2018: A fiscal Odyssey into the red

Have you ever seen the movie “2010” based on the book by Arthur C. Clarke (the follow-up to “2001: A Space Odyssey”)? Earth is on the brink of global war but then the aliens turn Jupiter into a star and make it extra-double-clear to humans that they better cut the crap (oh, and stay off Europa).

Now, on the cusp of a monumental shift of the population into retirement, the NY Times and the Democrats are insisting that there is no Social Security crisis – that it’s all just a construction of the evil Bush White House. Paul Krugman sits back and declares that the promissory notes in the Social Security “Trust Fund” are just as good as cash and everything’s cool.

But, starting in 2018, when that Trust Fund starts cashing in I.O.U.’s, the burden on Americans will be as crushing as the gravity on Jupiter:

In 2018, the first year that Social Security will run a cash deficit, that shortfall will be approximately $16 billion, or roughly the equivalent of the current budgets for Head Start and the WIC nutritional program. In another two years, Social Security's shortfalls will nearly exceed those two programs, plus the Departments of Education, Commerce, Interior, and the Environmental Protection Agency. By 2030 or so, you can throw in the Departments of Energy, Housing and Urban Development, and Veterans Affairs. And the biggest deficits would be still to come.

Or, if you would rather look at it in terms of taxes, in the first year after Social Security starts running a deficit, the government must acquire revenues equivalent to nearly $200 per worker. By 2042, the additional tax burden increases to almost $2,000 per worker, and by 2078 it reaches a crushing $4,200 per worker (in constant dollars). And it continues to rise thereafter. Functionally, that would translate into either a huge increase in the payroll tax, from the current 12.4 percent to as much as 18.9 percent by 2078, or an equivalent increase in income or other taxes.

Houston, we have a problem. We can try to do something now and spread the pain over thirteen years or we can turn off the klaxons and blithely declare “There is no crisis.” Guess which path the Democrats will take:

Like numerous Republicans, Senator John Sununu of New Hampshire said in an interview that he has been surprised by the Democratic strategy of charging that Bush is manufacturing a crisis in Social Security as a ploy to garner support for private accounts.

"I didn't expect a wing of the Democratic Party to respond by saying, 'This really isn't a problem.' It is very hard to sustain that argument," Sununu said.

“Open the pod bay doors, HAL.”