Dec-15
2004
The Social Security Debate
Topic: Politics 2004
Reviewing the debate between the Left and the Right on Social Security reform leads me to conclude that both sides are handling it irresponsibly. Paul Krugman and Kevin Drum are good representatives for the argument from the Left: that it’s a false crisis, as Social Security will be solvent until 2042, even if we do nothing. Bush makes the opposite case, arguing we will hit a financing crisis in 2018.
What both sides are dancing around is the real problem: Al Gore wasn’t elected in 2000, and we didn’t get his Social Security “lockbox.” The following excerpt from this January 2004 Slate article makes clear why the Republicans don’t want to talk about the real reasons for Bush’s plan:
Back in 1983, as part of a deal to save Social Security from impending demographic doom, Congress enacted legislation to essentially increase payroll taxes and reduce benefits. As a result, the government began to collect more Social Security payroll taxes than it paid out to beneficiaries each year. The theory was that the government would use these surpluses to pay down the national debt. That way, when baby boomers retire—and comparatively more people are collecting benefits while comparatively fewer people are working—the government would be in a better position to borrow the necessary funds to provide the promised benefits.
So much for theory. The reality? For the first 15 years, every penny of the surplus was spent, first by Republican presidents and then by a Democratic president… It was only in fiscal 1999 and 2000, when the government ran so-called on-budget surpluses, that excess Social Security funds were actually used to retire debt… Bush (who had the good fortune to take office at a time when the surpluses were growing rapidly) and Congress used $480 billion in excess Social Security payroll taxes to fund basic government operations—about $160 billion per year!
By so doing, Washington spenders have masked the size of the deficit. For Fiscal 2004… if you factor out the $164 billion Social Security surplus, the on-budget deficit will be at least $639 billion [not the approx. $500 billion claimed by Bush]…The accounting for Social Security surpluses has always been dishonest. But in the past few years, the Bush administration has made this shady accounting a central pillar of its fiscal strategy.
I think the Left has correctly ascertained the motivations of the conservatives: the eventual abolition of Social Security. While they’re right to call them on it, the Left has made a mistake in denying there’s a problem. Buying Krugman’s and Drum’s argument requires you to either not know what I’ve just reviewed, or to believe that there’s some magical way the payroll tax revenue already spent to mask the size of the federal deficit can be repaid to Social Security beneficiaries without assuming a crushing load of debt.
If the Democrats acknowledged the problem, of course, that would lead to the requirement of offering a counter-proposal to Bush’s. Unfortunately, at this stage it would be difficult to come up with one, because once again the Republicans have beat them to the punch in framing the debate. Given the misuse of the payroll tax money for the past 20 years, the only options at this point are either reducing the government’s long-term commitments to the program (which is essentially what Bush is proposing, but with massive transition costs to a private accounts scheme along the way), ballooning the federal debt to an unprecedented and unsustainable degree down the road, or coming up with a new tax scheme and saying “trust us to not blow it this time.”
The Democrats could have gotten out in front on this issue – it’s not like they didn’t know Bush was going to move on this in his second term. If they had, they could have framed it as an issue of overall fiscal responsibility, and laid much of the blame where it belongs: at Bush’s feet. Then they would have had a shot at making the case for an overhaul of Social Security funding: with a real “lockbox” and revenue from something like a VAT (as Kevin Drum suggested). The American people can handle – and would respect – some straight talk, but neither side is giving them that right now (and the press has been particularly abysmal, merely parroting what each side is saying). I mentioned in an earlier post that the Democrats must become the Party of fiscal responsibility, since the Republicans no longer are. If they talked frankly about how we got into our current mess, and offered some real ideas on what to do about it, that would start giving them some real credibility on fiscal matters. But as far as Social Security is concerned, I’m afraid they may have already missed the boat.
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