What does it mean to “save the surplus”?

In the comments, Bruce Webb reacts to a line in the Wall Street Journal op-ed:

The whole notion that somehow Congress has been 'raiding', 'looting' or otherwise doing something nefarious with the Trust Fund derives entirely from the implication that the Special Treasuries are not in fact hard investments, which is to say one or more versions of the 'phony IOU' argument.
Well I am not buying. I believe in the Full Faith and Credit of the United States, further I have a pretty good idea of the political firestorm that would erupt at any suggestion that the General Fund as the representative of taxpayers at large would refuse to replay legal obligations to that subset of taxpayers that paid for all those surpluses to start with.

This raises the general question of what it means to "save the surplus" or "raid the trust fund." There are different definitions, and often disagreements over these issues arise from definitional, not empirical, differences.

Orszag and Stiglitz make a useful distinction between "narrow" and "broad" prefunding of pension benefits:

"Prefunding" can be used in a narrow or broad sense. In its narrow sense, prefunding means that the pension system is accumulating assets against future projected payments. In a broader sense, however, prefunding means increasing national saving.

Put in the Social Security context, it's possible to break the narrow versus broad prefunding question down even further. "Saving the surplus" can mean that a dollar of surplus Social Security taxes implies:

• A dollar increase in the Social Security trust fund: This is the narrowest definition of pre-funding, and in this sense the surplus is indisputably "saved." Any surplus taxes are by law used to purchase special issue Treasury bonds. These bonds carry a market rate of interest and are backed by the full faith and credit of the U.S. government. There is no possibility that the government will not honor these bonds, and there are no reform plans that propose that they not be honored.
  
• A dollar increase in the overall budget balance: This is an intermediate level of pre-funding, and most advocates would be satisfied if this level were achieved. If Social Security's cash balance improves by one dollar and nothing else changes in the rest of the budget, then the overall budget balance will improve by one dollar. Borrowing from the public will be reduced by one dollars (or, if the budget were in surplus, one dollar of existing debt could be repaid). At the least, this level of prefunding makes it easier for the government to repay the Social Security trust fund in the future, since the smaller government debt implies lower annual interest costs.
  
• A dollar increase in national saving: If an additional dollar of Social Security surplus adds to government saving, by the above process, and if individuals do not alter their saving behavior, then total saving in the economy will increase by one dollar. This saving adds to the stock of investment capital, such as factories, computers, etc., and this additional capital makes future workers more productive and increases economic output. This increased economic output makes it easier to repay the trust fund in the future: wages will be higher and thus tax receipts will be higher even with a constant tax rate. Thus, we could repay the trust fund without making future workers' after-tax wages lower than they otherwise would have been.
  

When we talk about "saving the surplus" it makes sense to be clear which definition of saving we're relying on. In the WSJ op-ed, I was implicitly referencing the second definition of prefunding: that an increase in the Social Security annual surplus, as would be produced by Senator Obama's proposal, would translate to an equal improvement in the overall budget balance, and therefore a reduction in government borrowing.

But is this likely to take place? A trio of econometric studies by well-respected economists have concluded that Social Security surpluses since the 1980s have not translated to improved budget balances. The basic analytical technique is to ask how changes in the Social Security balance correlated with changes to the overall budget balance, after adjusting for other factors. Kent Smetters of the Wharton Schol, who wrote the first such study, concludes:

"…there is no empirical evidence supporting the claim that trust fund assets have reduced the level of debt held by the public. In fact, the evidence suggests just the opposite: trust fund assets have probably increased the level of debt held by the public."

Barry Bosworth and Gary Burtless of the Brookings Institution, using a sample of OECD countries to supplement results focusing on the U.S., conclude:

"A large portion of the accumulation within national social insurance systems is offset for the government sector as a whole by larger deficits in other budgetary accounts. On average, OECD countries have been able to save only a small portion of any funds accumulated within their social insurance systems in anticipation of large expected liabilities when a growing fraction of the national population is retired. Between 60 and 100 percent of the saving within pension funds is offset by reductions in government saving elsewhere in the public budget."

