Patterico's Pontifications

8/8/2010

Michael Hiltzik’s Sleight of Hand on the Social Security Trust Fund

Filed under: Dog Trainer,General — Patterico @ 1:58 pm



The idea behind most magic tricks is to distract the audience — with patter, superfluous hand motions, and other tricks — so that they won’t notice the magician making his key move, such as palming the card, or sneaking the coin into his vest pocket. If you know the trick, it’s usually possible to ignore the distractions and spot the move.

Columnists sometimes do the same thing. In the midst of a lot of hand-waving and harrumphing, they sneak in a key assumption — and before you know it, it is transformed into a fact. And then — presto-change-o! — the assumption, now a fact, becomes the key fact underlying the whole piece. And, because it was snuck in, this central proposition is never held up to the light of scrutiny.

Let’s see if you can spot the trickery employed in Michael Hiltzik’s latest column. I’ll give you a hint or two by bolding some of the language:

Despite what Social Security’s enemies love to claim, the trust fund is not a myth, it’s not mere paper. It’s real money, and it represents the savings of every worker paying into the system today. So I’m going to train a microscope on it.

What trips up many people about the trust fund is the notion that redeeming the bonds in the fund to produce cash for Social Security is the equivalent of “the government” paying money to “the government.” Superficially, this resembles transferring a dollar from your brown pants to your gray pants — you’re no more or less flush than you were before changing pants.

But that assumes every one of us contributes equally to “the government,” and by equal methods — you, me and the chairman of Goldman Sachs.

The truth is that there are two separate tax programs at work here — the payroll tax and the income tax — and they affect Americans in different ways. The first pays for Social Security and the second for the rest of the federal budget.

Most Americans pay more payroll tax than income tax. Not until you pull in $200,000 or more, which puts you among roughly the top 5% of income-earners, are you likely to pay more in income tax than payroll tax. One reason is that the income taxed for Social Security is capped — this year, at $106,800. (My payroll and income tax figures come from the Brookings Institution, and the income distribution statistics come from the U.S. Census Bureau.)

Since 1983, the money from all payroll taxpayers has been building up the Social Security surplus, swelling the trust fund. What’s happened to the money? It’s been borrowed by the federal government and spent on federal programs — housing, stimulus, war and a big income tax cut for the richest Americans, enacted under President George W. Bush in 2001.

In other words, money from the taxpayers at the lower end of the income scale has been spent to help out those at the higher end. That transfer — that loan, to characterize it accurately — is represented by the Treasury bonds held by the trust fund.

The interest on those bonds, and the eventual redemption of the principal, should have to be paid for by income taxpayers, who reaped the direct benefits from borrowing the money.

So all the whining you hear about how redeeming the trust fund will require a tax hike we can’t afford is simply the sound of wealthy taxpayers trying to skip out on a bill about to come due. The next time someone tells you the trust fund is full of worthless IOUs, try to guess what tax bracket he’s in.

Did you see what he did?

If you weren’t paying close attention, this could almost make sense. Boiling down his argument: there’s a payroll tax and an income tax. The income taxpayers (the rich) are accomplishing their goals by borrowing from the fund established by the payroll taxpayers (the poor). Now, the rich have to pay back the poor, and the damned cheapskates are whining about it. The nerve!

Where Hiltzik palms the card is where he assumes that the programs paid for in this manner are programs “to help out those at the higher end.” Let’s go over what Hiltzik says these programs are: “housing, stimulus, war and a big income tax cut for the richest Americans, enacted under President George W. Bush in 2001.”

Take those programs in order. “Housing” is a federal program designed “to help out those at the higher end”? On what planet? The stimulus is a program designed “to help out those at the higher end”?? That is a ridiculous notion, and becomes even more ridiculous when you look at a breakdown of how stimulus funds are spent.

As for war, you can agree or disagree on the need for the wars we are engaged in, but unless you believe that we have conducted wars in Afghanistan and Iraq for oil (and if we did, where is our damn oil?), those wars are conducted for the common good of the security of the entire country.

As for the notion that the tax cuts are a program designed to benefit the rich . . . let’s take a step back to put that contention in perspective.

What Hiltzik ignores is that the federal government is essentially a huge redistributor of wealth from the rich to the poor. When the rich pay income taxes, they don’t do it to benefit themselves, as Hiltzik implies. They do largely to benefit the poor.

Let’s take a quick refresher course in where our federal tax dollars go. Over half the budget is spent on entitlements. Even if you cut Social Security (20% of the federal budget) out of the equation, as an outlay that (per Hiltzik) is supposed to be funded by payroll taxes, that still leaves 34% of the budget that goes to Medicare, Medicaid, CHIP, and other safety net programs. Some of these programs are funded, not by payroll taxes, but by income taxes — and they are hardly programs that “help out those at the higher end.” Another 6% of our budget goes to interest on the debt, so that we can continue to spend money on entitlements like there’s no tomorrow. I have just described 60% of our budget outlay.

About another 20% goes to the defense budget — which, again, is money spent for the common good. The remaining 20% of the budget is spent on things like benefits for federal retirees and veterans, scientific and medical research, transportation infrastructure, education, international spending, and other miscellaneous costs. Hardly any of this goes to benefit the wealthy at the expense of the poor.

Meanwhile, who pays for all this? These figures should be familiar to you, but just as a refresher: as of 2007, the top 1% of earners paid 40% of the federal income taxes. The top 5% of earners paid 60% of the federal income taxes. And the top 50% of earners paid a shocking 97% of federal income taxes. These figures remain fairly constant through the years.

