The Social Security Trust Fund
I am not an economist, but then this is not a matter of abstruse economic theory. It is a matter of simple cash-flow, and the flow in all cases is from taxpayers to retirees. Why, then, do some people who should know better seem to put such faith in the trust fund?
I suspect that faith reflects more political philosophy than economic analysis.
One of the accusations leveled recently at the President and his supporters is that their real agenda is not to reform Social Security but to raze it. Although nothing so far proposed comes even close to that, it is true that the particular form of their primary proposal, the limited privatization of personal Social Security accounts, serves the purpose of undermining the central tenet of Social Security in particular and of the welfare state in general: that personal welfare and security is the responsibility of the government rather than of the individual. Even if you give them the benefit of the doubt, if you grant that their primary concern is the solvency of the Social Security system, they have also made no secret of their preference for individual responsibility over collective responsibility, for market activity over governmental activity. If they can ensure the continued viability of Social Security (a questionable proposition) and by the same measure rein-in the welfare state and undermine its philosophical foundation they will happily do so.
What has not been mentioned, but which I think is equally true, is that those on the other side would just as happily do the opposite, would expand the welfare state and reinforce its philosophical foundation. And the looming Social Security shortfall presents them with an opportunity to do so.
Once we begin liquidating bonds in the trust fund to cover obligations, the government has no choice – “full faith and credit” – but to honor those bond obligations by raising whatever revenue is necessary to pay for them. Realistically that means a dramatic increase in borrowing and in income taxes. To the Greenspan commission twenty years ago and to the current Republican leadership now such an increase is untenable; to the stalwart defenders of Social Security as-is such an increase is not only tenable, it is the very policy they’ve been advocating for decades: the means to a comprehensive escalation of revenue to the federal government, the better to provide for the litany of public services and social regulation to which they aspire. If that level of borrowing and taxation is not only acceptable but desirable, then there is indeed no crisis; and if current policy forces us toward that desirable end then it rather constitutes an anti-crisis.
The beauty – to them – of the trust fund is that it takes the lid off. As borrowing and tax rates rise to cover bond payments, money pours into the general fund. If (inevitably if we must avoid a shortfall) the rate is set a little too high – if the increased borrowing and taxation raises more money than Social Security actually needs – that money, as general revenue not earmarked for Social Security, is available for spending on other “urgent” forms of social welfare. And when, after several decades, the baby boom generation begins to die off and Social Security obligations recede, those borrowing and taxation policies remain, along with the habits of the social welfare mind-set that they feed. Thus is born a grander and more active social welfare state than we would ever have approved otherwise.