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Defining the Crisis
Posted by: Jon Henke on Thursday, January 20, 2005

Linking this post, the Mother Jones Blog presents the case for "There Is No Crisis"...
By the program's own "intermediate projections," Social Security will remain solvent for nearly 40 more years—and that's assuming a fairly low rate of growth and whatnot. And even if those pessimistic assumptions prove correct, when 2042 rolls around the program will still be able to pay out benefits that are 20 percent higher in real terms than they are today. The checks will never stop coming.
[...]
While we're all pondering that one, by the way, notice that the federal government is running unsustainable deficits right now, not 40 years out.
You know what? I agree with every word written above.
  • There is no current crisis.

  • Social Security will continue to pay out funds for the foreseeable future.

  • Even when the Trust Fund runs out, Social Security will continue to pay benefits.

Indeed, since the US Treasury is required by law to honor the securities they exchanged for the Trust Fund surplus, there's simply no significant chance we won't be able to pay those debts. Not enough money? Hell, the Treasury prints the stuff. And beyond the solvency date for the Trust Fund, we're still dealing with sufficient revenue to cover ~80% of projected benefits due.

So, if the Trust Fund IOU's are going to be there, and the long-term problems are only going to have a marginal effect on payouts, what's the urgency?

Aye, there's the rub.

So far, Democrats and Republicans have been talking past each other. Democrats can claim there is no crisis because the US government can--and will--continue to pay its obligations. And they'll be right.

But Republicans can point to the projected shortfall, together with the dependency on the IOUs--General Fund spending--and claim there's a significant problem. And they'll be right.

While I agree with much of the rest of their defense of the SS system, I find it substantially irrelevant to the problem depicted by supporters of reform. MoJo Blog goes off the Third Rail when they write...
Yes, there are imminent crises upon us, but they have nothing to do with Social Security.
Oddly, it's Crisis-critic Paul Krugman who--unintentionally, no doubt--points out the fallacy of this artificial bifurcation, when he notes that "we can't have a Social Security crisis without a general fiscal crisis". Krugman, you might also note, called a general fiscal crisis "a real possibility".

Very well. So, we can't have a Social Security crisis without a general fiscal crisis? Well, what if we do have a general fiscal crisis? Then, natch, we have a Social Security crisis.

The relevant Q&A for this debate:
  • Will Social Security be able to pay its obligations for the foreseeable future? Undoubtedly.


  • Is Social Security threatening the economic stability of the United States? No. It's not even the primary fiscal problem.


  • Is the coming Social Security Trust Fund obligation--followed by whatever happens post-2042--going to add debt to a looming general fiscal crisis that is already a "real possibility"? Yes.

The MoJoBlog/Krugman/et al would have us believe that Social Security (which is not in crisis) is an "[obligation] of the federal government's general fund" (which does face a crisis).....but Social Security isn't a part of that crisis. Meanwhile Defense spending, which comes out of the same general budget, is. [Max Sawicky, MoJo, Krugman]

Social Security may not be The Problem...but it certainly is a part of The Problem. That's something the Democrats seemed to understand when Clinton was President. What changed...?
 
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Right. There is a larger problem. But then the issue becomes why the GOP (the ruling party) hasn't done anything about it. Indeed, prior to November 2004 they were only making the problem worse. Remember, it was Cheney who said that deficits don't matter.

It's fascinating, because prior to the election one could not find even one prominent Republican who would admit that the record deficits that the current administration has created over the last several years were indicative of any kind of fiscal problem.

http://www.newsmax.com/archives/articles/2003/6/10/92403.shtml
Think Republicans are the party of small government? Federal domestic spending rose 8 percent from 2001 to 2002, according to the U.S. Census Bureau, at a time when the GOP controlled the White House and the U.S. House.

A decade ago, when Democrats controlled all of Congress and the presidency, spending rose 4.8 percent from 1993 to 1994.

Now the Congressional Budget Office is forecasting a $400 billion budget deficit this year, about 4 percent of the Gross Domestic Product. That could mean trouble for the GOP in elections.

