The Most Outlandish Historical Revisionism I Have Ever Seen

First, the background.  Veronique de Rugy writes something that is undeniably true, though the Left has played semantic games with words like "trust fund" and "lockbox" for years to try to "shelter" the public from this reality:

In practice, [] the trust fund and interest payments it receives are simply accounting fiction. For years, the federal government has been borrowing the Social Security Trust Fund assets for its daily spending. The fund has nothing left in it except IOUs from the federal government. In fact, even the interest is paid in IOUs.

Hence, the only way Social Security will not go into the red this year and in future years is if the federal government pays back Social Security. But since the money has long ago been consumed, it must borrow money from the public or raise taxes to pay its Social Security debts.

In response, Kevin Drum whips out this absolutely stunning statement:

Back in 1983, we made a deal. The deal was this: for 30 years poor people would overpay their taxes, building up the trust fund and helping lower the taxes of the rich. For the next 30 years, rich people would overpay their taxes, drawing down the trust fund and helping lower the taxes of the poor.1

Well, the first 30 years are about up. And now the rich are complaining about the deal that Alan Greenspan cut back in 1983. As it happens, I agree that it was a bad deal. If it were up to me, I'd fund Social Security out of current taxes and leave it at that. But it doesn't matter. Once the deal is made, you can't stop halfway through and toss it out. The rich got their subsidy for 30 years, and soon it's going to be time to raise their taxes and use it to subsidize the poor. Any other option would be an unconscionable fraud.

I really had a WTF moment when reading this.  Its hard to know where to start, so here are some reactions in semi-random order:

  • For those of you over 40, do you remember such a deal?  No, you don't, because there never was one.  What happened was that Congress decided to sweep the Social Security surplus into the deficit calculation in order to disguise the magnitude of unsustainable spending, to help prevent the kind of electoral backlash we may well see later this year.  This is Soviet-style history making.
  • Here is a thought problem: Picture Tip O'Neil, Speaker of the Democrat dominated House of Representatives at the time, publicly signing on to a deal that the poor would pay higher taxes for 30 years to give the rich a tax break.  It is a total joke to even consider.   The absurdity of such a notion is mind-boggling.
  • It took me a while to parse this and figure out what he was even talking about.   For example, there was never a tax increase to the poor during the 1980's, so what does he mean that the poor would pay more for 30 years?  The only way this can even be the correct view of the world is if one makes two assumptions:
      1. Everything Congress chooses to spend money on is perfectly, morally justifiable and therefore spending levels are a fact of nature beyond our ability to challenge or question
      2. Rich people have the moral obligation to pay for all incremental government programs, and all budget gaps will be closed by new taxes on rich people.  Taxes on rich people, as a corollary, are never too high.

      Given these assumptions, then the "Deal" sort of kind of makes sense.  By the progressive "logic" of these two assumptions, social security taxes in an alternate world would have been reduced during the surplus and the general budget deficit would have been filled not with social security surpluses but higher taxes on the rich.

      • The previous logic depends on treating social security taxes as unfairly regressive taxes as part of an income transfer / welfare program.  If you treat them as premiums in an insurance program, the retroactive logic trying to cast this as a "deal" in 1983 doesn't work.  Interestingly, many on the left in other forums have argued against calling social security taxes anything but insurance premiums, including....Kevin Drum

      The men in my family of my father's generation returned home after serving their country and got jobs in the local steel mills, as had their fathers and their grandfathers. In exchange for their brawn, sweat, and expertise, the steel mills promised these men certain benefits. In exchange for Social Security taxes withheld from their already modest paychecks, the government promised these men certain benefits as well.

      "¦.These were church-attending, flag-waving, football-loving, honest family men. They are rightfully proud of providing homes and educations for their children and instilling the sorts of values and manners that serve them well as adults. And if I have to move heaven and earth, now that they've retired, the Republican party is NOT going to redefine them as welfare recipients.

      • Note by the way, that if this really is an insurance program, any private insurer or private pension fund managers in America would be in jail had they done what our trustworthy federal government did.  In effect, they spent other people's pension money on current operations.

      If we want to describe the last 30 year history of Social Security surpluses as a deal, here is what the actual deal was without ex post facto varnish:  Congress in the eighties said that they were going to spend that surplus money now to get themselves re-elected, and some other Congress 30 years hence would have to figure out how to deal with the bare cupboard.   That was the deal.  It was a simple screw you to future generations.

      Drum, given his progressive assumptions, fantasizes a deal based on his assumption that the only way to fill in the hole is with higher taxes on the rich, because his mind is incapable of wrapping itself around any other alternatives (see the two assumptions above).

      But it is worth noting that the surplus was in the main handed away by the Democrats to the poor and middle class through new entitlement spending.  Its hard to figure how a series of actions that took seniors pensions and frittered it away in a variety of programs that at best helped the poor and in reality probably helped no one but government bureaucrats somehow obligates the rich to pay 30 years of new taxes to clean the whole mess up.

      • Jeff

        Social Security
        Medicare
        Medicaid (via Obamacare)
        Public Employee retirement plans (federal, state, and local)

        You can't raise taxes enough to cover the total costs of these programs, so someone (or everyone) is going to get screwed.

