Yes We Can Pay for Increasing Social Security Benefits: Updated
Or, I might add, for any other obligation the Federal government cares to honor.
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 meant raising taxes on high incomes, or removing the payroll tax cap on salaries. Of course, Bernie Sanders is also advocating for higher SS benefits to be paid for in part by raising the tax cap.
Black is right (and so are Bernie, Warren, and others) 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 the anticipated 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 constitutional 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 in 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.
Lastly, apart from his calls for enhanced SS benefits, Bernie Sanders's agenda for America has been met with frequent calls for answer to the question: "How You Gonna Pay for it?" Bernie answers this by arguing that the tax law changes he advocates will produce enough revenue to pay for his program.
Then others answer that there won't be enough money in the increased taxes because Bernie's assumption about economic growth are too optimistic, given recent economic history and Republican opposition. The back and forth that ensues provides a perfect opportunity, regardless of the strength of the arguments, for Hillary Clinton backers to say that Bernie is misleading the public about what he can pay for and hence accomplish.
Others then show that the assumptions about growth Bernie makes aren't unrealistic. And then we're off to the races with Fear, Uncertainty, & Doubt (FUD) alienating people from supporting Bernie, regardless of the strength of the arguments on all sides.
Now, this post is telling you how to pay for enhanced SS benefits, and every other new spending proposal to accomplish public purpose as well, when either your Republican opponent, or a Hillary Clinton supporter, tries to create a downer by asking you in a debate "How you gonna pay for them?" Because, whether Bernie's growth projections work or not, and whether his tax proposals raise enough funds to pay for everything or not; he will still have a way to pay for everything as long as Congress will appropriate the spending and he mints a coin to cover it.
Indeed, he can even use the PCS authority to increase the likelihood that Congress will appropriate the things he wants to pass. If he directs the Treasury Secretary to direct the Mint to create a $100 T face value 1 oz platinum coin and deposit it in the PEF account, then $100 T will end up in the TGA. And, if that happens, how do you suppose the Republican Congress, the DINOs, and assorted third way "Democrats" will rationalize not legislating the spending programs he thinks are necessary for the well-being of Americans?
Whatever new rationalization for this they put forward, and you know that there will be one or more memes and vacuous arguments they will use, I doubt these will be as effective in taking the political pressure off their negativism and meanness, as the plaintive poor mouth objections about the debt and the burden on the grandchildren they use now. What do you think?
[This post is an updated version of one previously posted at: New Economic Perspectives. The update relates to the current presidential campaign.
Please note that I don't expect Senator Sanders to propose this form of funding, or to implement it, if and when he is President. My sole purpose here, instead, is to argue, that the exchanges we see now among the people supporting his economic agenda and those opposing it, do not address fully the issue of whether he can pay for it or not. And also to argue that when that question is correctly addressed in the full context of the fiat sovereignty of the United States Government and the current previously legislated authority of the Executive Branch, there is no doubt that the answer to this question is an unequivocal yes, we can pay for enhanced SS benefits and every other thing in Bernie's agenda too.]
Update cross-posted from josephmfirestone.com.)