Thursday, November 15, 2012

Social Security: Off the Table or On?

The Washington Times reports that Sen. Majority Leader Harry Reid has declared Social Security reform to be “off the table” in terms of a budget deal to address the looming “fiscal cliff”:

“Mr. Reid said Democrats have already made changes to Medicare as part of President Obama's health law, and said Social Security is solvent for the time being and shouldn't be tapped to pay for other government needs.”

"’Social Security is not part of the problem, That's one of the myths the Republicans have tried to create,’ he said. "Social Security is sound for the next many years. But we want to make sure that in the outer years people are protected also, but it's not going to be part of the budget talks, as far as I'm concerned.’"

On the other hand, the Washington Post weighed in with an editorial arguing that Social Security should be included in budget talks:

“Social Security’s retirement age is already headed to 67, which is one reason that program is no longer a major cause of government insolvency. Still, it can and should be rendered more sustainable. The disability component’s explosive recent growth, at a time when the nation’s general health is stable, suggests that reform would not harm those who truly need help.”

I don’t know whether a rush-job reform of Social Security is what’s needed to avert the fiscal cliff, which is more of a short-term issue. But any broader budget talks should put everything on the table, including Social Security.

1 comment:

WilliamLarsen said...

The general budget has run continued cash flow deficits since 1958. Not a single year of surpluses and now amounts to a national debt of over $16 Trillion. The problem is at low interest rates, $16 Trillion does not cost a lot, but if and when US Treasury Rates return to normal levels the US cost to finance this debt could well be over $1 Trillion a year. Considering that Personal Income Tax Revenue is around $1.5 Trillion, Corporate taxes at $300 billion, we have a real problem if we cannot reduce our deficit in just one year.

Social Security on the other hand is by law allowed to spend only what is the OASI and DI trust funds and their respected tax revenues. In essence Social Security has a "Balanced Budget" requirement. It is not Social Security which will bankrupt the US, rather the General Budget will.

However, because SS taxes have risen from 2% in 1937 to 12.4% current (minus the 2 percentage points for payroll tax holiday) there is little doubt that the increase in the SS and Medicare tax have given rise to much of the general budget financial woes:

Earned income tax Credit was passed to compensate low wage earners for the increase in FICA taxes has cost the US Treasury over $1 Trillion.

The higher FICA taxes has pressured congress to lower tax rates and pass the $1,000 Child Tax credit, $2,500 Tuition Tax Credit and more.

The list goes on. It is plainly obvious when looking at 70 years of budget cash flows that FICA has squeezed out the general budget for revenue => Social Security and Medicare bare much of the responsibility for the national debt indirectly. However, the direct responsibility are the voters.