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Sunday
Jan112009

Social Security ain’t broke and don’t need fixin’.

This week Obama said entitlement programs will be "a central part" of his Administration's effort to control federal spending. (Interestingly, these remarks at a press conference are not in prepared statements on the Obama transition website.) Clearly, Medicare and Medicaid are underfunded, but Social Security needs, at most, a minor tweak and is probably just fine for the long term with no changes in funding or benefit formulas, according to Bruce Webb and Barkley Rosser. So why did he say it?

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Reader Comments (2)

Am I right that LBJ comingled the SS fund with the general budget for the first time to hide Vietnam war spending, and that it is still comingled? If so, is Obama signaling that he may be getting ready to take from the SS fund for his stimulus program? Maybe he will be a one term president. This makes me nervous.

January 14, 2009 | Unregistered Commenterchristine

I don't remember when the merger took place. LBJ might have found it convenient because Social Security taxes exceeded benefits until 1982, when SS had to borrow from other trust funds to pay SS benefits. In 1983, a commission headed by Alan Greenspan designed a new funding system that was projected to be solvent throughout the 75-year study period. SS taxes went up considerably and were put into a "trust fund" invested entirely in Treasury obligations.

By imagining that these quite large SS trust fund additions are simply contributions to the General Fund, Congress has been able to keep income taxes low without showing deficits in the combined budget as large as they would be in a more transparent world. Trust fund withdrawals are projected to start exceeding additions in about 2017. As we get close to that time, the inadequacy of tax revenues will become more obvious and the pressure to raise income taxes--to fund the operation of the government and to pay off the IOUs the trust fund will be cashing in--may get intense. Of course, Congress could just raise SS taxes to put off that day and avoid progressive taxes.

January 14, 2009 | Registered CommenterSkeptic

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