Let’s circulate this extremely important “explainer” now, as Musk et.al., who clearly has less than zero understanding of public finance, distorts and misleads -and as the Congress is willingly and thoughtlessly misled while making extraordinarily consequential budget decisions.
No, it's not "all about taxes." The flat-lining of real wages in relationship to productivity since the 1970s and the interest paid on debt, including federal government "debt" (Treasury Securities) under the monetary policy dominance regime (monetarism/trickle-down crowd), are two of the primary drivers of wealth inequality. The left's fixation on taxes has become a distraction from all the other ways wealth is transferred to the top.
Real wages have lagged behind productivity while profits soared. But how? Savings (investment) for the wealthy increased due to their reduction in taxes, which led to a depressed labor share in the capital/labor split.
The interest on the debt cannot drive wealth inequality when the issuer of the currency simply presses a button to digitally issue the payment. As long as it doesn't spike inflation no harm is done. So the debt doesn't matter as long as inflation is kept in check, and there are mechanisms for doing that.
The US Treasury bond is a mechanism for providing a modest profit to savings. Despite its appearance otherwise, it's not actually how the treasury pays its bills.
Spending on Social Security has precisely the same inflationary impact whether or not the Social Security Trust Fund exists. What we should be teaching people is not just that the fund "doesn’t actually exist," but that it doesn't have any impact on inflation! -- it doesn't actually serve any useful purpose! It may have been useful in the days when our currency was based on gold, but those days are long past. Of course, the same can be said, and should be said, about any of the several government "savings" funds. None of them are actually useful and all can be eliminated without any negative impact. Maintaining these fake funds is simply fooling the American people about the true nature and impact of government spending.
Yes, now go to pension funds - make work, and lots of money - for the finance sector. All these payroll deductions are just a tax on paycheques. So what would an optimum tax system look like? Not to fund spending but to drain it? So government spending does not accumulate in the pockets of the wealthy as Treasuries, paying interest, no less. No one ever seems to answer the question of what an optimum tax system should look like.
The optimum tax system would be one that focuses on the progressive taxation of economic rent. For instance, we should have a progressive corporate tax whose rate is indexed to a company's return on equity in excess of some established "normal" rate of return. The normal rate would be something like the risk-free rate of return plus some entrepreneurial premium. (So, 8% to 10%). Companies with super-normal returns would pay a progressively higher tax rate. Companies with sub-normal returns would pay either no or minimal tax on their incomes -- no matter how great.
Such a system would discourage "greedflation" while also encouraging increased equity in the form of investments in productive assets.
Consider: Imagine two companies who each have $1,000,000 in taxable income. The first scraped out a 5% return in a highly competitive market (a farmer?) while the second company enjoyed a 50+% return in a less competitive industry (Visa? Mastercard?). Even though they both have the same taxable income, how can you argue that they both have the same "ability to pay" or that taxing them both at the same rate would be fair?
Remember: Most economists will agree that taxation of economic rent is non-distortionary as long as it doesn't go as far as reducing returns below the normal return. Also, in Econ 101 terms: The business in the competitive market is probably forced to be efficient in order to continue competing. It produces a significant consumer surplus and relatively small producer surplus. On the other hand, the company in the less competitive market probably offers a smaller consumer surplus, a larger producer surplus, and also a dead-weight loss.
Also, apart from the MMT point, insofar as having more workers increases the amount of SS and all other taxes paid, Elon Musk is having a negative impact on the economy by firing federal workers, who then go on the dole and can't contribute as much as they were to all the businesses in their communities, which then also have less to spend and pay in tax, and so on
I was a blue collar rank and file union activist for close to 30 years as well as being a local Dem campaign mgr. I fought the unfriendly takeover in the late '70s by neolibs. Who subsequently dumped the New Deal and the majority working class. I've read solid academic research that confirmed my personal experiences. Like the robust stats in Les Leopold's 2024 //Wall Street's War on Workers ( How Mass Layoffs and Greed Are Destroying the Working Class and What to Do about It)//. He begged the Ds to take up this potentially winning issue. Of course the D elite ignored it just as they have ignored us workers for 40 years.