"People think we're increasing spending just for defense," said Brian Riedl, federal budget analyst for the Heritage Foundation. "But Congress has also gone on a spending spree in areas such as education, health research, [$190 billion in] farm subsidies, unemployment benefits, highways and small low-priority programs.

"Really, Congress isn't saying no to anybody right now," said Riedl. Federal spending per American household is now at $21,000 annually, up from $16,000 in 1999, he noted.

The largest increases in fiscal year 2002 federal spending came in the form of programs such as Medicare ($251 billion, up 5.8 percent), unemployment compensation, earned income tax credits and food stamps.

Medicaid payments increased $148 billion (11.1 percent). Federal procurement awards, which include contracts for the Department of Defense, increased by 10 percent.

Although much of the federal budget is effectively on autopilot for programs such as Social Security and Medicare, Riedl and other analysts blame Republicans for ramping up discretionary spending.

"The Republican reputation for being for small government is wholly undeserved," said Riedl. "Republicans are politicians first, and they're trying to spend money to get themselves re-elected.

"The current crop of Republicans is surprising in their lack of principles," he surmised. "They seem willing to spend on any special interest they need to win re-election next year."


(Exactly. But then again, who can trust those left-wing nut jobs at the Heritage Foundation, especially when the source is those commies at Newsmax.)

So now, when the political right tells the nation there is some kind of fiscal crisis, forgive me if I laugh. You can't hope to retain a shred of credibility if you spend like drunken sailors before November 2004 just to get elected and then, after November 2004, claim there is a looming fiscal crisis. It's time for the GOP to get out of the way and let the grownups take over.
 
Written By: mkultra
URL: http://
Great, MK. Make sure you bring that up when you find one of us defending the Bush fiscal policy. Since all three of us have been long-standing critics of his overall policy, I fail to see exactly what your complaint is.
 
Written By: Jon Henke
URL: http://www.QandO.net
Jon -- Like you say, I'm not sure we really disagree on much, but here goes. As we know, the federal government has used payroll tax receipts for its own purposes, and hence has been able to keep income taxes lower than they otherwise would have been over the past 20 years.

So the obvious thing to do is raise income taxes to their rightful level in order to pay back Social Security.

I just don't see why any of this is SS's problem per se, or why it all calls out for a reform that will expand the short-term deficit. At any rate, the debt to SS will amount to less than 10 percent of the deficit in 2018, so we really do have other things to worry about.

By the way, there were many liberals arguing that there was no crisis back in Clinton's day. Mother Jones, for instance. TAP for another. I don't feel at all bound by Clinton's demagoguing on the subject, and don't see why that's at all relevant. Lots of Democrats think different things, it's funny.
 
Written By: Brad Plumer
URL: http://plumer.blogspot.com
So the obvious thing to do is raise income taxes to their rightful level in order to pay back Social Security.

That's certainly one thing that can be done, but just because something's obvious doesn't make it the best solution. There are other ways:

We could cut federal spending to make up for the shortfall.

We could allow more private retirement savings so that less money would be demanded of Social Security in the future (because retirees have their own income and don't need Social Security). Less money demanded of SS in the future means less money Uncle Sam has to come up with. This can be done by either privitizing part of Social Security or expanding the Keogh/IRA/401(k)/et al. savings plans.

I'd go for a combination of those two, but there are still other things we could do. We could increase the payroll tax even further, or eliminate the cap. It's just another tax on income, so it's no different from increasing the income tax, right?
 
Written By: Steverino
URL: http://steverino.journalspace.com/
Recently I read in article (no longer remember where) that Clinton and Bush had become much closer in the past months and that Clinton really admired Bush's political skills. Given that Clinton also felt Social Security was a problem that needed to be addressed, do you believe that he might play a background role in helping the Democratic Party find a compromise solution?
 
Written By: Marlin
URL: http://
Increasing the payroll tax isn't just increasing income tax, Steverino. Payroll taxes are taxes on earned income (as opposed to interest income, investment income, etc.) and so increasing the payroll tax is a regressive way to increase the income tax.
 
