Hiltzik puts SS in plain English

Michael Hiltzik is one of the reasons I still feel that, despite cruel budget cuts and bad management, the LA Times is a better paper than the NYT. The latter gives us stories like this. Hiltzik gives us this:

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.