« Trust but Verify | Main | Modest Maos »

July 27, 2010


We like being nice to orphans, right?

Orphan status is justly parceled out by the invisible hand of the free market to properly incentivize minors to maximize their profit-seeking behavior. The invisible hand does not do "nice."

"Buying a dozen shiny new aircraft carriers."

"the government .... doesn't tend to get a very good deal."

How do we measure whether the government is getting a good or not? Are there any private Navys out there getting a better deal?

You'd think the patriots in the defense industry, who probably gibber on over beers about watering the tree of liberty from time to time, would at least be willing to cut the government a low-margin deal on an aircraft carrier .... cheaper watering and all that.

"Buying your grandmother a pacemaker."

Here's how that conversation plays out in America, as brought to us by the usual suspects over the past 30 years, and with special feeling lately by the brainiacs in the Tea Party end of the Republican Party:

The government buying MY grandmother a pacemaker is Medicare; the government buying YOUR grandmother a pacemaker is tantamount to Stalin raping and pillaging in the Ukraine.

A private hospital chain buying pacemakers in bulk from Medtronics is the magic power of the free market at work; the Veterans Administration using their buying power to purchase pacemakers in bulk is every bit like Pol Pot taking a survey of eyeglass wearers in the Cambodian population.

The conversation regarding Social Security, steered as it is already by the most diabolical members of the Far Right appointed to various commissions to maintain the false ideal of bipartisanship, is rancid.

I spit on it.


I agree with everything you wrote except:

"There is a legitimate (if overblown) concern that when the government buys things, it doesn't tend to get a very good deal. This turns out to be true when it comes to jet fighters and aircraft carriers, and less true when it comes to roads and schools and medicine."

The government doesn't get a very good deal when it buys medicine. But that's a feature, not a bug:


JD, SS really is government spending. Saying it isn't resonates only in very small echo chambers.

If Social Security had not been subsidizing the rest of the Federal budget for the past few decades, you might have a point about SS not being "spending." Maybe.

However I submit that, on any reasonable definition, money coming in is income, and money going out is spending. And that applies whether we are talking about me personally or the Federal government. Yes, if I buy insurance that is still spending by me; even if I get money back at some point in the future.

Briefly, that means that anything the government requires me to pay (i.e. I'm not buying specific goods or services) is a tax, and anything that they give out is spending. Unless one wants to redefine the words for the government as a special case.

And, since SS has been subsidizing the rest of the budget, there isn't any obvious reason to consider the FICA deductions from my pay check to be anything other than a tax. And any SS payments are income to me (in the unlikely event that I ever see a dime from the system) and spending by the government.

I think Jacob's point here is to make a valid distinction by using "distribution" instead of "spending" for certain types of, say, "outlays." Perhaps the semantics wouldn't be as bothersome if distributions were considered a special case of spending and the distinction were between the special case and the general case.

But the point, I think, is that distributions leave it up the recipients (private individual actors guided by the invisible hand) to decide ultimately where in the private economy that money goes rather than the federal government (centralized authority) deciding. It's a matter of who's doing the consumption.

But the point, I think, is that distributions leave it up the recipients (private individual actors guided by the invisible hand) to decide ultimately where in the private economy that money goes rather than the federal government (centralized authority) deciding. It's a matter of who's doing the consumption.

HSD, very good point and it is one I had meant to comment on. Now, if this is OT, shoot me. But, isn't this exactly the argument I've been making regarding a stimulus being done in the form of suspending FICA for two years and phasing it back in over the following four years?

Yes, it is off topic, but the rationale advanced here by JD and HSD seems transportable.

John Thullen wins the thread.

Missed your comments, McKT. HSH is right about my point: technically all government outlays are "spending", but Social Security doesn't match the commonsense meaning of "spending", which is the purchasing of labor or goods. We are, as I said, legitimately concerned that when the government spends money in the sense of buying goods and labor, it sometimes gets a bad deal.

But the government doesn't buy goods or labor with the Social Security budget, it just mails out checks. (The administrative overhead is microscopic considering the scale of the program.) The usual complaints of inefficiency and cronyism don't apply.

On the FICA holiday, I think it's sort of the other way around: if you think that the FICA holiday is a good idea because private spending is superior to public spending, you have to accept that Social Security isn't really public spending in that sense.

