The most interesting thing you don’t know about the deficit

Washington scaremongers talking about the deficit have put the fear of China into the American psyche, but does China really “own” the U.S. deficit?

In a revealing article, former Senator Don Riegle and Social Security expert Lori Hansen Riegle let us in on a secret — the largest debt owed by the federal government to any one entity is to Social Security.

We owe it to ourselves. Literally.

Here’s how that works: when the federal government needs to borrow money, it issues Treasury bonds — a special form of IOU. Treasury bonds are considered a very safe investment; many Americans hold them in their retirement accounts. As Riegle and Riegle show with numbers from the U.S. Treasury Department, the largest single holder of Treasury bonds is Social Security. And Social Security is earning interest on those bonds, just like any other investor would. That’s the Social Security “trust fund” you’ve heard so much about.

So, what’s with all the talk about the “bankrupt” trust fund? And what does Social Security have to do with the deficit?

Imagine if you suddenly didn’t have to pay your house mortgage anymore. Wow, that would erase a large chunk of debt from your personal finances. It’s a lovely dream, but that’s all it is — wishful thinking. The bank is relying on you to make good on your loan, and as the foreclosure debacle has shown, you’ll face dire consequences if you don’t.

I can only assume that there are some politicians who are engaging in wishful thinking about the Treasury bonds held by Social Security. Gee, wouldn’t it be great if we didn’t have to make good on those loans… After all, no one less than Timothy Geithner pointed out that “that’s where the money is.”

Well, yes, that’s where it is and a good thing, too. The American workers have been paying into Social Security, their money was invested in Treasury bonds, and when it comes time to retire and rely on their Social Security benefits, that money will be there.

And the interesting thing is, while Social Security doesn’t contribute to the deficit — by law it can’t pay out more money that it has — it holds a large chunk of the debt owed by the federal government.

So, perhaps the deficit hawks are confused. Or maybe they want us to be confused.

Here’s what Riegle and Riegle have to say:

Another argument made by Social Security opponents to raise fear about the national debt is how much our government has borrowed from China. They never mention how much our government has borrowed from Social Security. In fact, the government has borrowed more from the Social Security surplus than it has from any other source in the world, including China. As a result, Social Security now “owns” nearly 18 percent of the federal debt, making it the largest single holder of US debt. The government owes almost twice as much to Social Security as it does to China and Hong Kong.

Why aren’t the opponents worried about paying back Social Security — why aren’t they talking about repaying this debt to the American people?

According to the U.S. Treasury Department’s “Monthly Statement of the Public Debt of the United States” (9.30.10), the total debt was $13.562 trillion and was held as follows:

US Holders of Debt

42.1 % — US Individuals and Institutions

17.9 % — Social Security Trust Fund

6.0 % — US Civil Service Retirement Fund

2.1 % — US Military Retirement Fund

Foreign Holders of Debt

11.7 % — Oil Exporting Countries

9.5 % — China and Hong Kong

6.3 % — Japan

1.4 % — United Kingdom

1.3 % — Brazil

1.6 % — All other foreign countries

The deficit is a concern. All U.S. debt must be covered. There’s no question about that. But let’s be clear. We can’t make China the bogeyman here.  The federal government has overspent in the last decade, thanks to two wars, a huge tax cut for the wealthy, and an unregulated banking industry that led to a global recession. The deficit came about because of a schism between two views of what the government’s (i.e. the people’s) responsibility is. As President Obama said in his speech yesterday:

Part of this American belief that we are all connected also expresses itself in a conviction that each one of us deserves some basic measure of security. We recognize that no matter how responsibly we live our lives, hard times or bad luck, a crippling illness or a layoff, may strike any one of us. “There but for the grace of God go I,” we say to ourselves, and so we contribute to programs like Medicare and Social Security, which guarantee us health care and a measure of basic income after a lifetime of hard work; unemployment insurance, which protects us against unexpected job loss; and Medicaid, which provides care for millions of seniors in nursing homes, poor children, and those with disabilities. We are a better country because of these commitments. I’ll go further – we would not be a great country without those commitments.

