This began as a comment to Dean Baker’s post today on Social Security but expanded from that.
The problem with Baker’s analysis is that he misses the nature of the con. For nearly 30 years now workers via the FICA have paid into Social Security amounts greater than what Social Security has had to pay out. The government has swapped bonds for this money, which it has then dumped into the general budget and spent like any other money (and in the process made the size of the deficit look smaller than it otherwise would be). Where Baker goes wrong is in advancing the idea that it is just the government that will pay off these bonds. It isn’t just the government but the American taxpayer who will pay them off. The analogous situation would be if you asked your son to hold $1000 for you. He takes it and goes off and spends it. He then comes back to you for another $1000, which he uses to pay off the first $1000, at which point he declares that you and he are quits.
The excess FICA taxes which created the surpluses were, in fact, nothing more than a backdoor tax increase on workers, and a regressive one at that. The future obligations which the surpluses were meant to cover would be there anyway. Under the current arrangement, taxpayers will have to pay for them twice, once as the money the government took out and spent and once to actually cover those obligations. If the surpluses had never existed, then taxpayers would have been on the hook for only covering Social Security’s future obligations (to make up any shortfalls between 2017 and 2040) once. If the government had wished to spend money equal to what it got from the surpluses, then it would have had to justify to voters and taxpayers why it needed to run higher deficits or raise taxes.
The con of the Social Security surpluses is that the government got to spend the money, claim deficits were smaller, avoid defending what it was doing, and stick taxpayers down the road with the bill. The current fight is over reducing as much as possible the size of that bill. Politicians are not doing this out of the goodness of their hearts. Money that goes to paying off the shortfalls that Social Security was expected to begin experiencing in a few years, and is now having due to the bad economy, is money that can not be spent for wars and looting, the priorities of our elites. This is why raising the retirement age is such an attractive option. It both increases revenues to Social Security by having older, higher paid workers contribute longer to the system but also decreases the number of years pay outs have to made to them (the time between retirement and death is not going to change in a positive way for them).
The real game here is that politicians, i.e. our elites, do not want to use general revenues, the discretionary side of the budget, to pay back Social Security Trust funds. In their view, the discretionary budget is theirs. This is also why you do not hear any serious talk of raising the income caps on the FICA. If our elites don’t want to use discretionary funds to this end, they certain don’t want to use their own wealth to that purpose either. Indeed the whole idea behind the surpluses in the first place was to give them "free" money to spend/loot. The object of cutting benefits is to limit or eliminate the need to pay back the Trust Funds and, in so doing, keep control of the discretionary budget in their hands.