The SanityPrompt

This blog represents some small and occasional efforts to add a note of sanity to discussions of politics and policy. This blog best viewed with Internet Explorer @ 1024x768

Friday, January 21, 2005

Does Social Security Really Face an $11 Trillion Deficit?

FactCheck.Org, that organization which received a lot of publicity during the campaign when Dick Cheney mistakenly directed people to another website which called for defeat of the Bush Cheney ticket, has an interesting post regarding Republican claims that Social Security faces an $11 trillion deficit.

It turns out that this deficit is spread out over an infinite horizon. In fact, over the next 75 years, the deficit is likely to be 3.7 trillion dollars. The website argues that the $11 trillion figure is potentially confusing. But it's more than that - it's downright misleading. An infinite horizon isn't even theoretically possible since the life of the sun is a finite number. The probability of an asteroid hitting the earth between now and the end of time and obliterating all life as we know it is probably close to 100%. An infinite horizon requires so many assumptions about demography and history which could easily be overturned over the next 100 years so as to be rendered moot. What is most ironic about the $11 trillion figure is that Bush is willing to look infinitely into the future with regard to Social Security but won't look past tomorrow with regard to global warming.

There exists no logical, moral or scientific basis to make policy on the basis of an infinite horizon.

There is a growing consensus among the punditry that Democrats cannot oppose Bush on this by just saying no and arguing for the status quo. It seems the punditry have bought into the crisis talk. Instead, the reasoning goes, Democrats need to come up with an alternative and more viable proposal. This requires that you accept the crisis talk. But again, the crisis they are describing happens almost 50 years from now according to the Congressional Budget Office. Is something that is projected to happen in 50 years really something that is in crisis?

Hidden behind all of this is a truth Republicans don't want to admit. Ever since the mid 1980s we have been financing government activity through the payroll tax by using the Social Security surplus to reduce the apparent size of the deficit. The Social Security surplus that has been accumulating since the 1980s doesn't run out until 2052. What happens in the much discussed year of 2018 is that Social Security revenues will no longer exceed expenditures or outflows so the Social Security Administration will have to dip into the surplus to pay out benefits owed.

The real policy problem is the deficit problem. Because the surplus isn't sitting in a bank somewhere -- Thanks to Alan Greenspan's support for the Bush tax cuts and opposition to investing the surplus in economic investments such as the stock market and private bond market. Instead, Congress will have to use general revenues to pay out these obligations. Here the problem becomes obvious,

We don't have a social security crisis, we have a general revenues crisis and the solution is to address the budget deficit not the supposed 'Social Security shortfall.' The true problem is that general expenditures by the government far outstrip general revenues -- government income derived from income taxes and other taxes and fees. The crisis everyone fears is when that surplus disappears and no longer helps them hide the deficit and when they have to raise more in general revenues than they plan to spend in general funds.

I earlier wrote along the lines of the punditry that Democrats had to come up with an alternative to the Bush plan on Social Security since this also addresses a fundamental problem people have with our Party -- that we just don't stand for anything but the status quo and a few special interests and that we pander.

I have now come to believe that Democrats should cast this debate in this way -- that we really face a general funds crisis and need to get our fiscal house in order. As a Party we have no obligation to come up with an alternative Social Security proposal. I can't recall the Republican plan on health care that was posed in response to the Clinton plan. Besides, imaginable alternatives to lessen any possible crisis in the middle of the Century are easy enumerate -- a minor increase in the payroll tax, a gradual increase in the retirement age or age of vestment, and removing the cap on income subject to the payroll tax.


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