Regular AB readers know I often link to the blog of Dean Baker. Dean has said something I often try to get across, but he is so eloquent here that we just give him the microphone:
Since the “entitlement” cutters seem to be on the warpath again, it might be time for another sermon on the Social Security trust fund. This one really should not be hard, but I am afraid that that there are many powerful people with a vested interest in creating confusion, and they have succeeded.
In 1983, Congress (following the recommendation of the Greenspan commission) deliberately raised the Social Security tax far above the level needed to pay current Social Security benefits. This led to a large surplus. Under the law, this surplus must be used to buy U.S. government bonds. Also, under the law, the bonds held by Social Security are liabilities of the federal government, just like any other bonds. When the program needs the money from the bonds to pay benefits, it can rely on the interest and eventually the principle from these bonds, just like any private pension or individual.
Note, that there was never any rule that any Social Security only gets government bonds if the government runs a surplus. In other words, from the standpoint of Social Security, it matters not an iota that the government has mostly run deficits for the last quarter century. This may have been bad policy, but it doesn’t affect the size of the trust fund.
The most recent projections from the non-partisan Congressional Budget Office show that Social Security will have enough money between projected taxes and the bonds in the trust fund to pay all benefits through the year 2046, with no changes whatsoever.
This is very important to understand when someone like Federal Reserve Board Chairman Ben Bernanke proposes cuts to Social Security. Workers have already paid for these benefits. The Social Security tax is very regressive. Its regressivity can be justified by the progressive payback structure of the program. However, if the benefits are cut, at appoint when the program can still easily afford the benefits (e.g. 10-20 years), then the government has effectively stolen from the people who paid Social Security taxes.
There are many people who want to do this – effectively default on the government bonds held by the Social Security trust fund. If this default is now on the national agenda, then it certainly seems reasonable for the workers who are losing their benefits to raise the prospect of defaulting on government bonds more generally. After all, what can possibly be the rationale of only defaulting on the government bonds held by workers through the Social Security trust fund, but not defaulting on the government bonds held by the wealthy people who think this is such a good idea?