Rational Action

I didn’t intend to become another member of PK’s legion of defenders. But alas, Eidelblog leaves me no choice! He comes out first with this zinger:

…this fellow misrepresents what I said. I didn’t say Krugman “rambled incoherently” when he said this about the payroll tax. I said he “rambled incoherently” and then started talking about the payroll tax as “just another tax.” Come on, RA, are you writing for the Times or CBS that you must put words into my mouth?

The problem is that Krugman’s point didn’t begin with his assertion that “the payroll tax is just another tax”. In the section I cited, Eidelbus says…

Krugman rambled incoherently for a minute, and I really didn’t understand what his point was. Then he said the payroll tax is “just another tax.�

During this “incoherent” ramble, Krugman was laying the groundwork for his construct that we could view government as one giant cauldron or as a bunch of separate pots. When Krugman then said that the Payroll Tax was “just another tax,” he was explaining how it would work in the former view. Now, if you weren’t paying attention while Krugman laid the groundwork, then yes, it would sure sound like he wanted the Payroll Tax to be “just another tax.” Fortunately, I was listening.

Eidelbus continues, conflating my supposed views with those he projects upon PK:

It’s also fraud to claim that the system is solvent though the federal government has to use other sources of tax revenue to shore it up. Once again, if we’re going to raise other taxes to compensate for insufficient payroll taxes, can Krugman and others at least be honest about it? Can they at least admit that we have to raise taxes (or, I suppose, borrow money) if we’re not going to cut benefits?

Let’s be clear on this one. Once Social Security starts running yearly deficits, it will begin redeeming its treasury bills. As this happens, it will worsen the government’s fiscal position. Is there a soul who wouldn’t agree with that statement — Krugman’s soul included?

That said, the whole point of the Payroll tax hike of the early 1980’s was so that at some point in the future Social Security would be able to draw on its trust fund. If the rest of government ran any deficit at all during this saving period, then when it came time for Social Security to draw from the Trust Fund, other taxes would have to go up (or the Federal Government would have to issue public debt.)

Eidelbus wants to say that as long as paying out Social Security requires some kind of transfer into the system via any tax increase — even if money was transferred out of the program in the past — then the Social Security system is not solvent. I disagree. I say that Social Security is solvent until roughly 2041, because its deficits until that point equal its [I assume totally] transferred-away surpluses between roughly 1983 and 2017. I make this claim at the expense of the General Fund, which is currently a fiscal trainwreck in great need of repair. If we were to put the General Fund into balance until 2041, then Social Security would have no trouble paying its benefits.

The General Fund has been running especially large deficits because it could count on a portion of its budget to be financed by Social Security’s automatic investment in tresuries. General Fund taxes have been artificially low, as Payroll Tax income helped make the deficits smaller. To repair the General Fund, the taxes which pay into it must go up. As the General Fund pays down its debt, some of its income will be transferred into the Social Security program.

Eidelbus says: This is evidence that Social Security is not solvent, because taxes will have to go up! I say, this is evidence that Congress managed the money poorly and made the General Fund insolvent, using Social Security’s solvency as a mask.

P.S. No explicit personal insults! Perry Eidelbus, I see your “twerp” and I… fold!

This entry was posted on Thursday, March 31st, 2005 at 1:41 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.