In other words, a dollar of Social Security surpluses tends to be offset by 60 cents to one dollar in increased spending or reduced taxes in the non-Social Security portion of the budget.

John Shoven of Stanford and Sita Nataraj of Occidental College examined trust fund saving throughout the federal budget. Their conclusions are summarized as:

"The authors find a strong negative relationship between the surpluses: an additional dollar of surplus in the trust funds is associated with a $1.50 decrease in the federal funds surplus. This finding is not significantly different from a $1.00 decrease, which would suggest a dollar-for-dollar offset of trust fund surplus with spending increases or tax cuts; the authors are able to reject the hypothesis that the full dollar of trust fund surplus is saved by the government."

To sum up, the best evidence suggests that Social Security surpluses, rather than building savings to help pay future Social Security benefits, instead tend to subsidize present consumption. Put another way, Social Security surpluses allows current spending to be higher, or current taxes lower, than they otherwise would be. Several preliminary policy conclusions follow from these findings:

First, that it makes little attempt to increase Social Security surpluses in the near-term, unless a more reliable mechanism to save these surpluses is found. Investment in assets other than Treasury bonds might provide better prospects for broad saving; personal accounts also might do so. But these are questions for a different post.

Second, changes to Social Security taxes and benefits prior to the trust fund exhaustion date (currently 2040) can be justified. If surpluses since the 1980s had been "saved" in a broad budgetary sense, one could say that taxpayers during those years had fully "paid for" their future benefits, even if trust fund repayment exerted a burden on the non-Social Security budget in the years from 2017-2040. However, if Social Security surpluses were "spent" this implies that taxpayers since the 1980s enjoyed a higher level of government services or lower level of government taxes than would otherwise have been the case. Given this, their moral claim that benefits cannot be changed prior to the trust fund's exhaustion appears weaker.

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Saving the Surplus, or What’s Left of It…

Jack Kemp has a new op-ed promoting a book by Denny Smith and Peter Ferrara entitled "Stop the Raid," which promotes personal retirement accounts as way to keep Congress from "raiding" the Social Security surplus to spend on other things. As Kemp explains,

[I]n 2007, 88 percent of total Social Security tax income was spent immediately for current benefits and expenses, leaving a surplus at $80.3 billion. What happened to that surplus money? The federal government borrowed it and spent it on general budget expenditures. In return, Social Security got Federal IOUs, which promise to pay the money back, with interest. Over the next five years, from 2008 to 2012, the federal government will continue to raid (borrow) another $410 billion from the Social Security trust funds.

Using personal accounts to "save the surplus" is a very attractive – perhaps the most attractive – argument for them, as they could stop a practice most Americans agree is dishonest and harmful to their future retirement security. Saving the surplus, far more than potentially higher rates of return or even a simple ownership argument, is probably the best way to sell personal accounts to typical Americans.

I've used that argument myself, and in the past I think there was a lot of substance to it. Had we saved the Social Security surpluses generated since the 1980s, we would be sitting on a $2.5 trillion pool of assets with which to pay Social Security benefits rather than merely a stock of government bonds that will be repaid by raising taxes on ourselves in the future.

That said, it's a basic rule of economics that we make decisions at the margin: what matters is what we can do going forward, not what we could have done in the past. And the sad truth is that we've put off Social Security reform for so long that there's really not much of a surplus left to save.

Between 2008 and 2016 – the last year in which Social Security is projected to be in positive cash flow – cash surpluses will total around $462 billion in present value (assuming a 2.7% real interest rate). That's a good chunk of change, no doubt.

But many people act as if saving the surplus would be sufficient to fix Social Security, or at least make a good sized "down payment on reform." Social Security's total long-term shortfall equals roughly $13.6 trillion in present value, meaning that even if we saved every penny of the surpluses going forward it would amount to only around 3 percent of the total shortfall. Not much of a down payment. Moreover, given the political economy of things, it's likely that even if that surplus were saved in personal accounts through 2017, the government would make up most of it through increased borrowing. So the net take would likely be less than 3 percent.

