The Social Security non-crisis
21 December 2004
The Left Business Observer debunked the tales of Social Security “crisis” that were circulating back in 1994 and 1998. Now that the Bush administration is pushing Social Security “reform,” wonks closer to the Democratic mainstream, such as Matthew Yglesias and Kevin Drum, have come to the same realization.
If you don’t have the patience to read Yglesias or LBO, contemplate Kevin Drum’s graph, which shows that “doomsday” for the Social Security trust fund has been about 35 years away for the past ten years. If you have a little more patience than that, here’s my standing-on-one-foot explanation:
- The predicted “bankruptcy” of the trust fund is simply the time at which, if all the trustees’ predictions come true, the fund will have to borrow money from the general fund instead of loaning money to it.
- Even if the predictions are accurate, “bankruptcy” can be prevented by raising the Social Security tax by a few points (or by making all income, not just wages up to a certain limit, subject to the tax).
- Even if the predictions are accurate, Social Security taxes are not raised, and Social Security benefits are cut to stave off “bankruptcy”, retirees in the 2040s will get more, even after adjusting for inflation, than retirees today.
- The Social Security trustees have been consistently lowballing their predictions of future economic growth. If US economic growth over the next 40 years is anything like it was for the last 40 years, then there will be no “bankruptcy.” If it is as low as the trustees fear, then stocks and bonds aren’t going to do so well, either.