Figuring out what happened required reading econ history. Including about Keynes and books on New Deal economics like //Saving Capitalism: The Reconstruction Finance Corporation and the New Deal// by James Stewart Olson. As well as about the Austrian School plus {shudder} Friedman and the now dominant Chicago School.
I had assumed the issue was how econ data were interpreted; of course progressives would see the same reality quite differently than conservatives. I was shocked to discover the Chi School is almost entirely about assumptions and assertions of the kind exemplified by Thatcher's infamous "there are no alternatives." Its foundations consist of little more than a deep hatred of the New Deal by '30s era heirs of the Robber Barons and their contemporary incarnations. Very little is based on empirical evidence. Of course they're able to quiet us peasants because they wave around scary looking formulae.
I KNEW there certainly were alternatives! I've just finished Steve Keen's latest and your wonderfully done MMT--language not scary, but inviting. I'm in the middle of //MMT and Its Critics//by Fullbrook and Morgan. Like so many others of my class, I have no pension and live on SSA as very low income. I had to cancel a subscription to afford this one. However, nothing is more important than econ structures. Especially since entire governments now function as mere subsidiaries.
If we want to understand the Social Security issue, we need to understand how Americans think about taxation. When you pay your income taxes, as a patriotic and diligent citizen you expect that Congress will spend your remittance wisely. But not a dime of federal taxes can actually be "spent." It's always new money that Congress appropriates each year. Your taxes are applied to previous deficit spending and, to keep the books straight, your tax remittance simply disappears. Think for a moment and you'll realize that it is folly to think that the IRS could forward their tax collections to Congress so that they could spend it mid-year. This would create an unconstitutional chaos, so it never happens.
Here's the crucial point. However Americans think their federal income taxes are handled, no one thinks that it's their PERSONAL MONEY! Sure, in a democracy we expect our elected representatives to budget wisely, but we all think it's the government's money to spend, not ours. That's part of our American ideal. If we don't like how our elected officials are spending U.S. dollars, we can remove them from office via our votes. But no one thinks they're wasting "my money,"--they're instead wasting the government's resources.
But social security is an entirely different matter. FDR intentionally set up the program during the Great Depression so Americans could think that their weekly payroll deductions were contributing to a "trust fund" that held their money until retirement. This was, of course, nonsense. There is no social security "piggy bank." But FDR had a brilliant insight. If the government could create the illusion that the payroll deductions contributed by millions of Americans--which was, after all, just another kind of tax--actually belonged to them, and NOT the government, then the program would be politically unassailable. No American would stand for the government taking what was rightfully theirs.
This thought process made perfect sense in 1935 in the middle of the Great Depression when the U.S. was still on the gold standard. Today our social security system makes no sense. The average monthly check amounts to $1,906. The maximum amount doled out is $4,873/month. Who gets the $4,873? Multimillionaires! And it's because they've made much more money over their best 35 years than the average American. But doesn't this flout the idea of social SECURITY? Why does a multimillionaire need a government check when they're already financially secure? The reward for the wealthy is that we've created a society in which they can use their skills to become wealthy. Isn't that enough? Why should we lavish more wealth on the wealthy when they clearly don't need it?
The government should get rid of the social security payroll deduction and simply makes monthly payments based on the need of the individual.
If you scroll up to my comment, you'll see I'm one of those totally dependent on an SSA pittance. I'm also a New Deal acolyte. So then quite taken by your 3rd paragraph; a great explanation which I will be borrowing.
I'd argue with the 2nd, though. People DO argue taxes are "their money." Conservatives don't want "their money" wasted on the lazy and undeserving poor. (Lazy rich okay since as Social Darwinist winners, they"deserve" it.) Progressives don't want "their money" spent for unneeded, costly military boondoggles. Dedicated pacifists have refused to pay their federal income tax because "their money" is used for wars.
As for the 4th...I agree in theory. But given the reality of politics, I wouldn't center on that for several reasons. A big selling point, as you acknowledge, is it's seen as a piggy bank. An argument needed even during the Depression when New Deal economics had massive support. Now when economic beliefs, including for the Dems, are so Chicago School, attacking the system could have deadly consequences. Especially when both parties are influenced by big donations from 1%ers and corporations.