Now, 3 percent is better than nothing, and a lot further than Social Security reform has gone to date. But even accounts to save that modest amount would demand vast amounts of political capital, almost surely more than the reform movement has at this point. While accounts have a role to play – an important one, in my view – to be viable that role, and how the accounts would be financed, should be fleshed out in more detail than in a simple "save the surplus" approach.

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We’ve finally “stopped the raid” on Social Security…

For years, politicians and members of the public have decried the so-called "raid" on the Social Security trust fund, in which surpluses generated by Social Security were spent on other programs. For instance, back in 1990, Sen. Harry Reid asked, "Are we as a country violating a trust by spending Social Security trust fund monies for some purpose other than for which they were intended? The obvious answer is yes."

Now, there was nothing illegal about this practice; since Social Security was required by law to invest it surpluses in Treasury securities that pretty much means the Treasury was required to borrow the money. That said, Sen. Reid assured us, as a lawyer, that someone doing this outside of government would be prosecuted.

More importantly, there's good reason to believe that borrowing from Social Security encouraged the rest of the government to spend more and tax less than it otherwise would have, since the deficits and debt involved were effectively "off the books." The Social Security trust fund still has meaning in an accounting sense, but it doesn't represent any true saving in a budget-wide or economy-wide sense.

Personal accounts were proposed as one means of "saving the surplus," though they ran into problems when it became clear that a lot of people – both in Washington and elsewhere – didn't particularly want the surplus to be saved. They liked their spending higher and taxes lower. Former Vice President Gore proposed the much-derided "lock box" to save the surplus, although even to Social Security specialists it was never quite clear how that would work. Seemingly, the Social Security raid was an unsolvable problem.

But some problems solve themselves. According to the Congressional Budget Office's most recent projections, released this week, Social Security is running cash deficits and will continue running cash deficits, well, pretty much forever. Last year, both CBO and the Social Security Trustees projected that Social Security – while currently running deficits due to the recession – would return to surpluses again for several years before making a final turn South in 2016. The new projections show deficits every year from 2011 through 2021, totaling $593 billion over that period.

So breathe easy, America, the "raid" on Social Security has finally been stopped. Now we just need to think about repaying the trust fund and making the rest of the program sound. But all we heard from President Obama on that subject in the State of the Union address was the sound of a ball being punted.

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New papers from the Social Science Research Network

"Employee Benefits: Today, Tomorrow, and Yesterday"
EBRI Issue Brief, Number 401 (July 2014)

NEVIN E. ADAMS, Employee Benefit Research Institute (EBRI)
Email: nadams@ebri.org
DALLAS L. SALISBURY, Employee Benefit Research Institute (EBRI)
Email: SALISBURY@EBRI.ORG

In 2013, the nonpartisan Employee Benefit Research Institute (EBRI) commemorated its 35th anniversary. While much has changed with health and retirement benefits during the past three decades -- the first generation of the Employee Retirement Income Security Act (ERISA) -- many of the issues that were present at EBRI’s beginning remain today. But even if core issues endure, the historic shift away from “traditional” defined benefit pension plans and toward 401(k)-type defined contribution retirement plans, along with the recent enactment of the Patient Protection and Affordable Care Act of 2010 (PPACA), and the demographic shifts attendant with the retirement of the Baby Boomers and the workplace ascendency of the Generation X and Millennial cohorts, employee benefits are certain to continue to change and evolve in the future. Each year EBRI holds two policy forums which bring together a cross-section of national experts in the benefits field, congressional and executive branch staff, and representatives from academia, interest groups, and labor to examine public policy issues affecting health and retirement benefits. This paper summarizes the presentations and discussions at EBRI’s 73rd policy forum held in Washington, DC, on Dec. 12, 2013. Titled “Employee Benefits: Today, Tomorrow, and Yesterday,” the symposium offered expert perspectives on not only the workplace and work force of the past, but the challenges of today’s multi-generational workplace, and the difficulties and opportunities that lie ahead. Following a review of the benefits landscape by EBRI’s research team, panels discussed: 1978 to 2013: The Changing Role of Employers in Employee Benefits; Employee Benefits from 2013 to 2048: The Road to Tomorrow; 2013 to 2048: Work Force Trends and Preferences, Today and Tomorrow.

