Donald Luskin is an Idiot

The only thing better than being clueless is being blatantly clueless, in full public view. Such is the fate of one Donald Luskin, a Contributing Editor for National Review Online.

Luskin actually has the temerity to inform us that there will be a Social Security crisis arriving in just five short years. The crux of this crisis? We, the Working Schlubs of America (and I define "working schlub" as anyone who gets paid for what they do, rather than what stocks they own) will be loaning the government less and less money, starting in 2009. This will force the government to turn to the capital markets to find the funds it needs to avoid charging the wealthy of America their fair share of the bill.

You have to love Republicans. These are the folks who, back in 1983, raised the taxes of the Working Schlubs of America (we'll just call them the WSA from now on) by a whopping 54 percent. (The “combined” rate for Social Security went from 8.05 percent to 12.4 percent.) It was all done at the behest of one Alan Greenspan, and it was done to (.... drum roll!) Save Social Security!

The idea was simple. Since Social Security faced a potential revenue shortfall when the Baby Boomers started to retire, why not start saving for that day in advance? And it worked. As of this writing, the Social Security Trust Fund has an accumulated surplus of almost two trillion dollars. And that surplus grows every day, since the WSA is tossing over $100 billion per year into the fund more than the current crop of retirees is taking out.

Are you still with me? Here's the main point: Social Security has a ton of "surplus" money in its account, and it gets more every day. Now, here's the twist to all of this: most of this money, at least as a percentage of earnings, comes from the poorer ranks of the WSA, folks like the burger flippers at McDonalds or the grumpy folks folding sale items at your local discount department store. Now, you may be tempted to take issue with me on this. "Dude! Everyone pays Social Security tax!" you might say. And you would be almost correct. You see, only the WSA pay Social Security tax, for one thing. That rich guy hanging out on his yacht, lighting cigars with $100 bills, gets all his income from dividends. He doesn't pay a dime in Social Security tax.

And it gets worse. You see, only the portion of your income below the cut-off (most of us define this as "everything") is taxed for Social Security purposes. This year, the cut-off point is $90,000. After that, you get a 12.4 percent tax cut.

Here's another way to look at it: If you made $87,900 in 2004 (that was the cut-off that year), you were taxed at the rate of 12.4 percent. (This is the combined rate. If you work for a company, they pay half and you pay half, but if you work for yourself, you pay the full amount. But it’s not employers are being charitable; their contribution comes out of the money they’d have otherwise have paid you.) Your total contribution: $11,075. Now, if you made $175,800, you were taxed at the rate of 6.2 percent. Your total contribution: $11075, the same as the Working Schlub making half as much. So the more you make, the lower your effective tax rate is. (If you make $12,000 per year, you actually pay more in Social Security tax than you do in Federal Income tax!)

Let's add the final wrinkle: the federal accounting system. All those billions in surplus Social Security payments don't go into any kind of special bank account. They get dumped directly into the government's General Fund where, like any cash the government can get its hands on, it gets spent. The actual cash that was extracted from your paycheck is replaced by a government IOU. Even though the government is actually borrowing this money to spend, it doesn't include it in the annual Surplus/Deficit figures. This actually comes in handy for the party in power, since it makes the government's balance of payments look better than it actually is. For example, the announced deficit for fiscal year 2003 was $375 billion, but that included $155 billion borrowed from Social Security and $5 billion from other retirement programs. The actual deficit for 2003? $536 billion. Click here for the Congressional Budget Office's data. Read Table 1, and look for the column labeled "On Budget."

I apologize for making you sit through all that, but it's a complicated issue. And the mere fact that it's complicated lets people like Donald Luskin publish idiotic statements. Remember him? He's the one who warned of the Social Security crisis that was set to begin in 2009. And the nature of that crisis? The annual Social Security surplus starts to shrink. The amount of money that the WSA will be pumping into the fund in 2009 will still be far beyond the amount being paid to retirees, but it won't be quite as far beyond as it was in 2008.

Are you blinking yet? This is the same as if your favorite restaurant declared that, starting in 2009, they'd no longer give you four times as much food as you could eat, but would instead give you only three times as much food as you could eat.

Yes, Donald, the free ride is almost over. Starting in 2018, we members of the WSA are going to start demanding our due. We will present the government with those IOUs and demand that it make good. And we are fully aware that folks like you, who may finally have to pay their fair share, will cry foul. But here's the thing: those multi-trillion-dollar tax cuts that George Bush gave your friends? They came at my expense. I never made it into those stratospheric tax brackets, the ones that were slashed time and again. I've been paying Social Security taxes on the first and last dime I've made ever since I started to work. Those were my tax dollars that helped run the government, my tax dollars that covered for your corporate buddies who moved their headquarters to a post office box in the Bahamas. You've had your fun at my expense, and now you're upset because it's time to pay the piper.

You'll have to forgive my lack of remorse over the discomfort it will cause you to have to repay my loan. As my daughter would say, too frickin' bad!