Yes We Can Pay for Increasing Social Security Benefits
Some time ago, in the pages of USA Today, Duncan Black, better known to some as Atrios voiced the immediate need for increased Social Security benefits of 20% or more even if it means raising taxes on high incomes, or removing the payroll tax cap on salaries.
Black is right about the need for increased benefits; but legislating that increase doesn't require increasing taxes. In fact, Congress should both increase benefits and remove the payroll tax entirely.
But how is that possible without greatly increasing “the national debt”? The answer to that one is easy. Don't tax or borrow to pay for it. Just mint a single one oz. platinum coin at the beginning of each fiscal year with a face value large enough to cover expected the cost of SS payments. Doing it that way will both take care of retirement needs and also provide a huge shot in the arm for employment, since the increase in Social Security benefit payments and the ending of the payroll tax won’t be offset by tax increases elsewhere that will depress aggregate demand.
How many times have you heard that the Government can only spend money after it raises revenue by either taxing or borrowing? Nearly every time someone talks or writes about the US's public deficit/debt problem?
Why is it that nobody asks why, since Congress has unlimited authority to create coins and currency, it doesn't just create money when it deficit spends? The short answer is that Congress in 1913, constrained both itself and the Executive Branch from creating currency or bank reserves, delegating its power to do that to the Federal Reserve System.
But coins, it turns out are different. They're the province of the Executive Branch, and the Treasury. And Congress provided the authority, in legislation passed in 1996, for the US Mint to create one oz. platinum bullion or proof platinum coins with face values to be specified at the discretion of the Secretary of the Treasury, having no relationship to the market value of the platinum used in the coins.
These coins are legal tender. That is, they are tax credits, which the Treasury is obligated to accept in payment of taxes, if they ever fell into private hands. And when the Mint deposits them in its Public Enterprise Fund (PEF) account, the Fed must credit it with the face value of these coins, because the asset value of the coin is, legally, its face value. The difference between the Mint's costs in producing the coins, and the reserves provided by the Fed in return for a deposit of such coins is the US Mint's “coin seigniorage” or profit from the transaction.
The US code also provides for the Treasury to periodically “sweep” the Mint's account at the Fed for profits. These then go into the Treasury General Account (TGA), the primary spending account of the Treasury, narrowing or eliminating the revenue gap between spending and tax revenues.
So, platinum coins with multi-trillion face values, can produce profits closing the revenue gap, while still retaining the deficit between tax revenues and spending that can add to aggregate demand in the private sector and produce full employment. Platinum Coin Seigniorage (PCS) is also a way for the Executive to end debt ceiling crises, since seigniorage revenues can be used to repay debt instruments when they fall due, without needing to issue any more debt.
If all debt instruments are re-paid by using seigniorage, eventually the US would have no debt subject to the limit, or presence in the bond market, and would pay no interest to bond holders. No one would worry about the public debt, or use its size to justify blocking legislation.
But won't creating all these reserves in the TGA by using PCS be inflationary? No, it won't, because the causal channels for creating it won't be there. But that's a story for another day, or you can read it now at the link, along with consideration of possible legal, institutional, economic, and political objections.
PCS-based elimination of debt can both pay for Social Security benefit increases, and also end the whole austerity mind set that provides our current budgetary process with its constraining conservative cast focused on narrow monetary cost considerations. Instead, we can use a broader reality-based framework that weighs the real costs and benefits of proposed fiscal activities of the Federal Government.
If PCS were used to supplement taxing and Federal borrowing was ended, then Congress and the Executive could evaluate the substance of legislative proposals based on their likely direct impacts and side effects on the lives of Americans, rather than their impact on Federal deficits and surpluses. Then the issues would be about what people need, and what improvements we can make by working together through our Federal Government.
We would begin talking about Real Fiscal Responsibility, rather than the false notion of it we see today, based on the ideal of a balanced budget, or, at least, a decreasing debt to GDP ratio, that has no relation to fiscal sustainability or responsibility in nations like the United States, with non-convertible fiat currencies, floating exchange rates, and no debts is currencies they do not issue. Real Fiscal Responsibility would be the fulcrum of a new politics, not debt, deficits, and debt-to-GDP ratios. If you’d like to see this paradigm shift in fiscal politics happen, then please learn about this effort and help make it a reality.
Btw, Mark Begich just announced that he's running on increasing SS benefits. That's a winning message Mark. Now this piece tells you how to pay for them, when your Republican opponent asks you in a debate "How you gonna pay for them"?
(Cross-posted from New Economic Perspectives.)