There seems to be a rising chorus of claims that, even if the expected shortfalls in Social Security funding are still almost forty years in the future, every year that goes by the cost and difficulty of fixing the problem increases. But this makes no sense, especially since President Bush’s proposed means of ‘fixing’ Social Security’s shortfall turn entirely and exclusively on cuts in guaranteed benefits.
Here’s what I mean: If the issue was prefunding Social Security as a social insurance program, then the sooner we start doing that the better. But President Bush has specifically ruled out new funds (i.e., increased tax revenue) as part of the solution. So no dice there.
In fact, it’s even worse than that since President Bush has also ruled out the existing funding mechanism by which any sort of pre-funding could take place.
Again, allow me to explain.
Let’s say we immediately cut everyone’s Social Security benefits by 20% — just across the board; everybody, high and low, gets hit the same. I can barely manage simple division anymore; so I’ll leave it to the econ folks to figure out the particulars. But if we cut payouts by 20% that would leave Social Security with a substantially larger annual surplus. That would mean more money socked away into the Trust Fund every year. And the Trust Fund would last much longer.
Not only would the Trust Fund last longer because there’s more money in it, but it would pay down more slowly because everyone’s benefits would be smaller.
But the president doesn’t believe that the Trust Fund exists as a funding mechanism. Set aside all the word-games and disagreements about IOUs and real assets. The president doesn’t believe the Trust Fund materially improves the solvency of Social Security because he doesn’t believe those Treasury notes constitute a real asset. To him, it’s just a book-keeping ledger calling for higher taxes down the road.
Indeed, it would be foolish for current beneficiaries of the program, or people currently paying payroll taxes, to fatten up the Trust Fund in this way so long as the current president isn’t even willing to stipulate that the money will be paid back.
Given the options the president will allow, the only option left available is to take a portion of the Trust Fund and invest it in stocks in one aggregated fund, rather than in private accounts. This would be similar to how state pension funds work. But even that doesn’t pan out because the president has again and again said he opposes investing Trust Fund revenues in this way because it would lead to the government owning too much of the private economy.
That leads us back to what seems to me to be the unavoidable conclusion that, given the options that President Bush will allow, it won’t be any harder or more costly to ‘fix’ Social Security five or ten or any number of years into the future than it is today. And that’s because we can cut benefits whenever we want.