So when Hiltzik speaks of the Bush tax cuts as a “program” designed “to help out those at the higher end.” what he is really saying is that those tax cuts very marginally reduce the amount by which the rich are soaked to benefit the poor. (Remember: our money is ours. When the federal government reduces taxes, it is not giving us money, it is allowing us to keep more of our own money.) And if the government allows a marginal reduction in the amount that it soaks the rich to pay the poor, and funds that marginal reduction by raiding the trust fund, which is paid for by payroll taxpayers, we are then essentially borrowing from the poor to pay the poor.

For Hiltzik to bleat that the rich have a lot of nerve to complain about the tax increase necessary to fund the shortfall in the trust fund, Hiltzik has to pretend that the programs paid for by income taxpayers are largely programs to benefit income taxpayers. In fact, as I have shown, a huge slice of the money for those programs goes to benefit the bottom half of earners, who pay virtually no income tax at all. (Again, in deference to Hiltzik’s analysis, we are removing payroll taxes and Social Security from the equation.)

So all the whining you hear from Hiltzik about “wealthy taxpayers trying to skip out on a bill about to come due” ignores the fact that their bill is largely to pay for programs that benefit other people.

Essentially, Hiltzik makes billions of dollars of debt disappear — and tries to convince you that they never existed to begin with. Abracadabra!

The next time Hiltzik tries to engage in sleight of hand like this, tell him you know the trick.

Thanks to Bradley J. Fikes.

UPDATE: Payroll taxes also fund Medicare, which is also funded by other sources including income taxes paid on Social Security benefits. I accordingly added the words “some of” to the sentence: “Some of these programs are funded, not be payroll taxes, but by income taxes — and they are hardly programs that ‘help out those at the higher end.'” I actually had noticed this discrepancy before hitting publish, but somehow forgot to make the correction. Thanks to Foo Bar. The post’s argument remains sound.

You! Yes, You! Stand Still, Laddie!

Filed under: General — Patterico @ 11:36 am



Totten:

Take a look at the music video by Blurred Vision, an Iranian exile band based in Toronto. The song is a remake of “Another Brick in the Wall” by Pink Floyd, updated and changed ever so slightly to apply to Iran in 2010 rather than to Britain in the 1970s. A culture that produces this is perfectly recognizable. And it’s hard to imagine anything like it emerging from any other country in the region aside from Lebanon.

It’s an electrifying piece of music video art, especially the scene at the end where a Persian woman steps into the light and removes her state-mandated head covering. And the scenes where Iranians battle it out in the street with state-security thugs weren’t shot on a film set in Canada. They’re real and were shot in Tehran.

Thanks to Dana.

Schwarzenegger: I Lost the Gay Marriage Case. Now Go Implement the Winners’ Position as Quickly as Possible

Filed under: General — Patterico @ 11:02 am



It’s a wonderful illustration of one of the problems of deciding culture war issues by litigation:

California Gov. Arnold Schwarzenegger, who twice vetoed legislation that would have legalized same-sex marriage, has surprised gay rights supporters by urging a federal judge to allow gay couples to resume marrying in the state without further delay.

Lawyers for Schwarzenegger, Attorney General Jerry Brown, two gay couples and the city of San Francisco all filed legal motions Friday asking Chief U.S. District Court Judge Vaughn Walker to implement his ruling striking California’s voter-approved same-sex marriage ban as unconstitutional.

. . . .

The governor and attorney general almost always defend state laws when they are challenged, regardless of their personal views. But in this case, both Schwarzenegger and Brown refused to participate in fighting the lawsuit aimed at overturning the ban, even though they both were named as defendants.

This simply underlines the problems inherent in a process that allows judicial decisions to reverse the will of the people regarding controversial social issues.

Proposition 8 was fully debated by the citizenry of the most populous state in the union. Seven million voters approved Proposition 8 in their collective wisdom. I happen to disagree with them, but I would never propose that my single vote should cancel those of seven million of my fellow citizens.

Some argue that this is exactly what is supposed to happen in our constitutional system. A law must withstand the test of constitutional scrutiny, which means taking it to court. Which means the single vote of a judge can and should negate the law if it is unconstitutional.

And that is undoubtedly true. It makes sense when a judge is deciding, for example, whether a particular piece of legislation runs afoul of our First Amendment jurisprudence. But in our equal protection jurisprudence, the issue often comes down to whether a law has a rational basis. And a judicial inquiry ought to tread very lightly when the nature of the inquiry is whether a law is rational.

Instead, Judge Walker trampled all over the issue with elephant feet, willy-nilly issuing pronunciamientos regarding the proper role of tradition in deciding the legality of gay marriage, and couching these edicts as “factual findings.”

This sort of inquiry is far more suited to decision through the collective wisdom of millions of voters, debating a topic in public — rather than in a courtroom, litigated by two sets of parties who (as Schwarzenegger’s pronouncement highlights) may actually agree with each other.

What if Schwarzenegger and Brown, rather than deciding to abstain from participation in the litigation, had decided instead to conduct it — with an eye toward losing? If this sounds far-fetched, recall if you will how a cabal of left-leaning California officials decided not to appeal an unfavorable ruling on Proposition 187 to the U.S. Supreme Court.

But the prospect of sabotage by sloppy or disinterested litigation is not the only reason that deciding such issues in the courtroom is a bad idea.

Judge Walker’s ruling was simply the negation of our vote, on a matter that should properly be decided by the People and not by an unelected judge (and no, it does not help that this particular unelected judge could benefit directly from his own ruling). I will have more to say about this in a future essay, but the concept of the negation of a vote is one I want you to remember.

A courtroom is not the place to resolve the question of whether society ought to accept gay marriage. A courtroom is not the place to decide whether thousands of years of tradition are to be given any weight in assessing whether a law abrogating that tradition is rational. I keep hearing that the proponents of Proposition 8 simply didn’t make their case in court. They should not have had to.

A courtroom is not the place to resolve contentious issues in the culture wars. It is time we recognized that.


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