And the 5th? What government "should do" is very different than what's politically feasible. Particularly in this era when explaining anything, like SSA or MMT, is very difficult with a 3-5 paragraph limit. I know--I've tried with MMT. Even on progressive sites nearly impossible. IMHO what we should concentrate on is convincing young people (and probably the middle-aged, too) they WILL get Social Security! Conservatives are trying to get them to believe they won't--not just an accounting thing, either. It's to pit young against old politically to get rid of that popular bit of "socialism" loathed by the far right.
This is great. As usual. I live in Punxsutawney (yes, that Punxsutawney) in very rural and very red Jefferson County, Pa. We have started a monthly education seminar at the Democratic HQ to help educate voters on how things actually work as a counterpoint to the deliberate misrepresentations of "Sir" et al. This posting will be the heart of one addressing Social Security. I will add a chart showing wealth and income disparity to make it less about Musk.
Please let us know how that goes. In the last two paragraphs of my reply to Wally G. above, I made some observations about political realities v. what we'd prefer.
I was a local D campaign mgr, as I noted in my main comment. That was in the days when the party still depended on an active and engaged rank and file. (Before the D party went neolib.) Not easy to have feminists and a lay Catholic men's group; eco-activists and housing builders; labor union members and small business owners...all in the same room. But as heirs of the New Deal, we knew we were all working for the common good. No one got exactly what they wanted but nobody was left out, either.
I understand your reasoning for Congress to be able to change the law fully funding social security going into the future. You provided an example where federal law currently funds portions of Medicare without there ever being a time where funding is not made available. I have written my Senators and Congressperson to change the social security law language to provide the funding going forward, but I have not been able to give the specific language that needs to be added to the current law. It would be helpful for you or someone in your circle of influence who has the knowledge of what language needs to be added to the current law to write this down for all of us who are writing our Senators and Congressperson to get the law changed.
Her book red pilled me too and spurred me on to become an MMT zealot!
Let’s circulate this extremely important “explainer” now, as Musk et.al., who clearly has less than zero understanding of public finance, distorts and misleads -and as the Congress is willingly and thoughtlessly misled while making extraordinarily consequential budget decisions.
I have commented before. All good except isn’t it the acceleration of savings that is stoking inequality?
The reduction in taxes for the upper class and corporations increases savings for the wealthy, which drives inequality. It's all about the taxes.
Joseph in Fairport, NY
No, it's not "all about taxes." The flat-lining of real wages in relationship to productivity since the 1970s and the interest paid on debt, including federal government "debt" (Treasury Securities) under the monetary policy dominance regime (monetarism/trickle-down crowd), are two of the primary drivers of wealth inequality. The left's fixation on taxes has become a distraction from all the other ways wealth is transferred to the top.
Real wages have lagged behind productivity while profits soared. But how? Savings (investment) for the wealthy increased due to their reduction in taxes, which led to a depressed labor share in the capital/labor split.
The interest on the debt cannot drive wealth inequality when the issuer of the currency simply presses a button to digitally issue the payment. As long as it doesn't spike inflation no harm is done. So the debt doesn't matter as long as inflation is kept in check, and there are mechanisms for doing that.
The US Treasury bond is a mechanism for providing a modest profit to savings. Despite its appearance otherwise, it's not actually how the treasury pays its bills.
Joseph in Fairport, NY
Spending on Social Security has precisely the same inflationary impact whether or not the Social Security Trust Fund exists. What we should be teaching people is not just that the fund "doesn’t actually exist," but that it doesn't have any impact on inflation! -- it doesn't actually serve any useful purpose! It may have been useful in the days when our currency was based on gold, but those days are long past. Of course, the same can be said, and should be said, about any of the several government "savings" funds. None of them are actually useful and all can be eliminated without any negative impact. Maintaining these fake funds is simply fooling the American people about the true nature and impact of government spending.
Yes, now go to pension funds - make work, and lots of money - for the finance sector. All these payroll deductions are just a tax on paycheques. So what would an optimum tax system look like? Not to fund spending but to drain it? So government spending does not accumulate in the pockets of the wealthy as Treasuries, paying interest, no less. No one ever seems to answer the question of what an optimum tax system should look like.
