The American Spectator

Political Hay

Music to Reformist Ears

By David Hogberg on 3.9.05 @ 12:08AM

The opponents of Social Security reform are fond of citing the Congressional Budget Office report from last June that states that the Social Security trust fund will not run dry until 2052. However, their use of CBO documents is highly selective. For example, they never note that the same report says that the Social Security "trust funds are mainly accounting mechanisms and contain no economic resources."

Thus, it is not surprising that they have completely ignored the remarks that Douglas Holtz-Eakin, director of the CBO, recently delivered before Congress. In them, Holtz-Eakin addressed matters that opponents of reform would much rather not. It is instructive to juxtapose their arguments with his.

No Near-Term Crisis? The George Soros-funded Center on Budget and Policy Priorities states, "The Social Security trustees' report reaffirms that Social Security does not face a near-term crisis and can pay full benefits for the next 38 years but will eventually face a significant imbalance."

In the part of his testimony entitled "Alternative Perspectives on Social Security," Holtz-Eakin, offers a different take on the next 38 years:

Holtz-Eakin understands that paying full Social Security benefits over the next 38 years will impose additional costs on the federal budget and, ultimately, the taxpayers. The CBPP does not seem to grasp this. Nor does Paul Krugman:

That claim is simply false. Yet much of the press has reported the falsehood as a fact. For example, The Washington Post recently described 2018, when benefit payments are projected to exceed payroll tax revenues, as a "day of reckoning."

Here's the truth: by law, Social Security has a budget independent of the rest of the U.S. government. That budget is currently running a surplus, thanks to an increase in the payroll tax two decades ago. As a result, Social Security has a large and growing trust fund.

When benefit payments start to exceed payroll tax revenues, Social Security will be able to draw on that trust fund. And the trust fund will last for a long time: until 2042, says the Social Security Administration; until 2052, says the Congressional Budget Office; quite possibly forever, say many economists, who point out that these projections assume that the economy will grow much more slowly in the future than it has in the past.

Holtz-Eakin, however, asks some important questions about the bonds in the trust fund: "To pay full benefits, the Social Security system will eventually have to redeem the government bonds held in its trust funds. But where will the Treasury find the money to pay for those bonds? Will policymakers cut back other spending in the budget? Will they raise taxes? Or will they borrow more?" Would that Krugman were honest and acknowledged such questions. Alas, the CBO appears to hold itself to higher standards than the New York Times op-ed page.

The Crisis Is Coming When? The CBPP argues that the day of reckoning is far off:

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Actually, the key date is 2008, according to Holtz-Eakin:

Most reform opponents put the day of reckoning far off, either 2042 or 2052. Most reform proponents bring it closer, to 2018, when Social Security is projected to pay out more in benefits than it collects in taxes. Only a few have suggested that the first date of concern is a few years from now when the Social Security surplus begins to decline, thereby putting increased pressure on the federal budget. Holtz-Eakin is one of them.

Reform Will Have Disastrous Consequences? So says noted actuary and economist Molly Ivins: "The plan will cost around $2 trillion in 'transition costs' just to shift from the current system. You notice Bush didn't mention that in the State of the Union. That's $2 trillion we don't have, can't afford and will have to borrow, with horrid economic consequences, all quite apart from the fact that the plan won't work."

Holtz-Eakin sees things a bit differently:

Letter to the Editor

topics:
Taxes, Federal Budget, Social Security, Law