Monday, February 14, 2005

Social Security Thoughts

The scope of the Social Security problem is partially masked by the government's accounting practices. Currently, the money that Social Security takes in goes into the "trust fund," which essentially means the government spends it, promising to pay back SS when it needs it. This means that the total federal budget deficit has, in recent years, looked much better than it actually is. The handful of surpluses, if I recall correctly, were actually deficits when SS is removed from the equation. This implies that as SS expenditures rise and receipts decline, the budget deficit will begin to get worse, all else being equal. It's not just a case of needing to start repaying the trust fund around 2018. The government is incapable of running a budget even close to balanced without relying on the Social Security receipts. This points to an ominous picture of significant tax increases or cuts in spending as the demographic crisis gets worse.

I also find it interesting that Social Security is one of the few programs at the federal level in which the revenue source is directly linked to the spending. I wonder how much more efficiently government might operate if all programs were directly linked to the taxes that funded them, making the tradeoffs in their creation and maintanence explicit. This connection suggests several interesting ideas about looking at the problem of Social Security in the context of broader tax reform.

UPDATE: "Link" changed to "connection." I should know better than to post while tired.

1 comment:

Tom Bozzo said...

Actually, there were "on-budget" surpluses in FY 1999 and FY 2000. The former was insignificant given the sums involved, but the latter was $86.3 billion.

Those figures, and the FY 2003 and '04 on-budget horrors, may be seen here.