Riegle and Riegle close their article with a view from the other side:

 House Republican Majority Leader Eric Cantor (R-VA) provided some insight to their Social Security views in a recent NPR interview when he was talking about Social Security and said, “We are going to have to come to grips with the fact that these programs cannot exist if we want America to be what we want it to be.”

Luckily, poll after poll shows that Americans of all political persuasions do not want Social Security to fail. Let’s be vigilant and make sure that tax investments that each and every one of us pays at work into the Social Security system are well managed and cashed in for full value as mature U.S. Treasury bonds.

Don’t mess with Maine artists!

Rep. Ryan’s budget a disaster — according to CBO report

The Congressional Budget Office (CBO) has issued a report on the budget written by Rep. Paul Ryan, chair of the House Budget Committee. (Read the report here: http://www.cbo.gov/doc.cfm?index=12128.)

Here’s the CBO’s mandate:

CBO assists the House and Senate Budget Committees, and the Congress more generally, by preparing reports and analyses. In accordance with the CBO’s mandate to provide objective and impartial analysis, CBO’s reports contain no policy recommendations.

However, they do the numbers and write reports. This particular report contains the interesting facts that the Ryan plan would reduce federal spending on health programs roughly by two-thirds by 2050, more than double the share of total spending that Medicare recipients must pay out-of-pocket, and would raise he total cost of health care for Medicare enrollees by 25-45 percent. (Thanks to Henry Aaron of Brookings for that.)

And, according to Dean Baker of the Center for Economic and Policy Research, those Medicare enrollees, under the Ryan plan, by 2030 would end up spending most of their TOTAL INCOME on health care costs (see http://www.cepr.net/index.php/blogs/beat-the-press/representative-ryan-proposes-medicare-plan-under-which-seniors-would-pay-most-of-their-income-for-health-care).

Resolution of labor historians regarding the missing mural

To Whom It May Concern:

On behalf of the Labor and Working-Class History Association, I would like to bring to your attention a resolution that the LAWCHA board passed on March 31, 2011, regarding recent events at the Maine Department of Labor:

The resolution:

“The Labor and Working-Class History Association, the largest organization of labor historians in the United States, supports efforts to preserve public art that represents the nation’s labor history in local, state, and federal buildings. We deplore Maine Governor Paul LePage’s removal of the labor history mural from Maine Department of Labor offices over the weekend of March 26-27, 2011. In eleven panels painted by Maine artist Judy Taylor and installed in 2008, this mural depicts the working people who were central in the making of Maine’s rich industrial history. The panels portray diverse groups of working-class Mainers, including colonial-era artisans; nineteenth-century loggers and child laborers; shoe workers on strike with the CIO in Auburn and Lewiston in 1937; and women workers riveting ships at Bath Iron Works during World War II. Together with the renaming of department conference rooms previously named after important figures in the nation’s labor history, such as Frances Perkins, the first female secretary of labor, whose family has Maine roots, this act constitutes an attempt to erase the historical memory and heritage of Maine’s working people. LAWCHA urges Maine’s elected officials to reinstall the mural in its original location and to return the names of distinguished labor activists to the rooms where they belong.”

Labor and Working-Class History Association

Executive Committee

President, Kimberley Phillips

Vice President, Shelton Stromquist

Secretary, Cecelia Bucki

Treasurer, Thomas Klug

Immediate Past President, Mike Honey

Executive Assistant, Ryan Poe

Board

Randi Storch, SUNY – Cortland

Moon-Ho Jung, University of Washington

Laurie Green, University of Texas – Austin

Franca Iacovetta, University of Toronto

Erik Gellman, Roosevelt University

Thavolia Glymph, Duke Universityn

Ruth Milkman, University of California, Los Angeles

Joan Sangster, Trent University

Emilio Zamora, University of Texas, Austin

Francisco Barbarosa, University of Colorado, Boulder

Eileen Boris, University of California, Santa Barbara

Brian Kelly, Queen’s University

Clarence Lang, University of Illinois, Urbana-Champaign

Priscilla Murolo, Sarah Lawrence

We are urging LAWCHA members and all other historians in the United States to join those individuals and organizations in Maine who are working to restore the mural and conference room names to their original locations.