Since the non-partisan Congressional Budget Office projects that Social Security can pay all future benefits for the next 39 years, with no changes whatsoever, this definitely gives new meaning to the word “looming” or perhaps “insolvency.” The real headline for this article should have been that Fed Chairman Ben Bernanke is apparently suggesting that the federal government default on some of the government bonds held by the Social Security trust fund. That would seem to be the implication of his suggestion that we restructure Social Security and presumably not pay the full benefits mandated under current law.
Well said. Mark Thoma gently suggests the following rewrite of Chairman Ben’s speech:
The Social Security and Medicare problems are not of the same order of magnitude. Draw a sharper distinction and make it clear that Medicare is far and away the biggest worry.
While Mark is being very kind to Chairman Ben, one of his readers (billy) directs us to Brad Setser:
Social Security’s revenues exceed its expenditures – and will continue to do so for several years. Its financial assets are growing – they will top $2 trillion at the end of this year. Sure, it will need to draw on the interest on those assets in about ten year – and a few after that, it will need to tap the principal as well. But wasn’t that the point of building up the Social Security system’s assets? Consequently, I don’t see why 2017 is a date that causes the social security system any trouble …
Brad later notes in the comments:
One part of the federal government (soc sec) set aside $10 out of its current revenue. Another part (the rest of the gov) spent $10 more than it took it. The rest of the government promised to repay social security with interest … at some point this will simply be reversed. the rest of the government will pay Social security $10 back plus interest (or borrow the funds needed to repay social security from the private market). The social security surplus that finances a deficit elsewhere in the government will turn into a social security deficit financed by a surplus elsewhere (or my external borrowing). Why does the internal accounting matter? Simple – different parts of the government have different revenue sources. Social security is financed by a flat payroll tax up to a cap. That’s regressive (Soc sec benefits/ insurance is, by contrast, progressive). The rest of the gov. is financed by a progressive income tax. The increase in the regressive payroll tax to build up the trust fund (keeping the progressive income tax or the deficit lower than it otherwise would have been) only makes sense in my view if the progressive income tax is used to collect the revenue needed to pay the social security system back. Otherwise, as Dean Baker likes to point out, all those folks who paid more soc sec payroll taxes that needed to cover current soc sec benefits will have gotten royally screwed.
Workers should realize by now that this President is hell bent to royally screw them. But why is the Federal Reserve Chairman offering this Greenspan like doublespeak. The problem is not the Social Security benefits. The problem started when President Bush unleashed a massive General Fund deficit with the 2001 and 2003 tax cuts.