve-out accounts are just one part of the plan. Another part is to cut benefits, again–for everybody, even if you did not choose to privatize! Look at Social Security the way it is now: to see the basic pattern, we’ll divide-up the retirees, from rich down to poor, and take one person from each level. Over their lives, the total payroll tax they paid, looks like this: the rich paid more, the poor paid less. After retirement, the benefits come in like this: the rich get back more, but not as much: we distribute downward, to help the poorer folks keep their heads above water. In the beginning, we all agree to this pattern, because you really don’t know how your life is gonna end up. So here’s security for everybody, with some fairness in the deserts. It’s simple, and smart.

But by the progressive re-indexing cuts, all benefits will be chopped down toward the poorest amount: the upper three lose money: after the claw-back for the private accounts and the Medicare premiums, they get hammered almost to nothing. This is a plan to destroy Social Security, by making it into a welfare system–it will lose voter support and be dismantled.

Funny thing–if we left Social Security alone, and it did fall short, you would still get more benefits!

So, in conclusion, dear movie reader, let’s connect it all up!

[1] First, the workers paid extra tax money for decades into a credit-account, on the promise to save Social Security–and, with the new productivity numbers, it looks gooooood! [2] The surplus money is spent as always, but now it covers new tax give-aways favoring the rich folks. And the economy isn’t doing any better than usual–in fact, it’s a little worse. Then they have the nerve to claim the money is not going to be there for Social Security. And they propose this ridiculously complicated solution: [3] the “carve-out private-account money-go-round claw-back turkey-shoot,” which never could solve the phony crisis, and [4] progressive re-indexing benefit cuts, which come out worse than doing nothing!

The whole thing is fatally flawed… Except for who wins: the richest people get trillions in tax cuts, and Wall Street will make billions in profits, on your private accounts and annuities!

They just need you to believe two — little — things: first, that Social Security is in big trouble; and second, that tax cuts for the rich give extra economic growth–but that’s for another cartoon, with a lot more funny stuff…

The real question is: why aren’t we making enough money right now, to invest for the future in whatever accounts we want, and also to contribute to the world’s best social program? Why are they forcing us into a choice? Why can’t you do both?

Well, we don’t need more cartoons for the solutions! So just for starters, in — plain — English:

[1] No more deficit spending–stop the Republicans from borrowing more money;
[2] Fix the medical system–including the President’s new drug boondoggle; and,
[3] Leave Social Security alone. It is already the simplest, easiest connection.

The politicians should learn how to keep a promise. Are they saying we can’t trust them with our money? That’s easy to solve: we have a democracy…

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