"Lifetime Accumulations and Tax Savings from HSA Contributions"
EBRI Notes, Vol. 35, No. 7 (July 2014)

PAUL FRONSTIN, Employee Benefit Research Institute (EBRI)
Email: fronstin@gmail.com

2014 marks the 10-year anniversary of the introduction of health savings accounts (HSAs), created by Congress in 2003. In 2013, enrollment in HSA-eligible health plans was estimated to range from 15.5 million to 20.4 million policyholders and their dependents. Nearly 11 million accounts holding $19.3 billion in assets as of Dec. 31, 2013, were also estimated. The number of HSA-eligible enrollees will differ from the number of accounts for various reasons. The number of enrollees is composed of the policyholder and any covered dependents and will generally be higher than the number of accounts because one account is usually associated with a family. However, over time, the number of accounts can grow relative to the number of enrollees because when an individual or family is no longer covered by an HSA-eligible plan, they are allowed to keep the HSA open. HSAs provide account owners a triple tax preference. Contributions to an HSA reduce taxable income. Earnings on the assets in the HSA build up tax free, and distributions from the HSA for qualified expenses are not subject to taxation. Because of this triple tax preference, some individuals might find using an HSA as a savings vehicle for health care expenses in retirement more advantageous from a tax perspective than saving in a 401(k) plan or other retirement savings plan. This paper examines the amount of money an individual could accumulate in an HSA over his or her lifetime. It also examines lifetime tax savings from HSA contributions. Limitations of an HSA are also discussed. A person contributing for 40 years to an HSA could save up to $360,000 if the rate of return was 2.5 percent, $600,000 if the rate of return was 5 percent, and nearly $1.1 million if the rate of return was 7.5 percent, and if there were no withdrawals. In order to maximize the savings in an HSA to cover health care expenses in retirement, HSA owners will need to pay the medical expenses they incur prior to retirement on an after-tax basis using money not contributed to their HSA. Many individuals may not have the means to both save in an HSA and pay their out-of-pocket health care expenses. Also, HSA balances may not be sufficient to pay all medical expenses in retirement even if maximum contributions are made for 40 years.

"What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Account Balances, 2007-2012"
EBRI Issue Brief, Number 402 (July 2014)

JACK VANDERHEI, Employee Benefit Research Institute (EBRI)
Email: vanderhei@ebri.org
SARAH HOLDEN, Investment Company Institute
Email: sholden@ici.org
LUIS ALONSO, Employee Benefit Research Institute (EBRI)
Email: alonso@ebri.org
STEVEN BASS, Investment Company Institute
Email: sbass@ici.org

