Later On

Michael Lind summarizes them in Salon:

Last Tuesday, just before the release of the annual Social Security trustees report, I predicted that no matter what the report contained the perennial enemies of America’s most effective and efficient universal social insurance program would cite it as proof that Social Security needs to be means-tested, privatized or both. The report is in, and its contents are far from dramatic. The (dubiously) estimated date at which, absent changes, the trust fund dries up and Social Security shifts to a pay-as-you-go program paying most, but not all, promised benefits has moved up slightly from 2041 to 2037. But to listen to the critics of Social Security on the right you would think that Godzilla was blocks away from the Fulton Fish Market.

Posting at the libertarian Cato Institute’s Cato@Liberty blog, Michael Tanner claims to be alarmed that Social Security’s “unfunded liabilities — the amount it has paid beyond what it can actually pay — now total $17.5 trillion. Yes, that’s trillion with a ‘T.’ That’s $1.7 trillion worse than last year.”

Is the government really going to have to come up with $17.5 trillion in the next year or two to pay for Social Security, as more baby boomers retire? Undoubtedly that is what some opponents of Social Security want to frighten their fellow Americans into thinking. What Tanner neglects to tell his readers is that this big, scary number purports to measure Social Security’s unfunded liabilities over an infinite time horizon and assumes there are no changes made between now and eternity. Any number of relatively minor changes, from lifting the cap on the Social Security payroll tax to infusing general revenues, could preserve the program in its present form into the 22nd century without insolvency or harm to the U.S. economy.

The “unfunded liabilities” argument is misleading for another reason. It is only applied to programs that, like Social Security and Medicare, are paid for by a dedicated tax like a payroll tax. The projected gap between future revenues and future outlays from this special-purpose tax is the “unfunded liability.” Why do we never hear of the “unfunded liabilities” of Pentagon spending — the third of the big three spending programs (Social Security, Medicare, defense) that take up most of the federal budget? Defense spending comes out of general revenues, not a dedicated tax.

Suppose that in an alternate Rod Serling universe our other-dimensional twins paid for Pentagon spending on the basis of a dedicated national consumption tax, while they paid for Social Security and Medicare out of general taxation. In that case, opponents of Pentagon spending might have a field day denouncing the gap between the estimated federal consumption tax revenues in, oh, let’s say, 2050 and the military threats they estimate that the U.S. will face in half a century. But in this “Twilight Zone” America, neither Social Security nor Medicare, lacking dedicated taxes, would have “unfunded liabilities” any more than the Pentagon does in our world.

Cato’s Tanner does concede that the Social Security Trust Fund will pay benefits until 2037. He claims, however, that “that figure is misleading, because the Trust Fund contains no actual assets. Instead, it contains government bonds that are simply IOUs, a measure of how much the government owes the system.” So government bonds backed by the full faith and credit of the U.S. government, a government that has never defaulted on its obligations in its entire existence since 1776, are not actual assets? Really? This is hard to square with Tanner’s argument that even after the Wall Street meltdown “long-term investment remains remarkably safe.” If Tanner and others got their way and Social Security were partly or wholly privatized, presumably people, including libertarians, who read the Cato blog would invest some portion of their private retirement savings in U.S. government bonds. Would that be foolish? Or are U.S. government bonds “actual assets” when they are part of IRAs but not “actual assets” when they are owed to the Social Security system?

Another deficit hawk pressure group that has been campaigning for cuts in Social Security for years, the Concord Coalition, chaired by Pete Peterson, issued a press release that …

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