I’m always astonished how so many people can think that Iraq had anything to do with 9/11, that the sun revolves around the earth, or that intelligent design is a valid theory. Another idiocy that can joined this esteemed list is the belief that Social Security will go bankrupt.
Bob Kerrey and Warren Rudman have an op-ed piece in the Washington Post about getting the deficit under control where once again they claim that entitlements are going to increase out of control. First, they confuse the issue by conflating (and combining) Social Security and Medicare. This is incredibly disingenuous, since Social Security combined with any large government program will run at a deficit. By the same logic, the
War Defense Department and Social Security combined also run at a deficit, and consequently, defense spending should be brought under control (which actually wouldn’t be a bad idea…).
What’s even worse is that Kerrey and Rudman both misrepresent the health of the Social Security system, which is much stronger than they claim (Medicare is a different story). As I once wrote (and economist Dean Baker described in his book “The Phony Social Security Crisis”):
For a long time, the accepted wisdom has been that social security will go bankrupt. If you read the report, that’s simply not the case. Barring a sustained, decades-long economic collapse (average growth of less than ~1.7%), social security will be able to meet its obligations: in the worst case, a slight increase in the tax rate is needed. If we removed the cap on taxable income, the needed increase in GDP for sustainability is even lower. In other words, the revenue generated by social security will meet all expected payouts.
What scares the hell out of most politicians is that, as the baby boomers retire, the social security surplus will diminish. Why does the surplus matter? Last year, the surplus was around ~$200 billion dollars. That money doesn’t get tucked under a giant mattress out at Area 51-instead, it is borrowed by the federal government (i.e., turned into T-bills). In other words, the social security surplus is the world’s largest municipal bond issue.
Now what does $200 billion mean? If you take away all of the mandatory payments (debt relief, medicare, social security, etc.), the entire rest of the federal budget is a little over $800 billion (I’m leaving out Iraq for now). Roughly $400 billion is spent on defense, and the other $400 billion on everything else. Imagine if tomorrow morning the $200 billion surplus vanished. If cutting defense is assumed to be a political kiss of death, that means all other discretional spending would have to be cut in half: medical research, the Justice Department, the CDC, and education, just to list a few things.
This is why in 1986, Democrats and Republicans voted for the social security hike. Sen. Moynihan always admitted that this was a backdoor (and regressive) way to generate revenue and keep the government solvent. To put it another way, currently, the federal government is running a deficit that ~$200 billion dollars higher than stated. Instead of cutting spending or increasing taxes, many politicians have decided to balance the budget on the backs of the most vulnerable: the financially strapped elderly and the disabled. (Where are the “values” people when you need them?)
So why are Democrats and Republicans predicting the immenent collapse of social security? For the Democrats (and many Republicans), the reason is simple: they want the revenue and do not want to suffer the political fallout from raising income taxes (or other taxes). This why we keep hearing about social security lockboxes, tackleboxes, lunchboxes, and boomboxes. For the Republicans, some want to privatize everything (including your financial security); this is just part of the ideological program. Other Republicans just don’t like safety nets.
I would take whatever agenda Kerrey and Rudman are pushing much more seriously if they were honest about the future of Social Security.
an aside: Kerrey and Rudman also claim that interest payments will spiral out of control. A primary source of interest payments, of course, is the deficit, which if current trends continue, will also increase. Funny how they don’t really talk about that…