Written By: Wacky Hermit
URL: http://organicbabyfarm.blogspot.com
So the obvious thing to do is raise income taxes to their rightful level in order to pay back Social Security.

But it wasn't the level of income taxes which put Social Security in the straights in which in needed to be paid back.

It was a profligate Congress over many decades which did so.

So why are you looking to raise the tariff on taxpayers when taxpayers had no hand in causing the problem?

Oh ... and what is a 'rightful level' as pertains to income taxes? Just wondering.
 
Written By: McQ
URL: http://www.qando.net/
Given that Clinton also felt Social Security was a problem that needed to be addressed, do you believe that he might play a background role in helping the Democratic Party find a compromise solution?

Say what you want about Clinton (and there's a lot I'd like to say, none of it particularly good), he and Hillary stood up on Iraq. It wouldn't surprise me if he stood up on Social Security too. Whether the left drifting Democrat party will pay attention, though, is another thing altogether.
 
Written By: McQ
URL: http://www.qando.net/
WackyHermit, you are correct. But wouldn't raising the entire income tax to pay for Social Security mean that people receiving SS would be taxed (along with everyone else) to pay for the benefits?
Perhaps they wouldn't be taxed on their benefits, but they'd be taxed on all other income.
 
Written By: Steverino
URL: http://steverino.journalspace.com/
Brad - to take your comments out of order:
I don't feel at all bound by Clinton's demagoguing on the subject, and don't see why that's at all relevant. Lots of Democrats think different things, it's funny.
Frankly, it'd be a lot more helpful if you guys would agree to be wrong in unison. Work with me, k? :)

As we know, the federal government has used payroll tax receipts for its own purposes, and hence has been able to keep income taxes lower than they otherwise would have been over the past 20 years.
...or "has been able to keep spending higher", natch.

So the obvious thing to do is raise income taxes to their rightful level in order to pay back Social Security.
Well, as was said by others, there are a lot more options than simply "raise taxes", though--if we assume current levels of Federal budget spending and spending increases will be maintained--that's the only real option.

However, I don't think that's an assumption we should be making. For one thing, I keep going back to Alan Greenspans comment that we cannot raise income taxes sufficiently to cover the structural gap without doing serious harm to the economy. Now, you're (presumably) a Progressive, so you may find that reduced economic growth to be an acceptable tradeoff for more social security and wage parity, but we're Neolibertarian....so, even aside from the ideological/moral case, I/we don't find that an enticing option.

I just don't see why any of this is SS's problem per se
I'm reminded of the 1980s, when defense spending was skyrocketing....along with deficits. Do you think "I just don't see why any of this is a defense spending problem per se" would have been a good critique of deficit hawk calls to reign in defense spending?

Again, the larger problem is the deficit. SS isn't The Problem...but it's a part of it.
or why it all calls out for a reform that will expand the short-term deficit.
Well, you might note that I didn't actually endorse Bush's plan. I do see some value in shifting the responsibility for those benefits to the private market, but the point of this post was to outline the debate and point out where we're each talking past each other.

At any rate, the debt to SS will amount to less than 10 percent of the deficit in 2018, so we really do have other things to worry about.
Of course, thereafter, it will be larger. And when it does become a cost, it ceases to be a source of "free money". Which means we'll be foregoing that extra 100mil spif we've been getting to help us "balance" the budget in the late 90s, and reduce the deficit since then.

It's not just the dollar amount we have to pay from the general fund...it's also the swing from surplus to deficit.

Ultimately, I think this argument really comes down to core ideological beliefs about whether the safety net should be personal responsibility or government - and whether private markets are more efficient than the government. From either side, partisans will be able to point out a cost--there's no getting around cost--so I'm not sure there's going to be a definitive answer.

However, like the welfare reform of the late 90s, I don't think the damage will be anything like what the critics project.
 
Written By: Jon Henke
URL: http://www.QandO.net

 
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