Wednesday, February 09, 2005

Untangling Social Security

If we are going to have a debate about Social Security reform, it really would be nice if everyone actually understood what was going on. Alas, the Bush administration is doing all it can to keep us all in the dark. Fortunately, we aren't completely reliant upon them for our information.

Most readers of this site are probably aware of the work being done on this issue over at Legal Fiction. But if you yourself are not, you should be. Publius has been breaking down the Bush plan into bite-size pieces. Even if you feel that you have a pretty good handle on the proposal, you should check it out. Part I is here and Part II is here (I'll update this post once the remaining sections are posted).

(Update: Part III has been posted.)

Kevin drum also has a post up today which explains some of the issues regarding the Social Security Trust Fund. As the administration attempts to convince the nation that the trust fund doesn't exist, it's worth your while to see what Kevin has to say about it.

And let me add just one thing. Josh Marshall sometime ago (I can't find the link right now -- I'll update once I've located it) pointed out that the crisis that we're facing in 2018, the year revenues from payroll taxes will fail to cover the cost of Social Security benefits, isn't a Social Security fund crisis, it's a general fund crisis.

You see, in 1983 payroll taxes were increased in order to cover the costs of the retiring baby boomers -- starting in 2018. This created a surplus in the system which would have been able to cover the costs of this demographic bubble. The problem is that instead of saving this money, it was spent. In other words, the fund surplus was diverted to the general fund. So now, the general fund needs to pay back that loan. And that is where the problem is. The general fund doesn't have the cash to make good on its debts.

There are a host of ways to deal with this problem, but it is important to know what the problem actually is. And, since this administration has made a career of exacerbating the currently existing general fund crisis (through tax cuts and enormous spending increases), it might give you pause as you consider their plans for rectifying it.
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