The optimum tax system would be one that focuses on the progressive taxation of economic rent. For instance, we should have a progressive corporate tax whose rate is indexed to a company's return on equity in excess of some established "normal" rate of return. The normal rate would be something like the risk-free rate of return plus some entrepreneurial premium. (So, 8% to 10%). Companies with super-normal returns would pay a progressively higher tax rate. Companies with sub-normal returns would pay either no or minimal tax on their incomes -- no matter how great.
Such a system would discourage "greedflation" while also encouraging increased equity in the form of investments in productive assets.
Consider: Imagine two companies who each have $1,000,000 in taxable income. The first scraped out a 5% return in a highly competitive market (a farmer?) while the second company enjoyed a 50+% return in a less competitive industry (Visa? Mastercard?). Even though they both have the same taxable income, how can you argue that they both have the same "ability to pay" or that taxing them both at the same rate would be fair?
Remember: Most economists will agree that taxation of economic rent is non-distortionary as long as it doesn't go as far as reducing returns below the normal return. Also, in Econ 101 terms: The business in the competitive market is probably forced to be efficient in order to continue competing. It produces a significant consumer surplus and relatively small producer surplus. On the other hand, the company in the less competitive market probably offers a smaller consumer surplus, a larger producer surplus, and also a dead-weight loss.
In sovereign currency accounting, fund accounts are used as a double-entry accounting tool.
Also, apart from the MMT point, insofar as having more workers increases the amount of SS and all other taxes paid, Elon Musk is having a negative impact on the economy by firing federal workers, who then go on the dole and can't contribute as much as they were to all the businesses in their communities, which then also have less to spend and pay in tax, and so on
She is just so good.
I was a blue collar rank and file union activist for close to 30 years as well as being a local Dem campaign mgr. I fought the unfriendly takeover in the late '70s by neolibs. Who subsequently dumped the New Deal and the majority working class. I've read solid academic research that confirmed my personal experiences. Like the robust stats in Les Leopold's 2024 //Wall Street's War on Workers ( How Mass Layoffs and Greed Are Destroying the Working Class and What to Do about It)//. He begged the Ds to take up this potentially winning issue. Of course the D elite ignored it just as they have ignored us workers for 40 years.
Figuring out what happened required reading econ history. Including about Keynes and books on New Deal economics like //Saving Capitalism: The Reconstruction Finance Corporation and the New Deal// by James Stewart Olson. As well as about the Austrian School plus {shudder} Friedman and the now dominant Chicago School.
I had assumed the issue was how econ data were interpreted; of course progressives would see the same reality quite differently than conservatives. I was shocked to discover the Chi School is almost entirely about assumptions and assertions of the kind exemplified by Thatcher's infamous "there are no alternatives." Its foundations consist of little more than a deep hatred of the New Deal by '30s era heirs of the Robber Barons and their contemporary incarnations. Very little is based on empirical evidence. Of course they're able to quiet us peasants because they wave around scary looking formulae.
I KNEW there certainly were alternatives! I've just finished Steve Keen's latest and your wonderfully done MMT--language not scary, but inviting. I'm in the middle of //MMT and Its Critics//by Fullbrook and Morgan. Like so many others of my class, I have no pension and live on SSA as very low income. I had to cancel a subscription to afford this one. However, nothing is more important than econ structures. Especially since entire governments now function as mere subsidiaries.
I like blaming Musk.
Joseph in Fairport, NY
Musk, the guy who keeps saying the US will be “bankrupt” unless he is allowed to slash and burn the government as he sees fit.
If we want to understand the Social Security issue, we need to understand how Americans think about taxation. When you pay your income taxes, as a patriotic and diligent citizen you expect that Congress will spend your remittance wisely. But not a dime of federal taxes can actually be "spent." It's always new money that Congress appropriates each year. Your taxes are applied to previous deficit spending and, to keep the books straight, your tax remittance simply disappears. Think for a moment and you'll realize that it is folly to think that the IRS could forward their tax collections to Congress so that they could spend it mid-year. This would create an unconstitutional chaos, so it never happens.
Here's the crucial point. However Americans think their federal income taxes are handled, no one thinks that it's their PERSONAL MONEY! Sure, in a democracy we expect our elected representatives to budget wisely, but we all think it's the government's money to spend, not ours. That's part of our American ideal. If we don't like how our elected officials are spending U.S. dollars, we can remove them from office via our votes. But no one thinks they're wasting "my money,"--they're instead wasting the government's resources.
