Social Security: Update on Glen Beck’s Asteroid

Many thanks to Mark Thoma for continuing this conversation. Mark points out that Wolf Blitzer is also responsible for CNN turning itself into an on-air version of the National Review. Maybe Wolf wants to become another Tim Russert. In addition to CNN’s stupidity on this issue, Mark treats us to some wisdom from John Shilling:

The first American baby boomers have now become eligible to retire and start drawing on Social Security, the government pension programme. Many politicians are telling us that the resulting rise in Social Security “entitlement” payments will break the budget, so we have to cut benefits to retired people. But the politicians do not want to mention that the Social Security system has been compiling a huge surplus. Why? Because they have been using that surplus for years to hide the real size of the current federal budget deficit, allowing them to spend more and justify tax cuts for the wealthy. US Office of Management and Budget data show that while government’s reported deficit averaged about $300bn a year from 2002 to 2006 – roughly $4,000 per household – the real current deficit was actually more than 50 per cent bigger. The government just “borrowed” about $165bn from the Social Security Trust Fund every year – under the table. In 2007, the real deficit was $449bn according to the OMB. However, the “official” deficit widely reported is only $257bn, because it is government policy to add the borrowed Social Security Trust Fund surplus ($192bn in 2007) to revenues before calculating the “official” deficit that has to be borrowed publicly. The recently passed economic stimulus package of $160bn is reported to raise the 2008 official deficit to about $400bn. But the real deficit in 2008 will be about $600bn. How does this work? Social Security was initially a pay-as-you-go system – annual payroll taxes of workers covered that year’s payments to retired people. By the early 1980s, however, it was clear that this system was not sustainable. Payments were increasing faster than revenues, and when the baby boomers started retiring and collecting pensions, there would be huge shortfalls. President Ronald Reagan had the prudence to address this problem early enough to make Social Security sustainable. He appointed Alan Greenspan to design a massive overhaul of the system, which was implemented. Social Security was in effect transformed into a national pension plan. Social Security payroll taxes were raised, creating a surplus in the trust fund that would fully cover the future costs of baby-boomer retirement.

Some of us praised what President Reagan did. Too bad his party wishes to dishonor the 1983 Social Security reform in order to convert the payroll contributions into a backdoor employment tax increase to pay for reductions in the income tax rate and tax breaks for capital income. And the worse part is how the modern GOP and their minions invent all sorts of distortions to fog over this agenda. Shilling continues:

Baby boomers, and all others who have worked since 1983, paid in more than needed for Social Security retirement payments. They saved and created the trust fund surplus, which now amounts to more than $2,000bn and must be invested in US Treasury bonds. It is projected to reach nearly $3,000bn in 10 years. Then Social Security will stop generating a surplus to subsidise the rest of the budget and will begin redeeming its bonds to help make payments. Current projections show that the trust fund bonds may be exhausted by about 2041. The trust fund’s full sustainability for at least the next 75 years could be restored easily with minor adjustments, including restoring the income cap to 90 per cent, according to the recently retired commissioner of the Social Security Administration . Politicians understand that, with the Social Security Trust Fund surplus declining, they will no longer be able to borrow from them under the table while announcing fictitiously smaller deficits to justify continued expenditures and tax cuts. And they will have to generate funds from other sources of revenue to redeem the bonds after 2017. Rather than admit too much was borrowed recently, and must now be repaid, they want to reduce Social Security benefits. This puts much of the burden on the middle class, who created most of the surplus that has been used to hide the real size of the deficits. Fundamentally, the Social Security issue is not one of “entitlements” but of the obligation of our government to honour its debt and not reduce Social Security benefits.

Simply put – someone will have to pay more in taxes to pay for all those wars a President McCain will wish to wage. My problem with John McCain is that he refuses to consider raising income taxes as he would prefer a rather dishonest backdoor increase in employment taxes.