More on the Social Security "Crisis"

Jay Bookman:

Back in 1983, Alan “the Maestro” Greenspan, Ronald Reagan, Tip O’Neill and others cut a deal of short-term political genius. At the time, the recently enacted Reagan tax cuts for high-end earners were creating huge budget deficits, and action needed to be taken. Meanwhile, Social Security needed additional revenue and benefit changes to keep operating long term. Somewhere in that mess were the makings of a deal.

Under terms negotiated by the Greenspan Commission, Social Security payroll taxes on low and middle-income workers were raised significantly, high enough to start building a significant surplus in the trust fund. The idea was that the surplus, added to year after year, would grow so large that it could later be tapped to fund retirement payments to the Baby Boomers.

But in the second part of the deal, that “surplus” was then immediately spent, year after year, to help disguise the impact of the Reagan tax cuts. It was a nice little shell game, in which income and capital gains taxes were cut at the high end but raised in the form of payroll taxes on the middle and lower income workers. And all the lower and middle income folks got were government IOUs stacking up in the Trust Fund where the surplus was supposed to be.

It was all a fiction, and inevitably, that kind of game comes to an end. (See: Madoff, Bernie.) Thanks to the recession, the endgame is now predicted to occur in 2016, a year earlier than had been projected. Seven years from now, payouts from the Social Security trust fund to retiring Baby Boomers will finally begin to exceed the tax revenue that flows into the fund from payroll taxes. To pay those benefits, Social Security will then start to draw on the massive “surplus” it has allegedly been building the past 26 years, a surplus that in reality has been spent on other things.

That is now said by some to have created a “Social Security crisis.” That is absolutely incorrect. (The Medicare crisis, on the other hand, is all too real. But that’s another topic.) Unless the feds intend to renege on those IOUs in the Trust Fund, Social Security itself is pretty sound, able to pay 100 percent of benefits until at least 2037 and, with some relatively minor tinkering, well beyond that as well.

If anything, what we have here is a looming general government revenue crisis. It’s the dreaded double whammy: The annual Social Security surplus is disappearing, forcing us to confront the true size of our deficits, and all those IOUs will now have to be paid back.

It is not, under any rational definition, a Social Security crisis. Those who describe it in those terms are attempting to mislead. The system has done its part under the 1983 deal; it is simply time for the rest of government to perform its part

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