Kevin Drum’s defense of Social Security from the Deficit Commission is making the rounds. His argument, intended to be as simple as possible, goes like this:
In 1983, when we last reformed Social Security, we made an implicit deal between two groups of American taxpayers. Call them Groups A and B. For about 30 years, Group A would pay higher taxes than necessary, thus allowing Group B to reduce their tax rates. Then, for about 30 years after that, Group A would pay lower taxes than necessary and Group B would make up for this with higher tax rates.
This might have been a squirrelly deal to make. But it doesn’t matter. It’s the deal we made. And it’s obviously unfair to change it halfway through.
So who is Group A? It’s people who pay Social Security payroll taxes, which mostly means working and middle class taxpayers. And who is Group B? It’s people who pay federal income taxes, which mostly means the well-off and the rich. For nearly 30 years, Group A has been overpaying payroll taxes, and that’s allowed the government to lower income tax rates. The implicit promise of the 1983 deal is that sometime in the next few years, this is going to flip. Group A will begin underpaying payroll taxes, and the rich, who have reaped the benefits of their overpayment for 30 years, will make good on their half of the deal by paying higher income tax rates to make up the difference.
The physical embodiment of this deal is the Social Security trust fund. Group A overpaid and built up a pile of bonds in the trust fund. Those bonds are a promise by Group B to repay the money. That promise is going to start coming due in a few years, and it’s hardly surprising that Group B isn’t as excited about the deal now as it was in 1983. It’s never as much fun paying off a loan as it is to spend the money in the first place.
But pay it off they must.
I can’t speak to the accuracy of Drum’s history of the Greenspan Commission. But overall, it seems as though Drum’s argument reduces to the claim that Social Security is part of the federal budget and federal tax policy has not been progressive enough over the past 30 years.
Maybe so, but the problem I see here is that the federal budget is in trouble, deal or no deal. Even making tax policy more progressive from here on out won’t solve the looming problem.