Since I don't actually think public spending is per se bad, I don't buy that argument too much myself, but I think it's very problematic for people who want to cut public spending by cutting Social Security.

I think a FICA holiday on the employee side is probably the most palatable stimulative tax cut, but because much of it would be saved (since everyone is kinda broke) it's not the best use of the money. This is anyway imaginary money since no new stimulus is on the cards. But aid to states and other high-multiplier spending would be more cost-effective.

" but because much of it would be saved (since everyone is kinda broke) it's not the best use of the money"


When people are saving rather than spending (because they feel poor, for instance because they now have negative equity in their house), giving them a tax rebate does not have an immediate stimulative effect. They don't rush out and buy things, they pay down credit cards or put the money in the bank.

Which is very virtuous, but it isn't an effective means of stimulating the economy, which requires people to actually spend the money.

Which, incidentally, is one of the virtues of government spending: when the government goes out and buys things, it's a very reliable source of demand. When it hands out money in tax rebates, there's no guarantee that money gets spent.

wj: I am happy to call SS payouts "spending" if and only if the right-wingers stop pretending that FICA is not a "tax". Next time you hear some jackass braying about the fraction of "taxes" paid by the rich when he's only talking about income taxes, keep this in mind.

As for your doubts about seeing a dime from the system, can I infer that you're fairly young? If so, remember that YOUR generation will be in charge before you retire. If you guys decide to preserve Social Security, it will be preserved.

Naturally, if you guys decide to spend all your money on "defense", or shrink from taxing the lucky few among you who have million-dollar incomes or billion-dollar inheritances, your SS benefits might be too small to live on.


McTx, if a payroll tax holiday would stimulate the economy, why would not an increase in the personal exemption (amounting to the same number of billions of dollars) have the same stimulus effect?

The same (reduced) amount of revenue would come into the government either way, but the reduction would hit the Treasury rather than the Trust Fund. Would you object to that?


if you think that the FICA holiday is a good idea because private spending is superior to public spending, you have to accept that Social Security isn't really public spending in that sense.

JD, I am less concerned with labels than I am with effects. Compared to an immediate holiday, taxing people and having congress apportion the taxes among selected winners is the less effective, more administratively costly and cumbersome, less stimulative and more politically corrupt approach. Simply not collecting the tax (yes, TP, it damn sure is a tax, paid in consideration of collecting SS in the out years) and letting those with incomes of less than 150k have an 8% immediate cash raise to spend or save as they wish is free of political patronage, free of administrative cost and it is immediate.

if a payroll tax holiday would stimulate the economy, why would not an increase in the personal exemption (amounting to the same number of billions of dollars) have the same stimulus effect?

Only for people who actually pay income tax. A FICA holiday reaches the bottom quintile who pay virtually no income tax, only FICA, as you note correctly above. Further, the FICA holiday happens as soon as it is passed and pumps additional money into the economy every payday. The added deduction shows up in the paycheck, if at all, as a slightly smaller withholding. But mainly, a FICA holiday means that, for example, there is an immediate 8% increase in the minimum wage. If a stimulus is what we need to get things going, the FICA holiday does it faster, more efficiently and helps everyone who needs the help.

Make up your mind, McKinney. If FICA "damn sure is a tax", then stop talking about "people who actually pay income tax" as if the distinction between FICA and income tax means anything.

If Social Security is a separate insurance fund that's merely administered by the government, then Jacob is correct: SS is not government spending. If SS is just another government spending program, and FICA is just another tax, then you're misleading (yourself, not me) when you talk as if it matters what name we give to the taxes that people pay.

Let me be as sincere as I can be: I think you prefer a "payroll tax holiday" because it will make Social Security look less solvent. If we give the exact same size of tax break to the exact same people in the form of a refundable "income tax" break, the government's total receipts would be the same, people's net paychecks would be the same, the stimulus effect would be the same. The only difference would be that the SS Trust Fund would look richer and the Treasury would look poorer. Tell me why I'm wrong about any of that.


TP--imputing motives to those you don't agree with is risky business. People who 'actually pay tax' are the only beneficiaries of your program. The bottom quintile doesn't pay any tax and therefore wouldn't get a dime out of any FICA-driven stimulus. I am as unimpressed with the fiction called the SS Trust Fund as I am with the notion that I will ever get meaningful responses to my last post downthread on Many Journies . . .

