The multi-trillion surplus that must never, ever be used
Way back in 1983, corporate media helped sell the dubious notion that Social Security needed saving by a blue-ribbon commission (Extra!, 1-2/88). The panel—headed by future Federal Reserve chair Alan Greenspan—raised payroll taxes and the retirement age for the ostensible purpose of accumulating a large surplus to help finance the retirement of the baby boomers born between 1946 and 1964. That this surplus, loaned to the general federal budget in exchange for Treasury bonds, would also help to finance the Reagan-era tax cuts for affluent taxpayers was treated as a complete coincidence.
Twenty-seven years later, the baby boomers are retiring on (delayed) schedule, and Social Security has accumulated the projected surplus—some $2.5 trillion. But now that it’s time for wealthy taxpayers to pay back the money that the Treasury borrowed from the Social Security program, suddenly Social Security needs “saving” once again. The new twist is that the use of the trust fund that had previously been the mechanism by which it was “saved” is now the chief indication that the program is in dire danger.
When Social Security, its cash flow pinched by the deep recession, made its first modest withdrawals this year, CNN’s Wolf Blitzer (8/5/10) announced: “Social Security reaches the final financial tipping point. The system is now paying out more than it’s taking in. Will Washington do anything anytime soon to fix this problem?” The Washington Post sounded an alarm in a front-page news story (4/8/10) by Neil Irwin and Lori Montgomery:
Social Security is draining resources from the broader federal budget, as spending on benefits has risen above this year’s Social Security tax collections. Although that gap is expected to be fleeting, the program, the largest single item in the federal budget, is projected to require sustained support within the next 10 years.
Social Security is “draining resources” from the government in the same sense that you “drain resources” from your bank when you make a withdrawal from your savings account. Perhaps getting some push back on the idea that it’s somehow illegitimate for the retirement program to make use of the funds it had banked with the Treasury specifically so they would be available now, Montgomery included a contrary view in a later piece (6/9/10)—immediately followed by a rebuttal from “many budget experts”:
The program’s defenders argue that there is no crisis: If Treasury would repay billions of dollars in surplus Social Security taxes borrowed over the years, the program could pay full benefits through 2037. But many budget experts question whether supporting the existing benefit structure should be a cash-strapped nation’s first priority.
Those same “budget experts” also told Montgomery that “it would be difficult to significantly reduce future deficits without addressing the rising cost of Social Security.” Actually, the long-term additional requirements of Social Security are fairly modest—the program’s trustees project that it will need an additional 1.4 percent of the nation’s GDP by 2085. By comparison, personal income taxes went from 8.0 percent of GDP in 1995 to 10.2 percent in 2000; corporate income taxes went from 1.2 percent in 2003 to 2.7 in 2007. Such changes do not require wrenching economic adjustments—but if keeping taxes low, which is to say ensuring that the nation continues to be “cash-strapped,” is your “first priority,” then refraining from cutting Social Security is indeed difficult.
But corporate media outlets—which, after all, pay corporate taxes and are mainly owned by people who pay the top income tax rate—seem reluctant to acknowledge that the long-term Social Security choices are between cutting income for the elderly and modest tax increases. Instead, they prefer to frame it as a debate between “budget experts” and, well, ninnies. A news article by the New York Times’ Matt Bai (8/26/10) addressed
the idea that Social Security is actually in fine fiscal shape, since it has amassed a pile of Treasury Bills—often referred to as IOUs—in a dedicated trust fund. This is true enough, except that the only way for the government to actually make good on these IOUs is to issue mountains of new debt or to take the money from elsewhere in the federal budget, or perhaps impose significant tax increases—none of which seem like especially practical options for the long term. So this is sort of like saying that you’re rich because your friend has promised to give you 10 million bucks just as soon as he wins the lottery.
Aside from the notion that government bonds are “often referred to as IOUs”—it would be very strange to see such a reference when the subject was not Social Security—perhaps the oddest thing in this passage is the comparison of counting on the U.S. to honor its financial obligations to a fantasy that your friend might win the lottery. It’s really more like hoping that your billionaire friend pays back the millions of dollars he borrowed from you—which he certainly ought to do, even if it might not be his “first priority.”