Another Economist Blog on Social Security
The very good discussion of the Social Security issue between Andrew Samwick and Max Sawicky has been extended as Andrew and Max point to this contribution from David Altig.
David’s blog will become a must read for me – and his point is simply that the timing of spending versus tax receipts is less important for the solvency of a fund than their present values if long-run solvency is the concern. If the Social Security Trust Fund will not be asked to bail out the General Fund, then its shortfall = 1% of GDP over the long-run could be readily be addressed by modest cuts in benefits. The problem, however, is that the Bush Republicans have neither the will to raise income taxes nor plans to reduce Federal spending in any other meaningful ways. And since the General Fund shortfall = 3% of GDP, a massive reduction in Social Security benefits would be needed if the Trust Fund is to bail out the General Fund. Solvency issues aside, the Bush Republicans are paying for income tax cuts with increases in employment taxes. In other words, the big issue is the implied redistribution of the tax burden from owners of capital to workers.