FICA is a taxing mechanism as is income tax. It is misleading to imply that only some people pay taxes on their income. Everyone does--it's called FICA. Only those with taxable income above X level pay income tax.

Your first mistake is simply that you miss the fact that everyone who doesn't pay income tax misses the benefit of your expanded personal exemption. Your second mistake is thinking that a hole in the budget created by expanding the personal exemption is any different that the hole in the budget created by a FICA holiday. The deficit doesn't care where the money comes from.

I am in agreement with much of what you say. Try taking "yes" for an answer.

For any and all rudeness, I plead the late hour and the half bottle of wine.

Night all.


Though I agree with you most of the time, in this particular case, I agree with McT.

That is, speaking strictly in terms of which would be most likely to have an IMMEDIATE stimulative effect, suspending payroll taxes is superior to your other suggestions here. That is because either an increase in the personal exemption or a refundable tax credit would not have an immediate effect; that is, unless the refundable tax credit was mailed out immediately like the one-time payment of (I think) $300 per person was a few years ago. And the change in exemption wouldn't have an immediate effect unless everyone went out and changed their withholding schedule after the exemption is amended. As opposed to McT's idea, which can basically run on cruise control.

This is not to say that I think this is the IDEAL stimulative tool, since I agree with what Jacob wrote in his 5:47, but between the ideas you mentioned and McT's payroll tax 'holiday', I think his idea would be more stimulative.

Just my $.02.

A FICA holiday would have a diminishing affect over time as employees and employers adjust to it and take-home pay converges back to where it would have been without the FICA holiday.


Let me try to make my point crystal clear this way: a guy making $500/week gross has money withheld from his paycheck. Roughly speaking, $40 for FICA -- 8% of gross. McKinney would let him keep that $40. You'd let him keep that $40. And I would let him keep that $40.

So, what are we arguing about? Well, McKinney has not even attempted to deny that his proposal would reduce the money flowing into Social Security that month by $40.

McKinney argues that we can't give the guy the same $40 and call it a reduction in his "income tax" instead, because the guy pays no income tax. You make the slightly different point that calling the $40 a FICA reduction is just easier administratively.

Fine. I am astonishingly flexible about administrivia. Let the guy keep the $40. Let his paystub show it was a reduction in his FICA withholding. But let the Treasury credit the SS Administration anyway, under the guy's Social Security number, with the $40 he would normally have paid.

Got it? For national accounting purposes, the $40 stimulus in the guy's pocket shows up as $40 less of general revenue, rather than $40 less of FICA receipts. The $40 is a (refundable) "income tax" credit, or if you prefer a $40 "tax expenditure". It is merely administered as a "payroll tax holiday".

So ask McKinney [next time he's sober:)] whether he would object to this simple, straightforward modification of his proposal. If he agrees, we're done. If not, get him to say why so I won't have to speculate about his motives.


I think the serious proposals for a FICA holiday work the way you're describing, actually, with Treasury crediting the Trust Fund for unpaid FICA.

TP--I am fine with crediting the Trust Fund, for whatever that might accomplish. It's cosmetics at the end of the day.

I am also mostly sober this morning. Tonight is another issue entirely.

Social Security, though, is not spent by the government. It is distributed by the government

Fascinating. This is the smallest, thinnest, tiniest filament of a hair the splitting of which I've ever seen attempted.

based on a lifetime of payments into the system and certain rules that act as insurance [...] It's the way in which about a third of the population gets to retire while the other two thirds provide for them

Wait, so is Social Security (a) just a standalone insurance system that is 'based on' prior payments, that the government merely happens to manage/oversee, or is it (b) 2/3 of the population supporting the retirements of the other 1/3? In other words, a government redistribution system?

Schizophrenic indeed.

Anyway, I'll have to go back and read this post a few more points to locate the actual point it attempted to make (given how small and inconsequential it seems to be). But before I spend time doing that, tell me, if I, as a conservative, just say 'yes ok you're right, Social Security taxes are taxes' does this post implode under its own triviality? Just wondering,

The comments to this entry are closed.

Blog powered by Typepad