        Historically, politicians have solved this problem by turning up the printing press and inflating the problem away. It's the most economically irresponsible way, but they just blame the resulting destruction of wealth on (bankers/merchants/foreigners/Jews) and move on. And no, COLA's and VIPS don't make this impossible. Just change the calculation of inflation, and print away!

      • elambend

        "The men in my family of my father’s generation returned home after serving their country and got jobs in the local steel mills, as had their fathers and their grandfathers. "

        Short of coal mining and oil production, did we really have any industries that lasted this long (or at least pre-existed WWII)?

        I've heard this kind of narrative before, but did it ever really exist? There sure as heck wasn't any kind of social insurance like this before WWII.

        The last 60 years were a historical anomaly and trying to wish that fact away won't change things

      • elambend

        This also goes to something I've notices about people, particularly on the left (though some on the right do it as well). They speak in 'narratives' as if they are real history and ignore facts. Thus, Drum has his narrative of the tax 'deal' in the 1980s or about the generations working in the steel mill and enjoying some kind of union paradise.

        It's comic book history at its worst.

      • jb

        I was with you all the way up to:
        "But it is worth noting that the surplus was in the main handed away by the Democrats to the poor and middle class through new entitlement spending. Its hard to figure how a series of actions that took seniors pensions and frittered it away in a variety of programs that at best helped the poor and in reality probably helped no one but government bureaucrats somehow obligates the rich to pay 30 years of new taxes to clean the whole mess up.
        "

        IMO - the surplus was in main handed away to large defense contractors, large health care companies, and, to your point, government bureaucrats.

      • GaryP

        I agree with elambend when he (or she) says: "The last 60 years were a historical anomaly and trying to wish that fact away won’t change things."
        America would have prospered if the rest of the world hadn't totally destroyed its industrial base in WWII and if half the world's population hadn't been denied productive work (and the ability to compete with us) by the Iron Curtain.
        However, we would never have gotten such a huge head start in the world economy as we did after WWII. And we could never have competed effectively while paying the high wages of the 50's--70's if we had had serious competition, especially from countries like China. In short, we got lucky and like the grasshopper we enjoyed it. Now it is winter and only the ant will survive.
        We fortunate ones have lived through the Golden Age of American dominance. I, for one, think for the most part America was a force for good. However, we wasted our wealth and power on causes we should never have undertaken, both domestic and foreign. Ultimately, the "geniuses" running this country will drive us all off a cliff because they cannot imagine that the America economy and American power have limits. They do, and we have reached them.
        When we were rich, we thought like the rich and acted like the rich, but now we are poor we must change our thinking and acting. It will be tough because people (to use a linguistics phrase) think "What is, is" They believe America was the richest, most powerful country yesterday, so it still is today. However, at one time Great Britain held those titles, until they didn't. Our country is not knocked out, but it has taken several body blows and it will need time, and good care, to recover.
        We spent some of our wealth well, most badly, but that doesn't change the fact that the money is gone and we can only get it back by sacrifice and hard work. Are we, as a country, capable of that today? Can't answer that one for you, but time will. It's up to us, we better get to work.

      • txjim

        Awesome fisking there Coyote. I can't read Drum except in small doses over many months. Thanks for taking one for the team.

        Elambend: comic book history, amen!

        GaryP - we need to get to work, also amen. Until we fix our monetary system we will continue to get the ol K Street reach-around no matter how hard we work. We need sound money that restrains the banksters and crooked regulators. Tall order, I know.

      • IgotBupkis

        To the best of my knowledge, there is not a democratic government which has ever used GAAP accounting. If they did, then this sort of crap might not keep happening.

      • Noumenon

        I didn't realize this was a narrative that was contested by anyone, I've heard it so many times. I have a factual question about your view of it. Wasn't the Greenspan commission not about Social Security having a surplus people wanted to get their hands on, but that it was running out of money?

        Another factual question: you say "there was never a tax increase to the poor during the 1980’s, so what does he mean that the poor would pay more for 30 years?" But the Greenspan commission increased the Social Security payroll tax. Isn't that a tax increase on the poor?

        With this disagreement over the actual facts, I'm not sure whether you're offering a genuinely new perspective on something I've only heard one side of or you actually just never heard about this. I'll definitely give you the benefit of the doubt because I'm pretty sure Drum is just parroting Paul Krugman here.

      • Rick Caird

        Noumenon,

        The Greenspan commission led to a change in the law that did increase the social security and Medicare taxes from 6.7% to 7.65% (times 2). But, that was for everyone, not just the poor. I addition the 1983 law raised the maximums. So, the Greenspan commission is not incompatible with arguing against the Drum claim of some kind of 30 year deal that the poor would pay more to the benefit of the wealthier while after 30 years some magic pixie dust would somehow change that.

        It is not at all clear what deal Drum (or you) could possible be referring to.

      • Matt

        Another problem with his narrative: Back in 1983, I was poor, so I paid higher taxes (according to his story). Now, I am older and richer, so I should pay higher taxes as a way to compensate myself for the higher taxes I paid when I was a poor young man just out of high school?

        This highlights another common liberal mistake. They seem to believe that income groups are static, but my story is incredibly common. Almost everyone is poor in their teens and twenties, but much better off in their 40's and 50's.