March 15, 2004
Social Security Crisis
Over at Calpundit I see a post on what Kevin calls the Social Security Non-Crisis. I’m not going to dispute the data he uses, not because I think that the Trustee’s have perfect data, but because even the numbers he is using suggest that there is a crisis. I link to his argument specifically because it is a fairly good explanation of the standard non-crisis argument.
The Social Security crisis is really a budget crisis with three major components that are Social Security-related. For purposes of this post I am using data from the same report that Kevin uses. But first you have to understand something about Social Security. It is common knowledge, but I want to make it explicit. Social Security is not a retirement fund. It is principally an age-based income subsidy which uses a special tax system to ear-mark funds to support it. For quite a few years, the revenues raised by the ear-marked funds have exceeded the mandated benefit levels. The US government spends that money and issues Treasury bonds to the Social Security Trustees. From the point of view of the Social Security System these bonds are investments. From the point of view of the US government as a whole they are not investments. They are not investments because the US government is both payor and payee of the same bonds when the Social Security trustees hold the bonds.
The above paragraph is completely uncontroversial. Seriously, the politically charged stuff doesn't come in till below.
Also for the purposes of this post I am assuming that not one single non-Social Security budgetary item increases over the next 20 years. (A ridiculous assumption if you have heard of Medicare)
The Social Security crisis has three major components, all of which are based on the fact that the baby boomers are retiring very soon.
First the current ear-marked tax will not cover ear-marked expenditures in the fairly near future. In order for the Social Security expenditures to be met with the incoming revenue stream Kevin notes that we will probably have to do all of the above: cut the cap on the tax, raise the minimum retirement age, and engage in means testing. That is fine, and I agree with all of it (though I want far more extreme means testing) but it only solves the first part of the crisis. Also, considering the extreme (though in my mind inexplicable) Democratic aversion to means-testing I don't find even the easy fix that likely.
Second, the Treasury Bonds 'owed' to the Social Security Trustees have to be paid back in order for the above solutions to be enough to allow expenditures to equal the incoming revenue stream. In Table II.B1 of the link above, you will see in the Total Income section of the report a $71.2 billion entry labeled "Interest". From the point of view of the US Government as a whole, this is not income at all. It is a liability to be paid through taxation. I have been unable to find data indicating likely interest payments in the future. These interest payments have to be paid out of new taxes. Furthermore in order for Kevin's supposedly easy plan to work, Social Security will be cashing out the principal of these bonds. If I am reading the chart correctly that totals out to $1.07 trillion dollars. This too will have to be covered by new taxes.
Third, Social Security cash has been used for decades to support the general budget. In 2002 Net Contributions (the ear-marked tax) were $455.2 billion. Total expenditures were $393.7 billion. That is $61.5 billion in cash that has to be replaced in the budget, every single year. (And before someone mentions Iraq, please realize that the Iraq expenditure is in the $80 billion range over multiple years (I believe 20)).
In short there is a Social Security budget crisis. And that doesn't even touch on the other demographic bombs waiting in our future: the effect of baby-boomer retirements on the economy (slower growth as experience leaves the market), Medicare (so scary I don't even want to touch it right now), unexpected expenditures (who would guess), or medical advances which make the Social Security expenditures dramatically increase as people live even longer while causing ballooning Medicare expenses (likely I would think).
Posted by Sebastian Holsclaw at March 15, 2004 01:01 PMIn other words Social Security is a Ponzi scheme and should be illegal (at least according to U.S. law).
Posted by: George at March 15, 2004 01:29 PM“He wants America to apologize for responding to a terrorist attack that killed 3,000 innocent, defenseless people”
Please. Everyone supported the War in Afganistan. That war was justified. It’s the unilateral attack against Iraq, without international consensus and without justification that so many of our previous allies now loathe us for.
What you’re trying to do is tie Iraq and terrorism, but there is no such link. When Richard Perle tried to say that on Sunday on Fox News, not even their analysts would let him get away with it. If you are trying to make the same links, then you fall into the same category that most of the upper administration people fall into - people who will say anything, regardless of whether or not evidence supports it, if it is politically expedient.
“Yes Folks, can you believe it, the terrorists were attacking us even before Bush became president.”
There is a right way and a wrong way to fight this war. As I’ve said here before, terrorism is a preemption issue, but it is also primarily an intelligence issue. Rather than destroying governments, we should be working more closely with them so they can provide native speakers, troops, analysis and intelligence to us about terrorists that may be operating in their area. Bombing Iraq’s infrastructure into a Haliburton-ready scrap heap only cemented anti-american hatred, and decreased international assistance in the war on terror.
“…sniveling liberals…”; “…ridiculous rhetoric of the whining liberals…”; “
Messenger not the message, eh? Please acquaint yourself with the titlebar on your browser right now.
I feel weird somehow for even responding to this.
Posted by: Gaelen Burns at March 16, 2004 09:53 AMI am a pretty solid Liberal on a lot of issues, but Social Security is one area that I think the Democrats are wrong. Unfortunately, I’m not convinced the Republicans are right, either.
The big problem is that both parties are playing politics with the issue when mathematical reality is on its way. With the demographics changing, we have to make significant changes to our Social Security program, and the sooner, the better. Options include means testing, lowering benefits, delaying retirement age, and raising the cap on taxes. I agree that the Democratic opposition to means testing is faulty, but I know that Republicans would complain just as loudly about raising the payroll taxes.
I like the idea of keeping a social safety net for those who truly need help, but Americans are a lot richer and live a lot longer than they did when the program was founded. We need to change the program.
For all the ridicule Gore received on the “Lockbox”, there is a point there. The Bush tax cuts were the wrong approach at a time when a looming financial crisis nears.
I can’t believe I agree with Sebastian :)
Posted by: LawnBoy at March 17, 2004 12:59 PMEven with the fiscal mess made by Republicans, Soc. Sec. is not, as Sebastian says, about to run deficits in the near future. The deficits don’t begin for about another 18 years. LawnBoy’s comments above are quite appropriate. There is still time to make some relatively modest changes to the program now, to make it capable of handling the baby boom generation. Of course, this presupposes the Republicans and their deficits are kicked out of office.
Posted by: David R Remer at March 17, 2004 09:26 PMWhat about thinking on investing part of the money collected in other ways than bonds. How about if we start teaching our children now how to save money that will be an intersting course in school. How about the government, no matter Republican or Democratic manage to lower our medicine and treatment costs for our citizens by persuading the big pharmaceuticals, no of course this would not happen because most of our senators receive a nice under the table salary to maintain this megacompanies do what ever they want. How about stop using Social Security Funds to fund a 12 year superhelicopter that never worked. Think how many programs we could have in our national defense running and being fund by our SS tax and we dont even know about them. The problem is the malfunction and wrong used of the Social Security Fund if you want to call it like that. And now when is time of elections everybody take its out to the sun. Is time to do cuts, changes , penalize the wrong doing and start working for the security of this fund
Posted by: Glen Wickersham at April 8, 2004 12:43 PMDear Madam or Sir:
Would you recommend that we renounce all of the Federal obligations as well as trade deficits???
My understanding is that if the contributions (FICA/SS) had been responsibly managed, we would not now be faced with this crises.
Even, now, a 5 trillion surplus has by actions of republicans be turned into a 5 trillion deficit??? Indeed, this is reckless greed at it’s worse.
Posted by: Alex Hamil at April 23, 2004 01:20 PM
