Monday, November 29, 2004

If I Were a Republican...

My Head Would Hurt.

We're talking eye-ball squinting, pounding temple proportions.

One the one hand, I'd believe Social Security was facing a relatively imminent crisis. One the other hand, I'd believe the solution required heightening and bringing forward that relatively imminent crisis.

But first, a bit of background. A segment of the wages America's workers earn go to pay for Social Security. Roughly 5 out of every 6 dollars the Social Security Administration receives is immediately passed out to current retirees. The 6th dollar is placed in the so-called Trust Fund. The Trust Fund trades with the US Treasury- each 6th dollar for a special issue government bond. The Treasury takes that 6th dollar and drops it in the General Fund- to pay for roads, civil service salaries, bombs, you name it. The Trust Fund squirrels away its bonds- now nearing $1.5 trillion worth- for a later day. As currently projected, that later day will begin to arrive in 2018. In 2018, current retirees will need all 6 of those 6 dollars and a little bit more. To come up with that little bit more, the Trust Fund will have to cash in some of its government bonds for cash. Which means the General Fund will be on the hook for a small but increasing portion of retiree benefits. Come 2042, the Trust Fund will have exhausted its supply of government bonds- at which point (barring a change in the interim) Social Security will not have the funds to pay full benefits.

Republicans have taken to arguing that 2018- i.e. the moment Social Security must draw on the General Fund- marks the onset of the collapse of Social Security. Their solution- the addition of individual accounts- carries sizable transition costs. Transition costs which must be paid out now (as the transition occurs). Barring a willingness to employ tax strategies- which is not on the table- the General Fund will be forced to pay for a portion of retirement benefits sooner than 2018.

If we can't trust the government to pay it's debts to Social Security in 2018, how can we trust it in, say, 2007 or 2012?


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