The Sky Is Falling Before Schedule. Again.

by Dale Coberly

Bruce Krasting tells us The sky is falling the sky is falling Social Security has run out of money 30 years before it was supposed to happen. The words here are mine, the tone is his. He writes:

I think that the recession of 08 and 09 and the anticipated high unemployment (low employment) in 2010 has crippled the Fund. Nothing short of a major overhaul can turn it around at this point. The damage has been too great.

He tells us the Trust Fund has a surplus of 2 and a half trillion dollars. That’s 2,500 billion. Yet he is convinced that a 5 billion cash shortfall this year “has crippled the Fund.” Other things being equal (they are not), that 5 billion shortfall would take 500 years to deplete the Fund. The Fund will run out of money long before that for other reasons… but those other reasons were understood and planned for a long time ago.

Krasting may be alluding to those other reasons when he argues with Bruce Webb that the small cash deficit this year will keep on growing, but he doesn’t really say so. The deficit might keep growing or it might not. The recession could end, and then cash flow would go positive again, at least for a while.

The other reasons the Trust Fund will eventually “run out of money” (almost) will still be with us. Fortunately, they don’t matter either. Social Security will not be “broke.” The Trust Fund was designed to “run out of money” (almost). When it does, Social Security will return to pay as you go (almost) at perhaps a slightly higher tax rate to pay for the longer life span of the generation paying the tax.

He claims that there was a negative COLA. There wasn’t. He seems to think the difference between the December and January total outlays represents a “decline in monthly checks.” It doesn’t.

He seems to think that a 100 billion dollar surplus is a deficit because it’s not a 190 billion surplus. Time to run in circles, scream and shout, because we only came out a 100 billion ahead this year instead of the 190 billion we predicted before the recession. The whole point of the Trust Fund is to bridge cash shortfalls due to things like recessions. What Krasting is screaming about is the Trust Fund doing what it was designed to do. See, you build up surpluses when times are good, and you spend them down when times are bad.

He seems alarmed that Social Security is not able to lend money to the Treasury. This is like your forty year old son getting mad at you because you can’t afford to “lend” him a hundred bucks this week like he expected because he has gotten so used to getting it. The purpose of Social Security is to provide benefit checks to the people who pay the payroll taxes. The purpose of Social Security is NOT to support Congress’ deficit spending.

So because Social Security has reached the long planned for point where the surpluses have to be called upon to do the job they were designed to do, Krasting wants to call a “deficit commission” and steal the benefits from the people who have paid for them. And subject them to “means testing,” i.e. “welfare,” which Social Security was specifically designed not to be.

It also needs to be pointed out that Social Security has nothing to do with the deficit. Not the current debt nor any future deficit. Social Security was carefully designed to be paid for by the people expecting the benefits. It is not paid for by general revenues, taxes on the rich, or government borrowing.

Finally, let us suppose that Krasting were right (he is not) and that we have depleted the Trust Fund. Would this be a catastrophe? Would Social Security be “broke.” Would we see a crippling burden on the young?No. Social Security would return to pay as you go… as it was always intended to be.

It would continue to pay benefits out of current payroll taxes.Because of the size of the baby boom, the missing Trust Fund income would have to be replaced by a small tax raise. That raise would be on the order of one percent of payroll for each the employee and the employer, probably phased in over ten years. This was going to happen anyway… starting in about 2026…because the next generation is going to be living longer than the last. All an immediate collapse of the trust fund (not going to happen unless Congress steals it) would do would be to advance the date of the first one tenth of one percent tax increase.

Krasting does not understand what he is talking about, but he is getting encouragement from people who do. They know he is wrong, but they are happy to let him do the “sky is falling” screaming for them. It accomplishes their purposes, which is to panic the people into letting them cripple Social Security.