This paper analyzes changes in 401(k) account balances of consistent participants in the EBRI/ICI 401(k) database over the five-year period from year-end 2007 to year-end 2012. About 34 percent, or 7.5 million, of the 401(k) participants with accounts at the end of 2007 in the EBRI/ICI 401(k) database are in the consistent sample. Analysis of a consistent group of 401(k) participants highlights the impact of ongoing participation in 401(k) plans. The analysis also looks at changes in asset allocation between year-end 2007 and year-end 2012. Overall, the average account balance of consistent 401(k) participants increased at a compound annual average growth rate of 6.8 percent from 2007 to 2012, to $107,053 at year-end 2012. The median 401(k) account balance increased at a compound annual average growth rate of 11.9 percent over the period, to $49,814 at year-end 2012. At year-end 2012, the average account balance among consistent participants was 67 percent higher than the average account balance among all participants in the EBRI/ICI 401(k) database. The consistent group’s median balance was almost three times the median balance across all participants at year-end 2012. Younger participants or those with smaller initial balances experienced higher percent growth in account balances compared with older participants or those with larger initial balances. Three primary factors impact account balances: contributions, investment returns, and withdrawal/loan activity. The percent change in average account balance of participants in their 20s was heavily influenced by the relative size of their contributions to their account balances and increased at a compound average growth rate of 41.8 percent per year between year-end 2007 and year-end 2012. 401(k) participants tend to concentrate their accounts in equity securities. The asset allocation of the 7.5 million 401(k) plan participants in the consistent group was broadly similar to the asset allocation of the 24.0 million participants in the entire year-end 2012 EBRI/ICI 401(k) database. On average, about three-fifths of 401(k) participants’ assets were invested in equities, either through equity funds, the equity portion of target-date funds, the equity portion of non-target-date balanced funds, or company stock. Younger 401(k) participants tend to have higher concentrations in equities than older 401(k) participants. More consistent 401(k) plan participants held target-date funds at year-end 2012 than at year-end 2007, on net; a third of those with target-date funds held all of their 401(k) account in target-date funds.

"Social Security Finances: Findings of the 2014 Trustees Report"
Social Security Brief, No. 44, July 2014

ELISA WALKER, National Academy of Social Insurance (NASI)
Email: ewalker@nasi.org
VIRGINIA P. RENO, National Academy of Social Insurance (NASI)
Email: vreno@nasi.org
THOMAS N. BETHELL, National Academy of Social Insurance (NASI)
Email: tombethell@gmail.com

The 2014 Trustees Report updates projections about the future finances of Social Security’s two trust funds. The Disability Insurance (DI) trust fund, which is legally separate from the Old-Age and Survivors Insurance (OASI) trust fund, will require legislative action soon to ensure that all scheduled benefits for disabled workers and their families can be paid in 2016 and beyond. Of the 6.2 percent of earnings that workers and employers each pay into Social Security, 5.3 percent goes to the OASI trust fund and 0.9 percent goes to the DI trust fund. A 0.2 percentage-point increase in the DI contribution rate (from 0.9 percent to 1.1 percent for workers and employers each) would fully fund the DI program for the next 75 years. Alternatively, a temporary reallocation of part of the OASI contribution rate would strengthen DI while keeping the OASI fund adequately funded for many years into the future.
On a combined OASDI basis, Social Security is fully funded until 2033, but faces a long-term shortfall thereafter. In 2013, Social Security revenue plus interest income exceeded outgo by $32 billion, leaving a surplus. Reserves, now at $2.8 trillion, are projected to grow to $2.9 trillion by the end of 2019. Then, if Congress takes no action in the meantime, reserves would start to be drawn down to pay benefits. If Congress does not act before 2033, Social Security is projected to face a shortfall. Its reserves would be depleted and revenue continuing to come into the trust funds from workers’ and employers’ contributions and taxation of benefits would cover about 77 percent of scheduled benefits (and administrative costs, which are less than 1 percent of outgo). Timely revenue increases and/or gradual benefit reductions can bring the program into balance over the long term, preventing the projected shortfall.

"Why Some Workers Should Be Allowed a 'Buy-In' for Social Security: A Policy Suggestion to Reduce the Regressive Adjustments of the Windfall Elimination Provision"

LAURA L. COOGAN, Nicholls State University
Email: laura.coogan@nicholls.edu

The Windfall Elimination Provision adjusts, through a reduction, the retirement income for workers who qualify for Social Security retirement benefits and have retirement benefits from employment outside of that system. While the WEP adjustment for workers with pensions from non-covered employment (which is common from employment by state and local governments that do not participate in the Social Security) has received some attention, there is little information for workers who have the same mix of earnings but who do not and will not receive a pension. This situation arises when workers receive their non-covered retirement benefits in a lump sum or in an Optional Retirement Plan. This paper details the WEP adjustment for these workers and suggests a policy that reduces the probability that total retirement income from the combined earnings will be less than Social Security retirement benefits as if all earnings were covered by Social Security.

