Yesterday on Fox, Senator Dick Durbin said:
WALLACE: I'm going to talk about ObamaCare on a second, but you're not answering my question. Why does taxes -- why do taxes have to be on the table? Why can't you just make a deal, short-term spending for long-term entitlement reform -- which, Senator, you support and President Obama support. You have supported the idea of some entitlement reform.
DURBIN: That's right. I do, and I'll tell you why -- because Social Security is going to run out of money in 20 years. I want to fix it now, before we reach that cliff.
Medicare may run out of money in 10 years, let's fix it now. And that means addressing the skyrocketing cost of health care. That's what ObamaCare is focused on, and yet, the Republicans want nothing to do with it.
If we don't focus on the health care and dealing with the entitlements, the baby boom generation is going to blow away our future. We don't want to see that happen. We want to make sure that Social Security and Medicare are solid.
The “. . . may run out of money. . . . ” and “. . . dealing with entitlements. . . “ memes, in reply to Chris Wallace's question suggests that a deal trading increased revenues for Social Security and other entitlement cuts is acceptable to him. So, Durbin's argument is that because Social Security Trustee and CBO projections, based on very pessimistic economic growth projections for the whole period, show a shortfall in the Social Security “Trust Fund” in 20 years, it is acceptable to make entitlement cuts now if the Democrats can get increased revenue from higher taxes, as if entitlement “reform” were the only way to meet the perceived Social Security solvency problem. But who would it be acceptable to?
What the American People Clearly Want
According to a 2010 Lake Research Partners Poll 82 percent of Americans oppose cuts to Social Security to reduce the deficit. That breaks down by Party: Democrats -- 83%; Republicans – 82%; Independents – 78%; and Tea Partiers – 74%. Those numbers are overwhelming, as polling data goes. It's pretty clear that making cuts to Social Security would not be acceptable to the American people, generally, and probably even less acceptable to Senator Durbin's heavily Democratic constituency in Illinois.
One wonders, what kind of Senator puts forth a proposal that more than 80% of his constituents oppose? It can only be one who has decided to fit himself for a duncecap; or one who's convinced that “the banks run the place,” or one who doesn't think that the rest of us have the intelligence to understand that there are other alternative to handling any such problem apart from “reforming,” meaning cutting entitlements. But it can't be one who cares about whether his political party can hold the Senate after 2014.
But that's not all, when asked about a proposal to require employee and employer FICA taxes on wages above $106,800 annually in order to make Social Security more solvent, 66% of Americans were in favor of that proposal. And that breaks down by Party: Democrats -- 73%; Republicans -- 59%; Independents -- 66%; and Tea Partiers -- 60%. That is very solid support for this proposal for solving any perceived Social Security solvency problem, particularly among the Democratic base. Also, the Tea Party support for raising the payroll tax cap is greater than the Republican Party's for that, an indication that Tea Partiers, like the rest of us, value their Social Security highly.
So, the Lake Research Partners survey, with which Durbin is surely familiar, not only shows that people are heavily opposed to Social Security cuts in the first place, but also shows that Americans, and more than likely many more among Durbin's constituents, are also heavily in favor of raising the payroll tax cap as a solution to any perceived solvency problem. Not only do they oppose cuts but they favor a particular solution to “the solvency problem,” which Senator Durbin saw fit not even to mention in his Fox News interview.
So, Durbin is doubly culpable as a poor representative of his constituents in his answers to Fox News. He neither mentions their overwhelming opposition to entitlement cuts; nor does he mention their heavy support for getting rid of the payroll tax cap. It's as if these facts never existed, and were certainly not worth mentioning in the same breath as his and the President's widely hated solution of cutting Social Security.
What the American People Might Want If They Knew About It
But, even worse, Senator Durbin, and other Democrats like him who claim to represent the Democratic base, also never mention other perspectives on the perceived solvency problem that might be far less unpopular with his base; but far more unpalatable to Wall Street. Those are solutions that avoid austerity altogether, either in entitlement cuts or tax increases on anyone.
Let's begin getting to that solution by noting that Social Security solvency is a faux “money” problem because the Federal Government can never involuntarily run out of money to pay Social Security and Medicare obligations, as long as Congress is willing to provide the authority to meet those obligations. Yes, the problem is a political one, not an economic one.
