November 21, 2007
The Social Security Non-Crisis
Is there a Social Security crisis? Smart, progressive economists like New York Times columnist Paul Krugman and Dean Baker of the Center for Economic Policy and Research say no. The inside-the-beltway conventional wisdom, represented today by this Washington Post column attacking Krugman by Ruth Marcus, says yes. Who's right?
I'm definitely in the former camp. Here's why.
Since 1983, when the Greenspan commission under (Saint) President Reagan raised the Social Security payroll tax and postponed the retirement for aging baby boomers like me (I can't get full benefits until I'm 66 3/4 in, gulp, less than 10 years), the Social Security system has been running huge surpluses. All of that money has been spent by our government in lieu of raising other taxes. Indeed, under President George W. Bush (future generations, get out your groggers, like Jews do on Purim to drown out memories of Haman), the government gave it away to the rich.
The government then took IOUs and stuck them in the Social Security fund. Beginning around 2017 (and in recent years, that date has been receding), the Social Security fund will have to begin redeeming those IOUs to make all its scheduled payments to a growing number of retirees (yup, you can do the math; that is exactly when I am due to retire). The Social Security fund won't run out of those IOUs until, at last estimate, 2041.
So, if nothing is changed, what will happen after 2017? In addition to financing its routine expenditures without relying on excess Social Security taxes, the government is going to have to begin paying off its Social Security debt. That will require either a) raising non-Social Security taxes (the payroll tax will then all have to go to retirees); or b) selling bonds in the open market, and substituting IOUs to foreigners and rich U.S. investors for IOUs to America's senior citizens. Or a combination of the two.
It could also look at areas of the budget where it could save money. Take the war in Iraq, for instance. There's a couple hundred billion a year that could be socked away for retiring Social Security debt. Or the annual maintenance of the nuclear arms arsenal, whose size, in the absence of the former Soviet threat, only serves to destabilize global politics. Add a few tens of billions there. Or the huge waste in the Homeland Security department, that gives billions of dollars in contracts for electronic eavesdropping but can't seem to find the money or will to require chemical facilities to harden themselves.
Add to this the fact that we have the lowest tax rate in the industrialized world -- taking about 16 percent of gross domestic product while most of the countries of western Europe and Japan -- whose currencies by the way are soaring against our beleaguered dollar -- are five or six percentage points higher (when you take out the differentials for national payments that are picked up by state and local taxes here). The bottom line is that being a "responsible adult," to use Marcus' phrase, means admitting the crisis the U.S. faces isn't in Social Security, it's in government finance, which has been handled in the most irresponsible fashion by a succession of Republican presidents going back to (Saint) Ronald Reagan.
For proof of that, you need only consult these two charts, which document the spectacular rise of debt both in absolute terms and as a proportion of GDP under this president (and Reagan). The only time in the past 30 years when government finances have been handled responsibly was under Bill Clinton.
Source: Boeing engineer Steve McGourty's website.