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If Trends Continue, Social Security Could Be In Surplus Forever

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The Tampa Tribune

Published: August 26, 2008

Am I the only one who doesn't get Jim Gries' problem with Social Security? He doesn't seem to like the Trust Fund system, but his speeding car and duck waddle metaphors make his point a little hard to follow.

First, let me concede that I was wrong about the payroll tax rate in 1983. It was 5.4 percent each for employer and employee, for a total of 10.8 percent. After a series of annual increases, it reached the current rate of 6.2 percent each or 12.4 percent total in 1990.

Mr. Gries, however, is in error about the 1980 rate. It was 5.08 percent each for employee and employer. So, 1980 workers did not have 7 percent more of their paychecks available. It was 1.1 percent. Keep in mind that there were a couple of years during the 1970s when the payroll tax didn't raise enough money to fully cover payment of benefits. So, some changes had to be made.

Mr. Gries attacks my description of the Social Security Trust Fund as both an investment and a debt. He says that I can't have it both ways. But I can. Suppose I go down to the bank and buy a U.S. savings bond. From my point of view, I have made an investment. I will receive interest payments. From the government's point of view, it is a debt. The government has to pay interest. Debt is the flip side of investment.

The Social Security Administration (SSA) is a government agency with its very own tax. If the tax brings in more than it needs, the SSA loans the surplus to the U.S. Treasury. The SSA makes an investment. The U.S. Treasury incurs debt. The sum of the debt owed by the U.S. Treasury to the SSA is called the Social Security Trust Fund.

As Mr. Gries points out, the government uses the borrowed money for whatever purpose it wishes. To which I answer: "So what?" The purpose of borrowing money is to spend it.

Mr. Gries says that retirees are entitled to their benefits "...but not at the expense of 100 million plus obligated hard working Americans..." Why not? For the past 70 years retirees have collected their benefits at the expense of those who are still working. What's wrong with that?

Mr. Gries believes that "...the Special Obligation bond program has one generation financially waterboarding another."

Hmmm. Why am I not worried?

Well, take a look at the 2008 Social Security Trustees Report, table VI.F7.

Note that the intermediate scenario has the Trust Fund running out of money in 2041. In 2040, it pays out $308 billion dollars to cover the shortfall in payroll tax revenues. After that, SSA has no income except the payroll tax which, at current rates, would only cover 78 percent of benefits.

Now, $308 billion annually is serious money, similar to the cost of a small war. But it wouldn't amount to "financial waterboarding."

But there is an embarrassing fact about the intermediate scenario. Each time it is updated with real data, it adds another year or two to the time before the Trust Fund runs out of money. So, in 2005, the SSA Trustees (Bush appointees all) stopped the annual update of that table.

Look at the low cost scenario. Same model, different assumptions. Under that scenario, the payroll tax is in surplus forever.

Which is right? Compare the low cost scenario in table VI.F7 to the intermediate scenario (through 2017) in table IV.A3. You'll see that the intermediate scenario, which has been updated for this table, looks just like the older low cost scenario.

In other words, if the present trend continues, at current payroll tax rates, Social Security might well have a surplus indefinitely.

Which means that the Social Security system, rather than being a drag on future generations, might actually enable less foreign debt or lower income tax rates.

So, before we get all excited and start tearing up a program that has been successful for the past 70 years, let's wait a few years and see whether there really is a problem.

Dallas Dunlap

Brooksville

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