Alas, he was not talking about the General Fund (GF) issue but rather the Social Security Trust Fund (SSTF) issue. The President’s weekly Saturday radio addresses have alas been a time for either really dumb or dishonest statements –with the latest being both dumb and dishonest:
The Social Security system is essential, yet it faces a deepening long-term problem. While benefits for today’s seniors are secure, the system is headed towards bankruptcy down the road. If we do not act soon, Social Security will not be there for our children and grandchildren…Today, Social Security is not a personal savings plan. There is no account where your money goes to earn interest. Benefits paid to today’s retirees come directly from the taxes paid by today’s workers … These changes single a looming danger. In the year 2018, for the first time ever, Social Security will pay out more in benefits than the government collects in payroll taxes. And once that line into the red has been crossed, the shortfalls will grow larger with each passing year. By the time today’s workers in their mid 20s begin to retire, the system will be bankrupt, unless we act to save it. A crisis in Social Security can be averted, if we in government take our responsibilities seriously, and work together today … we must not increase payroll taxes, because higher taxes would slow economic growth.
Four points: #1 – I seriously doubt anyone at the CEA told him that being honest to workers about having to fully fund their retirements will lower long-term economic growth so in what sense which hack told him this: “we must not increase payroll taxes, because higher taxes would slow economic growth”. Isn’t it the claim of Dr. Hubbard and Dr. Mankiw and most economists that higher national savings will increase growth? OK, Ricardian Equivalence types might argue that households are not fooled by free lunch fiscal policy but then they would argue that how we fund SSTF has little effect on national savings.
#2: It is simply not true that we have never seen benefits exceed payroll contributions as one might notice here in table VII.A.2 (Historical Operations of the OASI Trust Fund, Calendar Years 1937-2003). From 1957 to 1962 and from 1975 to 1983, SSTF drew down its accumulated reserves – and there was no declaration of bankruptcy.
#3: For the past 20 years, SSTF has been building reserves which are near $1.5 trillion. AB kindly provided this chart from Brad DeLong, which shows SSTF will continue to run surpluses. In fact, these surpluses will build the SSTF reserves up to near $8 trillion by 2020. It is true that the baby boomers will draw upon these accumulated reserves for the next generation, which is why we are pre-funding our SSTF retirement in the first place. Unless President Bush intends to break the lockbox and divert our retirement funds to pay for tax cuts for the rich.
#4: How can he say with a straightface that SSTF is bankrupt and talk about fiscal responsibility he is allowing the GF to reach an $8 trillion debt projected for the end of this year and run the massive GF deficits Brad’s chart projects? OK, the reserves of SSTF might be draw down to zero by 2050 but most forecasts have the GF debt reaching 200% of GDP by then.
Then again – how can we trust a White House so willing to lie to us? Of course, maybe President Bush believes what he said on Saturday. If so, let me rephrase: how can we trust a White House so misinformed about the issues with our retirement funds?