The Public Sector Is a Milk Cow for Private Enterprise | Dissident Voice

by Paul Craig Roberts / April 29th, 2015

Social Security and Medicare are under attack from Wall Street, conservatives, and free market economists. The claims are that these programs are unaffordable and that the programs can be run more efficiently and at less cost if privatized.

The programs are disparaged as “entitlements.” The word has come to imply that entitled people are getting something at great cost to everyone else. Indeed, entitlements have become conflated with welfare.

In fact, Social Security and Medicare are financed by an earmarked payroll tax paid by employees. (Economists regard the part of the payroll tax that is paid by employers as part of the employee’s wage.)

According to the Social Security and Medicare trustees, Social Security as presently configured can pay full promised benefits for the next two decades and with current payroll tax and demographic trends can pay 75% of benefits thereafter. Medicare can pay full benefits for 12 more years and 90% of promised benefits thereafter.

It makes sense to look ahead–something that democracies seldom do–but there is no current crisis.

The Carter administration did look ahead and put in place a series of future increases in the payroll tax sufficient to keep the programs in the black for several decades into the future. Shortly thereafter in 1981 there was a claim that there was a short-term financing problem. The National Commission on Social Security Reform was created. Alan Greenspan was appointed chairman, and the commission is known as the Greenspan Commission.

What the commission did was to accelerate in time the payroll tax increases that were already in place. In my opinion, this was done in order to reduce projected federal budget deficits that concerned Wall Street and Republicans. The consequence of the accelerated payroll tax increases is that over the next decades the programs accrued large surpluses in the trillions of dollars that the federal government spent on other programs, substituting for the surplus payroll revenues non-marketable Treasury IOUs to Social Security and Medicare. Far from entitlements worsening the federal deficit, entitlement surpluses have reduced it.

The real Social Security crisis is that the government does not have the money to redeem its IOUs.

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