The austerians, like Dick Durbin, want to solve this political problem by cutting back on entitlement benefits. “Progressives,” and most of the population want to solve it by eliminating the income cap on FICA taxation. Both of these solutions, in spite of the popularity of the “progressive” one, will subtract net financial assets from the private economy, and, other things being equal, make the private sector poorer. That's why I call them “austerian” solutions. But the following solution doesn't have that problem.
That solution is for the Executive Branch to use its Platinum Coin Seigniorage (PCS) authority under 31 USC 5112(k) and 31 USC 5136 to mint a single proof platinum coin each year to cover any shortfall between FICA revenues and spending on Social Security and Medicare. If that were done annually in advance, based on short-term projections, then there would be no further depletion of the “trust fund” credits, and no further political issue of Social Security and Medicare insolvency.
This solution also has at least the following other advantages.
-- It requires no Congressional action to implement. The necessary authority is there already;
-- It will not increase spending, beyond that already scheduled for Social Security and Medicare, so it won't add any inflation beyond that already built into the system;
-- It will not increase the public debt subject to the limit, so that worry needn't trouble people;
-- It will educate people about the fact that the Government can spend without having to tax or borrow if it needs to do that;
-- It will educate people about PCS as an alternative to taxing and borrowing;
-- It will educate people to the idea that neither the Treasury nor the Government can become insolvent because it can always mint coins;
-- It will educate people about the fact that the US Government need not ever borrow back its own previously issued currency from anyone else, unless it wants to;
-- It will educate people to the idea that their grandchildren won't have a burden of public debt that they can't always easily pay back by using PCS;
-- It requires neither an increase in taxes nor cuts in Social Security or Medicare benefits.
-- Also, if benefits were increased in the future there wouldn't need to be any tax increases to “fund” them.
-- It would be a great political success for any President who did this, because it would have the effect of safeguarding the major components of the safety net for good, and that President would be remembered by a grateful populace for having done that.
There are, of course, some disadvantages to this third solution, too.
-- The opposition to the President will attack she or he for using PCS, claiming that it is the dreaded “printing money,” practiced, so infamously, by the Weimar Republic and Zimbabwe. This may be an effective attack in holding down the President's approval rating for a limited period of time; but once people observe that no inflation results from using PCS, this attack will fade away; it's effectiveness destroyed by experience and reality;
-- To make PCS effective, the President may have to force the Federal Reserve Chairman to create reserves in exchange for Treasury's platinum coins. This may create a firestorm politically if the Fed Chairman resigns in protest. However, eventually, the President will find a successor who will credit the Mint's Public Enterprise Fund (PEF) account for platinum coins with very high face value, because the law is clear that in cases of disagreement between the Fed and the Secretary on matters of interpretation, the opinion of the Secretary is to prevail.
-- The opposition may attack the President for "grabbing more power." This may make a few headlines; but since the President's action would halt any further depletion of the Social Security and Medicare “trust funds” it is hard to see the public either disapproving of the action, or getting motivated by any perceived power grab.
-- The opposition to the President in Congress may become enraged by the loss of leverage against entitlement spending they experience as a result of the Administration using PCS to stop depletion of the “trust funds.” However, I can't see this anger going anywhere unless it somehow gets extended to the country at large. But, then again, the only reason why most people would get angry at this is if inflation were somehow triggered using PCS. Since this is a very unlikely prospect, the anger in Congress will just go to ground in the sweep of events.
Two weeks after the minting each year, there will be other issues to fight about. After a few years of use, PCS will be institutionalized as the way to ensure the sustainability of Social Security and Medicare regardless of fluctuations in the economy and in tax revenues.
So, that's it. Using PCS to cover the shortfall between entitlement spending and FICA revenues is a quick and relatively easy solution to the political problem of ensuring that the Social Security and Medicare “trust funds” are sustainable, provided that a president will use it.
When will progressive organizations like the Campaign for the American Future, Social Security Works, and many others forsake their austerity proposals and propose an option like this that doesn't automatically evoke a fight to the death from those opposed to tax increases? There are many good reasons to increase taxes on people who have higher incomes and accumulations of wealth. But raising funds to meet a perceived, but not very real, Social Security solvency problem is not one of them. So, when will progressives stop making obeisance to the balanced budget Gods that condemn us to austerity, and propose to fund their economic initiatives for lifting the U.S. out of stagnation in other ways than by increasing taxes.
And when will this, or the next, or the next president make this happen and really kill “austerity” politics targeting the entitlements that most Americans love so well? When will this, or some future president hear the voice of the people?
(Cross-posted from New Economic Perspectives)