Social Security debate: Numbers versus semantics

It’s long been my belief that the foes of Social Security reform do not want to debate the issue on facts or statistics. Instead, they’d rather use superheated demagoguery and populist rhetoric to avoid dragging a 1930’s program into the 21st century.

Today on Real Clear Politics, a post was titled: “Social Security in Crisis?” On the “yes” side is James Glassman writing in the NY Post while Paul Krugman in the NY Times declares “no.” Compare and contrast the two articles. Glassman’s is packed full of statistics on declining worker-to-retiree ratios, on rising life expectancies, on 401(k) participation and return rates, on projected rates of return on Social Security benefits, etc.

Meanwhile, that dismal economist Krugman plunges into a semantic jungle that is impenetrable:

So where's the imminent crisis? Privatizers say the trust fund doesn't count because it's invested in U.S. government bonds, which are "meaningless i.o.u.'s."

The short version is that the bonds in the Social Security trust fund are obligations of the federal government's general fund, the budget outside Social Security. They have the same status as U.S. bonds owned by Japanese pension funds and the government of China. The general fund is legally obliged to pay the interest and principal on those bonds, and Social Security is legally obliged to pay full benefits as long as there is money in the trust fund.

In other words, Social Security is in great shape because the federal government has to pay back all those I.O.U.s – fine. But starting in 2018, when Social Security expenditures outstrip taxation income, the black hole of entitlements will take a larger bite out of the general budget every year until it is swallowed whole. In other words, the fiscal crisis is already in motion whether we’d like to call it an “entitlement crisis” or a “budget crisis,” as Matt Hoy noted:

When the government starts having to pay those government bonds that the Social Security "Trust Fund" is holding (and it's holding a lot of them), where does that money come from? It comes from the general budget. When that happens, Social Security, which has helped cover the government's excessive spending, starts becoming another drain on the budget. You can call it a "Social Security crisis," or you can call it a "general fiscal crisis" -- the labels are meaningless, the effect is not. Beginning sometime in the next decade, the government will have a new, mandatory (as Krugman rightly points out, the federal government will not default on the bonds) spending program that will continue to grow.

In the conclusion of today’s column, Krugman promises in future articles to “outline a real plan to strengthen Social Security.” I can’t wait. My guess - and I’m going out on a limb here – is that it will involve higher payroll taxes.