Tuesday, June 28, 2011

AARP's Misguided Stance on Social Security

Why is AARP giving in to radicals who are trying to trash Social Security? Cutting benefits or raising the retirement age will do absolutely nothing about the national debt. Cuts to Social Security may appear to lower deficits, but that is only because the US Treasury Bonds held by Social Security are not counted when they are bought (because Social Security and the Treasury are departments of the same government). In a year where more in benefits is paid out than is collected from Social Security payroll taxes, bonds held in the Trust Fund are cashed, and the Treasury has money going out of it to pay those bonds. In effect, deficits are moved from the year that they were created to some future year when the bonds are cashed.

AARP officials and their lobbyists are not blue collar workers. If they were, they would not be open to raising the retirement age. And if they really understood how the Social Security Trust Fund worked, they would not be open to benefit cuts, either.

The only real change to Social Security which makes any sense is to raise the cap on taxable income. Doing so will enable Social Security to pay benefits at 100% for the next 75 years instead of the next 25 years.

What also should be done is to count Treasury Bonds bought by the Trust Fund as part of the yearly government deficit. Not doing so hides deficits, since the money which is paid to the Treasury Department for the bonds is counted while the liability for the bond is not. Not doing so pushes national deficits onto years when the bonds are cashed. Not doing so treats Treasury Bonds bought by the Trust Fund differently from bonds bought by China.

There is also one more change which must be made, and that is to stop the co-mingling of payroll taxes and general revenues due to the "tax holiday". Since the lowered payroll taxes are made up for out of general revenues, both the deficit and the national debt increase by billions. The tax holiday is also part of the conservative agenda to change Social Security, either by privatizing it or by underfunding it (when the tax holiday ends, they can argue against "raising taxes", even though it is only ending the temporary cut).

AARP should be adamant about protecting Social Security. They should be rabid about opposing benefit cuts. They should vigorously oppose raising the retirement age. AARP should stop treating the "tax holiday" as a good thing, as it only endangers Social Security. And AARP should be lobbying for changing the accounting rules on the Treasury Bonds bought by the Trust Fund, since the current rules hide debts and deficits until those bonds are cashed by the Trust Fund.

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