I’ve been watching the Social Security debate over the last few months, and it is probably time I weighed in with a few comments. From the noise in the Blogosphere, I guess Bush laid out some more details about exactly what he is proposing, but still I don’t think all the details have been finished. The Democrats seem almost totally against whatever Bush is proposing, but some of that opposition is certainly political in nature. But many Republicans also seem against the new scheme.
In general, I like the idea of private accounts. Taking money out of the government’s control and putting in into an individual’s control is almost always a good thing. As usual, the devil’s in the details. Exactly how will this change be funded? What steps do we as a society want to take to make sure our older population is taken care of? How do we create a system that treats workers of different ages in a fair manner?
Unfortunately, given Bush’s past legislative and financial behavior, I am quite suspicious of whatever he proposes. Let’s face it, just about every one of his bills that either cut taxes or provided new spending has had some gimmick. As an example, the outright lies about the cost of the Medicare drug bill. Or how about the sunset provisions of the tax bills, purposely designed to make the lost revenues appear smaller than they really are. This trickery has happened so many times that I would be very surprised if a totally honest discussion, debate and bill will be forthcoming.
The first problem I have with any discussion on Social Security is when anyone, Republican or Democrat, starts talking about a crisis or mentions the trust fund. When anyone says something like, “the system will (not) be in crisis in(/until) 2045”, when the trust fund runs out, right away either they are not being honest or they are incompetent. For anyone who thinks the trust fund matters, here’s some bad news. There is no trust fund. The contributions to the trust fund have already been included in past and current budgets. In other words, that money has already been spent. In 2004 the deficit would have been about 64B larger than it already was except that the excess contributions to the trust fund were included in the total budget.
Yes, there is 1.5T in the Social Security trust fund. But that 1.5T is held in government IOU’s, and the government will either have to cut spending, borrow money, print money, or tax somebody to be able to pay out any of that money.
The effect of the aging of the work force is that contributions to the trust fund will decline while the payouts will increase; and over time as the delta becomes larger the government will have to make increasingly more difficult spending/taxing/borrowing decisions. The effect will be gradual. In 2005 the government will likely not see 64B in free money. It will be somewhat less, and as the Social Security “gift” gets smaller, money will get tighter. I’m betting that Bush will do some creative bookkeeping, like take social security off the budget, like he did with the Iraqi war. More dishonesty.
In the meantime, we’ll have to wait to find out more of the details. So far the proposals I’ve seen are so complicated and purposefully obfuscated that we may never get an honest idea of what is being discussed.
February 4, 2005