But social security is an entirely different matter. FDR intentionally set up the program during the Great Depression so Americans could think that their weekly payroll deductions were contributing to a "trust fund" that held their money until retirement. This was, of course, nonsense. There is no social security "piggy bank." But FDR had a brilliant insight. If the government could create the illusion that the payroll deductions contributed by millions of Americans--which was, after all, just another kind of tax--actually belonged to them, and NOT the government, then the program would be politically unassailable. No American would stand for the government taking what was rightfully theirs.
This thought process made perfect sense in 1935 in the middle of the Great Depression when the U.S. was still on the gold standard. Today our social security system makes no sense. The average monthly check amounts to $1,906. The maximum amount doled out is $4,873/month. Who gets the $4,873? Multimillionaires! And it's because they've made much more money over their best 35 years than the average American. But doesn't this flout the idea of social SECURITY? Why does a multimillionaire need a government check when they're already financially secure? The reward for the wealthy is that we've created a society in which they can use their skills to become wealthy. Isn't that enough? Why should we lavish more wealth on the wealthy when they clearly don't need it?
The government should get rid of the social security payroll deduction and simply makes monthly payments based on the need of the individual.
If you scroll up to my comment, you'll see I'm one of those totally dependent on an SSA pittance. I'm also a New Deal acolyte. So then quite taken by your 3rd paragraph; a great explanation which I will be borrowing.
I'd argue with the 2nd, though. People DO argue taxes are "their money." Conservatives don't want "their money" wasted on the lazy and undeserving poor. (Lazy rich okay since as Social Darwinist winners, they"deserve" it.) Progressives don't want "their money" spent for unneeded, costly military boondoggles. Dedicated pacifists have refused to pay their federal income tax because "their money" is used for wars.
As for the 4th...I agree in theory. But given the reality of politics, I wouldn't center on that for several reasons. A big selling point, as you acknowledge, is it's seen as a piggy bank. An argument needed even during the Depression when New Deal economics had massive support. Now when economic beliefs, including for the Dems, are so Chicago School, attacking the system could have deadly consequences. Especially when both parties are influenced by big donations from 1%ers and corporations.
And the 5th? What government "should do" is very different than what's politically feasible. Particularly in this era when explaining anything, like SSA or MMT, is very difficult with a 3-5 paragraph limit. I know--I've tried with MMT. Even on progressive sites nearly impossible. IMHO what we should concentrate on is convincing young people (and probably the middle-aged, too) they WILL get Social Security! Conservatives are trying to get them to believe they won't--not just an accounting thing, either. It's to pit young against old politically to get rid of that popular bit of "socialism" loathed by the far right.
This is great. As usual. I live in Punxsutawney (yes, that Punxsutawney) in very rural and very red Jefferson County, Pa. We have started a monthly education seminar at the Democratic HQ to help educate voters on how things actually work as a counterpoint to the deliberate misrepresentations of "Sir" et al. This posting will be the heart of one addressing Social Security. I will add a chart showing wealth and income disparity to make it less about Musk.
Please let us know how that goes. In the last two paragraphs of my reply to Wally G. above, I made some observations about political realities v. what we'd prefer.
I was a local D campaign mgr, as I noted in my main comment. That was in the days when the party still depended on an active and engaged rank and file. (Before the D party went neolib.) Not easy to have feminists and a lay Catholic men's group; eco-activists and housing builders; labor union members and small business owners...all in the same room. But as heirs of the New Deal, we knew we were all working for the common good. No one got exactly what they wanted but nobody was left out, either.
This is the best, most concise SS explainer I've ever seen. And I've been reading about SS for many years.
Thanks so much for this.
I understand your reasoning for Congress to be able to change the law fully funding social security going into the future. You provided an example where federal law currently funds portions of Medicare without there ever being a time where funding is not made available. I have written my Senators and Congressperson to change the social security law language to provide the funding going forward, but I have not been able to give the specific language that needs to be added to the current law. It would be helpful for you or someone in your circle of influence who has the knowledge of what language needs to be added to the current law to write this down for all of us who are writing our Senators and Congressperson to get the law changed.