Eric Schurenberg has just published, on this website, yet another in a long line of polemics that claim Social Security is actually a "pay-as-you-go" program. The argument says that the Social Security trust funds are fake. The only income for the program that counts is each year's tax revenues. If those revenues are less than this year's spending, then the program is one of the "causes" of current deficits -- in Schurenberg's words, the idea that Social Security "didn't create the deficit" is a "myth."
Greg Anrig of The Century Foundation has done a point-by-point rebuttal of Schurenberg's five "myths." It's worth a look. But lets concentrate for now on the simple question of Social Security's relationship to current deficits.
The first obvious point is, even if you ignore the trust fund, Social Security's role in "creating" current deficits is remarkably small compared to all other causes. Over the period following the financial crash, so from fiscal years 2009-2012, total federal deficits are estimated by CBO to be well over $5 trillion (Summary Table 1 and Table 1-2 in). If you believe Schurenberg's analysis, then Social Security's "contribution" to the deficit would be the difference between the taxes it collected over this period and the program's expenditures. Social Security finances are reported by calendar years, so there is a three month difference, but that does not matter for this comparison: over calendar years 2009-12, the total difference between Social Security's taxes and spending is projected to total just about $43 billion. The pay-as-you-go shortfall in Social Security for calendar year 2011, as projected by the Social Security actuaries, is $6.9 billion. And the actuaries' projections show Social Security back in surplus, even if you only count current taxes, in 2012 (see table IV.A3 in the Trustees Report, Intermediate Projection).
It takes a remarkable lack of perspective, when comparing $43 billion to over $5000 billion, to view Social Security as in any manner "creating" the deficit. But these figures do not count the trust fund revenues, which show Social Security in substantial surpluses. The position promoted by Mr. Schurenberg, and Gene Steuerle, and Allen Sloan, and Paul Ryan, and the many other critics is that the trust fund doesn't matter. Lets think about this just a bit.
If the trust fund does not matter, then the deficit situation would be the same now if we had never run the surpluses that created the trust fund.
So what would the budget look like if those taxes hadn't been collected? Interest on the national debt would be much higher. It would be higher, in fact, by exactly the amount of interest being credited to the trust funds each year. The deficit over the course of calendar year 2009, for example, would have been $118.3 billion higher.
That seems like a fairly significant effect on the deficit to me -- not in the same league as the 2001-2003 tax cuts, but quite large. In fact, if you count the effect of Social Security taxes collected in from 2009-2012 and in previous years on federal finances during those years, Social Security is projected to reduce total deficits by $440 billion.
Mr. Schurenberg's analysis reduces to a claim that we should ignore that effect. This is fiscal nonsense, but it also would be remarkably inequitable. I and many other readers paid taxes that, we are now being told, don't count. Then why were they collected? Baby boomers in particular -- the citizens whom critics keep wanting to blame for the deficit -- have been paying extra Social Security taxes for most of their working lives. And now Mr. Schurenberg and the many people he cites say it made no difference at all.
Why? By what fiscal logic shouldn't we count the effect of previous taxes on interest costs now?
Joseph White is Director of the Center for Policy Studies at Case Western Reserve University.
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