Wednesday, March 19, 2008

The Social Security Trust Fund

Dean Baker, of the American Prospect and co-director of the Center for Economic and Policy Research, is outraged by a column by Allen Sloan. In the column, Sloan makes the sensible observation that there is no real trust fund and as a result Social Security will become problematic in 2017 not 2041. Baker contests this, he says, wait, the trust fund has treasury bonds, those are perfectly good instruments. Sloan, in his column, and Baker in his post, identify that in order for the bonds to be redeemed, the government (read taxpayer) has to shell out cash. Baker's outrage would be justified if all these years we had actually set aside funds or paid down debt commensurate with the social security surplus which is used to purchase the treasury bonds set aside in the trust fund. But we haven't (save a couple of years at the end of the Clinton administration where there was no war, an asset bubble, a congress that was elected on the basis of getting rid of government, and a president that himself was a fiscal hawk; in short, a situation not likely to repeat itself anytime soon). The result is that we have taxed people so as to prefund a portion of social security (the trust fund) but will need to tax folks again to provide the same benefits they have already paid for. As to Baker's broader point, he is technically correct that Social Security's finances are in good shape, if you look at Social Security in isolation. But if you look at Social Security in the context of Government as a whole, the situation looks piss poor.

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