Why Did We Raise Payroll Taxes in 1983?

Andrew Samwick posts a few arguments made by one of his commenters. First up:

Equating adjustments to Social Security’s benefit schedule with a default on government bonds is a red herring. The government has adjusted Soc Sec’s benefit schedule repeatedly (for instance, in 1977 and 1983) without this being interpreted as a government default.

But no one is saying that. Well no one outside of the rightwing troll who calls himself Roland Patrick at Andrew’s place and Patrick R. Sullivan at our place. What Dean, Brad, and I have been complaining about is the abuse of the Trust Fund reserves to bail out the General Fund deficit. Andrew’s commenter suggests that no one wishes to do that. Well, I don’t and I suspect Andrew doesn’t. But George W. Bush does.

But it’s this comment that leaves me shaking my head:

Finally, it’s a widely-accepted myth, but a myth nevertheless, that the Greenspan Commission “deliberately” tried to pre-fund benefits by building up a big Social Security Trust Fund.

It is not a myth that payroll contributions were raised. And assuming the folks on the Greenspan Commission were reasonably intelligent, they had to know that expected payroll contributions would exceed Social Security benefits for the next 35 years or so. Yes, Alan Greenspan knew that the Trust Fund would accumulate a lot of reserves. Whether you call this pre-funding or not, the claim made by this commenter lacks credibility unless one assumes that the folks on the Greenspan Commission were stupid. I prefer not to believe such silliness. In fact, the commenter continues:

They simply sought a result of 75-year actuarial balance on average, without careful attention to how they got there.

If the commenter actually tries to model out what a “75-year actuarial balance on average” means during the life span of the Baby Boomers, he would realize what Brad, Dean, and I have been talking about.

Update: AB reader Bruce Webb insists we review the 1996 Trustees Report:

As a result of legislation enacted in 1977 and in 1983, substantial increases in the trust funds were estimated to occur well into the next century, so that the program was partially “advance funded,” rather than being funded on a pay-as-you-go basis. Also, because of declines in long-range fertility rates and average real-wage growth that were assumed in the annual reports over the period 1973-87, the annual rate of growth in taxable earnings assumed for the long range became significantly lower than the assumed interest rate. Therefore, during the period 1973-87, the results of the average-cost method and the present-value method began to diverge, and by 1988 they were quite different. While the average-cost method still accounted for most of the effects of the assumed interest rate, it no longer accounted for all of the interest effects. The present-value method, of course, does account for the full effect of the assumed interest rates. So, in 1988, the present-value method of calculating the actuarial balance was resumed. A positive actuarial balance indicates that estimated income is more than sufficient to meet estimated trust fund obligations for the period as a whole. A negative actuarial balance indicates that estimated income is insufficient to meet estimated trust fund obligations for the entire period. An actuarial balance of zero indicates that the estimated income exactly matches estimated trust fund obligations for the period.

I’m not sure if this were the passages Bruce wants us to read, but I’ll provide a link to their handy Figure III.B.1, which forecasts total income (including interest) exceeding outlays through 2018. And this was the 1996 forecast.