"Financial Literacy Among American Indians and Alaska Natives"
Research and Statistics Note, August 2014

JOHN L. MURPHY, Government of the United States of America, Social Security Administration, Office of Retirement Policy
Email: john.murphy@ssa.gov
ALICIA GOURD, Independent
Email: aliciagourd@yahoo.com
FAITH BEGAY, Independent
Email: faithbegay7@gmail.com

This study uses data from the Health and Retirement Study (HRS) to analyze financial literacy within the American Indian and Alaska Native (AIAN) population. The HRS is a nationally representative longitudinal survey of individuals aged 50 or older and their spouses. The study compares AIAN financial literacy scores from an 18-question financial literacy module with those from other racial groups, all of whom score higher than the AIAN sample.

"Incorrect World Bank Pension Data – Consequences for Policy Making in Eastern Europe and Possible Remedies"

NIKOLA ALTIPARMAKOV, Serbian Fiscal Council
Email: NALTI@yahoo.com

In this paper we show that over the years World Bank pension studies on Eastern Europe have been based on inconsistent and mostly upward biased data on rates of return realized by mandatory private pension funds. Relevant policy makers need to be aware of these data problems in order to properly assess initial pension privatization performance and in developing adequate pension (re-)reform policies. World Bank should consider improving disclosure standards of its publications in order to prevent this kind of errors from reoccurring in the future

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Obama's Social Security Proposal

A piece from me in today's Wall Street Journal:

The Obama Tax Hike

Until recently, Sen. Barack Obama took a responsible position on Social Security, noting the urgency of reform and saying all options should be on the table.

But having cornered himself among Democratic activists whose attitudes toward Social Security reform range from demagoguery to denial, Mr. Obama has recently veered sharply left. He now proposes to solve the looming Social Security shortfall exclusively with higher taxes.

"Once people are making over $200,000 to $250,000," Mr. Obama says, "they can afford to pay a little more in payroll tax." No shared sacrifice, no outreach to moderates or conservatives, here.

Mr. Obama's proposal is to make a significant change to the payroll tax system. Currently, all wages below about $100,000 are subject to a 12.4% Social Security payroll tax. But all wages above that amount are not subject to the tax. Mr. Obama wants to eliminate the cap, but, in a concession to taxpayers, exempt wages between $100,000 and $200,000. He wants to create a "donut hole" in the taxing mechanism that pays for the nation's largest retirement program.

The problem is two-fold: His proposal would be a very large tax hike, yet it won't be enough.

Mr. Obama's plan fixes less than half of Social Security's long-term deficit, making further tax increases inevitable. The Policy Simulation Group's Gemini model estimates that Mr. Obama's proposal, if phased as Mr. Obama suggests, would solve only part of the problem. A 10 year phase-in, for example, would address only 43% of Social Security's 75-year shortfall. And this is assuming that Congress would save the surplus from the tax increases -- almost $600 billion over 10 years -- rather than spending it, as Congress does now.

What's more, Mr. Obama's plan would keep Social Security in the black for only three additional years. Under his proposal, annual deficits would hit in 2020, instead of 2017. By the 2030s the system would still run an annual deficit exceeding $150 billion.

Mr. Obama's modest improvements to Social Security's financing come at a steep cost. The top marginal federal tax rates would effectively increase to 50.3% from 37.9%, equivalent to repealing the Bush income tax cuts almost three times over.

