Last Thursday, Charles Krauthammer chastised Office of Management and Budget Director Jack Lew for trying to exclude Social Security from deficit-reduction talks. Accusing Lew of “perpetrating a fiction” by claiming that Social Security will be solvent until 2037, Krauthammer clearly laid out the likelihood that the goverment will not be able to meet the program’s funding needs in the medium-term future.
Lew fired back on the OMB’s blog, calling Krauthammer’s description of the Social Security trust fund and its soundness “off base.” After going into some detail about the nature of the trust fund, Lew concludes that “Krauthammer’s argument is inside out. We should not blame Social Security for our current fiscal problems when it is the irresponsible fiscal behavior of the past that has presented the country with future challenges to fund our commitments, including Social Security over the next two decades.”
I score this one for Krauthammer. It’s easy to get lost in the relatively complex structure of the trust fund and the payroll tax scheme, but Lew himself got at the heart of the issue: the country is facing challeneges to fund its committments, including Social Security over the next two decades. That was the charge Krauthammer made, and it is accurate.
In fact, Lew offers another helpful way to think about it, which also cuts against his own argument:
…the problem is not with Social Security, but in the near term the mismatch between what we take in and what we spend in the rest of the budget. Working people had payroll taxes taken from their salaries to pay for future benefits, and instead the money was used to pay for tax cuts and other initiatives. It is hardly fair now to say that those working people caused the problem just when they are ready to collect benefits.
Correcting for the backward logic in the claim that the payroll tax funds were used to “pay for tax cuts,” Lew is basically restated Krauthammer’s criticism in this passage: the government has spent out the revenues from both the general fund and from the gimmicky social security trust fund. As a result, there are no longer sufficient revenues for either. It’s not helpful to invoke “working people” or considerations of what’s “fair”; those should have been thought through years ago when the government was ramping up spending using Social Security funds. Now the question is how the government is going to cut spending to achieve solvency, and Social Security is the single largest spending item in the budget.
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