Friday, March 25, 2011

How Social Security dies by torpor

Writing in the WashPost, Social Security trustee Charles Blahous lays out a credible scenario on how an unreformed Social Security could die by inaction:

If we delay until 2031, taxpayers would already be providing $280 billion annually in additional general revenue (read: income taxes), just to redeem trust fund bonds and to keep benefit payments flowing. These obligations of general revenue would be nearly as great as the amount required to fix the shortfall after 2037.

Given those circumstances, what would legislators do? Would they impose sudden benefit reductions and tax increases more than three times larger than in 1983, to preserve Social Security’s continued ability to finance itself? Or would they shrug and say, “Well, general-income taxpayers are effectively subsidizing Social Security already. Let’s just formally have them keep doing it.”

The answer seems obvious. Faced with a choice between wrenching benefit cuts and/or payroll tax increases vs. tearing down the wall between Social Security and the rest of the budget, legislators will tear it down.

And that would be the end of Social Security as we know it. No more separate trust fund. No more special parliamentary protections. No longer would benefit payments be shielded from the chopping block by the rationale that they were funded by separate payroll tax contributions. Social Security would be financed from the general revenue pool, and its benefits would thereafter have to compete with every other federal spending priority.
Remember how we've been told that those Social Security bonds are real and not an accounting trick? OK, let's assume that's true. It's 2037 and the Trust Fund is depleted and the Social Security administration can only pay out what's coming in through the payroll tax, meaning that everybody get an automatic 25% benefit cut. I wonder how the popularity of the system will fare after millions of workers do the math to find they've been duped into a giving the government a multi-decade free loan with a negative return on investment.

So, go ahead and do nothing.

ExtraHot Air: "Democrats appear to belatedly awakening to this very danger."

1 comment:

Alf Landon is right! said...

From the Republican platform:
"The so-called reserve fund estimated at 47 billion dollars for old age insurance is no reserve at all, because the fund will contain nothing but the Government 's promise to pay, while the taxes collected in the guise of premiums will be wasted by the Government in reckless and extravagant political schemes."

That was in 1936.