If one accounts for behavioral responses, even the modest budgetary improvements from Mr. Obama's plan are likely to be overstated. If employers reduce wages to cover their increased payroll-tax liabilities, these wages would no longer be subject to state or federal income taxes, or Medicare taxes. A 2006 study by Harvard economist and Obama adviser Jeffrey Liebman concluded that roughly 20% of revenue increases from raising the tax cap would be offset by declining non-Social Security taxes. Assuming modest negative behavioral responses, Mr. Liebman projected an additional 30% reduction in net revenues, leaving barely half the intended revenue intact.

Mr. Obama's plan would also dramatically raise incentives for tax evasion, further degrading revenue gains. Many high-earning individuals evade the Medicare payroll tax by setting up "S Corporations," paying themselves in untaxed dividends rather than taxable wages. John Edwards avoided $590,000 in Medicare taxes this way in the 1990s. Under Mr. Obama's plan, Mr. Edwards's savings would have exceeded $3 million. With that much at stake, the incentive to follow Mr. Edwards lead will be that much greater.

Mr. Obama's plan shows the limits to taxing the rich as a solution to Social Security's problems. Top earners would effectively be tapped out, with taxes as high as economically and politically feasible, yet most of Social Security's deficit, and the much larger shortfalls in Medicare, would remain.

The U.S. already collects far more Social Security taxes from high earners than other countries do. Social Security taxes here are currently capped at about three times the national average wage -- far above other developed countries. In Canada and France payroll taxes are levied only up to the average wage. In the United Kingdom, taxes stop at 1.15 times the average wage; in Germany and Japan at 1.5 times. Social Security is already more progressive than these countries' pension programs, and Mr. Obama's plan would make it more so.

President Bill Clinton considered lifting the wage ceiling modestly, but was skeptical of eliminating it outright. Doing so would "tremendously change the whole Social Security system . . . We should be very careful before we get out of the idea that this is something that we do together as a nation and there is at least some correlation between what we put in and what we get out," Mr. Clinton said in 1998. "You can say, well, they owe it to society. But these people also pay higher income taxes and the rates are still pretty progressive for people in very high rates."

Social Security's shortfalls are primarily attributable to society-wide trends of lower birth rates and longer lifespans. If we want to retain the shared character that underpins its political support and distinguishes it from traditional welfare programs, we need to share the burdens of reform proportionately. Mr. Obama should drop his exclusive focus on raising taxes and return to his previous view, that Social Security faces significant problems requiring prompt attention. All options should be on the table.

Mr. Biggs, a former principal deputy commissioner at the Social Security Administration, is a resident fellow at the American Enterprise Institute.

Commentary on the op-ed from:

Donald Luskin

Ryan Ellis

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Wash Post: Recession Puts a Major Strain On Social Security Trust Fund

The Washington Post's Lori Montgomery reports on the recent decline in the Social Security surplus, with some contrasting – though, I think, both correct – views on what it means. The Center for American Progress's Christian Weller says:

"This is not a problem for Social Security, it's a problem for fiscal responsibility," said Christian Waller, a public policy professor at the University of Massachusetts at Boston and a senior fellow at the Center for American Progress. He said the new estimates would force President Obama and his budget director, Peter Orszag, "to stay on track in what they have set out to do, and that is rein in deficits."

This is a good point. During the reform debate of 2005 folks on my side pointed out that Social Security will begin running deficits in 2017, demanding repayment of the trust fund. I always why the left didn't simply acknowledge this, but then point out that the 2017 date signaled a problem for the rest of the federal budget, not for Social Security, and that this problem was only made worse by tax cuts that put the budget further out of balance. (I'm not saying I fully agree with this, but it's an effective talking point.)

In any case, here's what I told the Post:

"Over the past 25 years, the government has gotten used to the fact that Social Security is providing free money to make the rest of the deficit look smaller," said Andrew Biggs, a resident scholar at the American Enterprise Institute. "Now they've essentially got to pay their own way, at least a little more fully.

"Instead of Social Security subsidizing the rest of the budget," he said, "the rest of the budget will have to subsidize Social Security."

For more on the relationship between the trust fund and the rest of the federal budget, see this post: "What does it mean to save the surplus?"

 

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