The deceptions perpetrated in the name of opposing Social Security reform are dime a dozen. The latest to gain prominence is the ruse that Social Security can be saved by rolling back a portion of the Bush tax cut.
For example, Senator Dianne Feinstein last week claimed that “repealing President Bush’s tax cut for those earning more than $200,000 and transferring the revenues to Social Security… could save about $2.9 trillion over 75 years.”
The great one, Ted Kennedy, had this recent exchange with Tim Russert on Meet the Press:
MR. RUSSERT: So you would roll back the president’s tax cuts.
SEN. KENNEDY: That’s a possible — for one-third, he wants to make it permanent. You can roll back just one-third of it and solve the Social Security problem.
Kennedy gets his “one-third” figure from numbers provided by the left-wing Center for Budget and Policy Priorities. The CBPP gets it numbers by comparing the “present value” of the Bush tax cut with that of the Social Security shortfall. Present value is simply the amount of money that would have to be invested today in order to come up with a larger amount of money in the future. The Social Security actuaries estimate that the present value of the Social Security shortfall over the next 75 years is $3.7 trillion; in other words, $3.7 trillion would have to be invested right now to cover Social Security’s deficits for the period 2004-2078. The CBPP calculates that the present value of the Bush tax cut over that same period is $11.1 trillion. Divide 3.7 by 11.1 and Kennedy has his one-third figure.
The CBPP comparison is bogus. To understand why, it is important to realize that the present-value figures for both the Social Security shortfall and the Bush tax cut only permit a comparison of a given time period, in this case 2004-2078. They do not enable us to make a year-to-year comparison. That is where the CBPP numbers begin to fall apart. For example, in its calculation of the Bush tax cut, the CBPP includes tax revenue from 2004-2017. But those are years when Social Security is running a surplus and, thus, extra revenue from rolling back the Bush tax cut would not be needed. The present-value comparison does not tell us if revenue from rolling back the Bush tax cut will be enough to pay Social Security benefits in each year from 2018-2078, when Social Security pays out more in benefits than it collects in payroll taxes.
To see whether rolling back one-third of the Bush tax cut is sufficient to cover the Social Security shortfall, what’s needed isn’t a present-value comparison, but a year-to-year comparison. Using data from the Social Security Trustees Report and the CBPP numbers on the Bush tax cut, I created Table 1 that does just that. It begins the comparison in 2018, when Social Security first pays out more in benefits than it collects in payroll taxes, and ends it at 2078. It’s not even close. Even with a rollback of one-third of the Bush tax cuts, Social Security begins paying out more in benefits than it collects in taxes in 2023. By 2028 the shortfall is more than $100 billion in inflation-adjusted dollars, and by 2036 it is over $200 billion. At the end of 75-year period Social Security still comes up short by a towering $536 billion, and the cumulative shortfall over that period is $15.7 trillion.
What if we were to roll back all of the Bush tax cuts? That results in big improvement, but as Table 2 shows, it’s still not quite enough. Social Security starts running deficits again in 2070.
Besides, that would require the Democrats to tell all Americans, not just the wealthy ones, that they were going to raise their taxes. Do that, and public support for personal accounts will hit the stratosphere. I’m completely confident the Democrats are not that dumb.