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The Washington Post/Bloomberg Business section recently published an op-ed by Allan Sloan arguing that the only relevant point about Social Security is it’s current negative cash flow.
Only current cash flow matters, he says. So if Social Security payroll taxes are currently taking in less revenues than current payouts to beneficiaries, that means Social Security is in trouble, and not later, but now.
Sloan says this cash flow situation will continue years into the future. Since the Trust Fund doesn’t matter in his accounting, this means Social Security is trouble today, right now, not just in 2036 or so when the Social Security Administration’s most recent official reports tell us the Trust Fund balance runs out.
if I’m not mistaken, this is a classic bait and switch argument he’s making, the one we’ve been warned about before by Paul Krugman, Dean Baker and others.
You can view Social Security accounting two ways: First, you can view it as a separate fund, in which case the Trust Fund surplus of $2.5 trillion is very relevant. Or you can view the issue from the perspective of the entire budget, and ask, “how much of the total is paid for by total incoming revenues?” But what you can’t do is mix the two; you can’t honestly switch between the two accounting perspectives just to make a political point about Social Security.
Viewed as a separate fund, Social Security has enough money coming in via payroll taxes, plus the value of the Trust Fund surplus, including interest, to fully fund all benefits through at least 2036 (and longer if economic assumptions improve — as in, where is our jobs program?).
Under this perspective, if you have a program separately funded by payroll taxes, and it has a huge $2.5 trillion surplus, you could put that surplus in a bank savings account, and also deposit incoming payroll taxes. You then pay benefits from those taxes plus interest plus withdrawals from the savings account as needed.
The same is true if instead of using a bank savings account, the folks who run Social Security put that $2.5 trillion into government bonds, backed by the full faith and credit of the US, and accrue a surplus plus interest in that way. When you need to help pay benefits, you can cash out the bonds as needed. There is no problem here, when viewed separately.
But here’s Sloan’s bait and switch. Sloan switches in mid argument to the general budget, and says that SS is taking in less cash at the moment than it’s paying out, thus ignoring the money in the Trust Fund, which is SS’s savings account. He then says, it’s in immediate trouble.
No, it’s not. You might as well say the Defense Department or the Afghan war is in even more serious crisis, because the revenues collected in taxes dedicated to DD or the war, which are ZERO!!, is $600-700 billion less than what DD spends or the war costs! Cash flow problem at DD!!!
Or Congressional salaries are in immediate crisis, because the tax revenues devoted to them, which are zero, are not enough to pay Congressional salaries. The argument applies to everything in the budget; it’s not specific to Social Security.
Ironically, by Sloan’s logic, Social Security is in the best shape of any government program. With a dedicated tax, it is virtually paying for itself, and has a huge savings account on top of that, whereas most other government programs are in crisis, under this thinking.
If Sloan wants to talk about the total general deficit, that’s fine, but that’s an overall revenues versus outlays budget problem. It’s not a distinct “Social Security problem” any more than it’s a Congressional salaries problem, or a Defense Department problem, or an unfunded war problem, and so on.
So this is just another bait and switch to scare people that Social Security needs to be singled out because it’s in crisis, when it’s not.