Social Security’s Three Challenges (not Crises) and Why the Right is in a Box

{Cross posted from dkos Social Security Defenders Group}

If we back up a bit and examine Social Security absent the lenses of the various economic and ideological stakeholders, it is clearly not in crisis. But it does face challenges, or at least one challenge viewed three different ways.

The challenge is stated pretty simply: under current law and current intermediate economic and demographic projections Social Security’s income from all sources is projected to fall short of costs under the scheduled benefit in the late 2030s. But that is the last point of agreement in this debate and even that overstates the confidence in those projections. But ‘Intermediate Cost’ is at least a common point of departure.

The basic challenge as stated assumes that the assets in the Trust Fund both as to principal and interest will be available as income and will serve to backfill tax revenue until assets are depleted, after which current law mandates that benefits be cut to match then current revenue. Which under current projections means a 22% cut compared to the baseline. But this is where views of the challenge diverge dramatically, and so suggestions of what to do about it. Wonkery below the fold.

Supporters see the challenge as the cut in benefits itself and so frame solutions in the of better outcomes after 2038. That is one challenge.

One the other hand one group of critics see the problem as being in the benefit schedule itself which they see as overgenerous and so frame solutions in terms of keeping future retirees from demanding a 100% of schedule result, even as they may not openly advocate the 78% result current projections give us.

Which puts the two solution sets in dynamic opposition, with supporters wanting to drag 78% up and critics wanting to drag 100% down.

But a second, overlapping set of critics see the challenge in more immediate terms, for them the problem is paying down the current obligations of the Trust Funds, which in their more charitable public moments they express in terms of avoiding crowding out other spending, but in their more candid moments is revealed to be our old friend tax avoidance.

Which is why Republicans are in a box. There is no question that Trust Fund assets are a legal obligation under current law and backed by Full Faith and Credit, legalistic arguments that they have no real economic value, or that one part of government can’t ‘really’ owe another part, or appeals to Flemming v Nestor running into rock of law and historic and current practice, in fact the Disability Insurance Trust Fund is busily cashing in large chunks of its principal as we speak, just as both Trust Funds did throughout the 70s until the Funds went to near zero in 1982.

The box takes form. While it is reasonable to make the economic case that the projected scale of Trust Fund asset redemption on a year to year basis at some point becomes so onerous that it makes sense to stretch it out, that would require actual numbers for the years 2011 to 2037. Because for this group a policy of ‘Nothing’ simply brings forward their own ‘Tax Freedom Day’, for them Trust Fund Depletion is the equivalent of burning the mortgage, while any cuts in benefits prior to 2037 just extends the life of the Trust Fund and so their payments. Their only total escape is to cut benefits and shift taxes downward so dramatically that they never have to pay anything back, and so in effect abrogate the Trust Funds completely. Which gives them a teensy problem of buy-in, particularly if the end result results in a worse than 78% outcome that a policy of ‘Nothing’ provides.

Because 78% provides a kind of lower bound here and ‘reformers’ are faced with supplying numbers that show that in real terms their ‘Something’ provides a better real outcome for the grandchildren they profess to be worried about.

We know what it would cost right now if we left the system untouched and filled the projected gap by tax increases on people earning under the current cap schedule. We have the numbers and the dollars per week per worker and remarkably it turns out to be couch change, and CBO has confirmed the numbers of similar tax based plans. Or we could agree to split the difference and only take an 89% solution. But any solution that doesn’t provide a 78% plus outcome on net for those future taxpayers and retirees across the board should be rejected.

Graham made an appeal to that 78% number as something to be avoided, yet there is no plan currently on the board that delivers a better result for workers at a lower cost than ‘Nothing’. Maybe they can sell a straight out proposal to ‘reform’ Social Security by cutting benefits so as to fund tax cuts for billionaires and just be willing to take the political heat a naked CBO score would supply. But I don’t see it, which is EXACTLY they attempted to sneak Social Security into some packaged ‘Grand Compromise’ via the Catfood Commission and now the C.R. and Debt Limit showdowns, and why the Dems move to build a wall of separation this week are so important.

Because if they want a straight up and down fight over the economics and financing of Social Security based on actual cost and outcomes for a huge majority of Americans, we got the numbers and they just don’t. They were just hoping that people wouldn’t understand that in the Republican dictionary ‘shared sacrifice’ means ‘workers sacrifice, capitalists take shares in the result’.

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