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Consequently, the 2009 date is meaningless. The fact that Social Security benefits payable will exceed payroll tax revenues is, by itself, of no more consequence than the fact that they exceed excise tax revenues. There is a genuine crisis - but it's not a Social Security crisis. The crisis (which we are well into now) is that total government revenues are well below total government expenditures, and that (in part because of increased Social Security liabilities) this will only get worse in the future.
There are ways to deal with this problem, but income from the "Social Security tax" is not a magic number that Social Security benefits payable must not exceed.
If there is no trust fund, that social security contributions are just another tax, and social security benefits are just another government program, and the only solvency issue is with the government as a whole.
If the problem is the government as a whole, then the problem is Bushian fiscal policy, and Krauthammer is a dishonest hack. But we knew that.
But there is another way of looking at things.
The reality of the trust fund, like the reality of legal tender and property in land, is not independent of our belief in its reality. But the trust fund was a useful way to allow for a class compromise in 1983 that was win-win. However, one party to the compromise has since 2000 reneged on it, and is using the payroll tax to subsidize high-income tax cuts.
They think they can get away with this because the working class in America has a long-remarked upon history of racial and cultural division. However, Social Security is really so essential to the feeble excuse for a social democratic coalition that America has that Bush's latest feint may actually force everyone to get together long enought to kick Cato and Rove's collective backsides. Rove will, of course, sell you out at the earliest opportunity. He likes business, but libertarian smart alecks really get on his nerves.
(a) doesn't increase the government's ability to fund Social Security beyond what it would be if the trust fund didn't exist. When the trust fund cashes in its bonds, the rest of the money nominally has to come out of the general fund - i.e. the government has to issue more debt, cut spending, raise taxes, inflate the currency, or engage in some combination thereof. All of those options would be equally available if the trust fund didn't exist. Contrast this with another alternative in which excess payroll tax revenues were invested in the stock market: then the trust fund could simply sell the stock; that option isn't available to the trust fund now. (Theoretically, we could amend the Constitution, sieze the stock, and sell it, but political difficulties notwithstanding it wouldn't work: if the government suddenly tried to appropriate hundreds of billions of dollars of assets without compensation, the stock market would crash and the economy would die.)
(b) It doesn't impose any obligation not to cut social security benefits. It would be politically difficult to default on the trust fund, but that's not necessary: all Congress needs to do is change the benefit formula. Then the trust fund can keep increasing in size indefinintely even as benefit payouts decrease.
You can call that "reality" if you want, but it's a pretty limited and ephemeral reality. The payroll tax is a scam on the working people of this country - a way to make our regressive tax system even more so.
But the debt owed by the general fund to the Social Security fund reduces the need of the general fund (at a given level of other taxes and other expenditures) to borrow now from the market. So it does improve the ability of the government to pay for Social Security in the future because there will be less debt to persons other than the trust fund.
The 1983 deal was a scam only because the Republican side acted in bad faith. They made no effort to keep the general fund in balance. So, in a sense, I agree with you. However, the villain here is Republican free lunchism, not the idea of the 1983 deal.
Not so. Today (I am making the numbers up, but that's not the point):
Payroll taxes: $700b
Social Security Expenses: ($500b)
Debt Issued to Trust Fund: $200b
Money transferred from trust fund to general fund: $200b
Other Tax Revenues: $1300b
Other Tax Revenues plus money borrowed from trust fund: $1500b
Other Expenditures: ($2000b)
Money borrowed from market: $500b
Consider instead a world in which there's no trust fund and Social Security is lumped together with other programs:
Payroll taxes: $700b
All other taxes: $1300b
Total tax revenues: $2000b
Social Security benefit payouts: ($500b)
All other expenditures: ($2000b)
Total expenditures: ($2500b)
Money borrowed from market: $500b
So we wind up with the same amount of debt issued to the market either way. The "trust fund" is just an accounting gimmick.
Bush and the Republican congress just passed a bill to make it much harder for poor people to file for bankruptcy. They beat down ammendments that would have helped people who suffered from a sudden medical crisis and identity theft.
Now, due to their out of control spending on tax cuts for the wealthy and pet wars, they are trying to get out of paying back the people who funded their spree.
If they really are concerned about the "reality" of the trust fund they could:
1. Pass a law that lets the SSA sell its bonds on the open market just like regular treasury bills.
2. STOP borrowing SS money NOW to fund their crazy schemes. Seems to me Bush and congress are commiting fraud if they are writing I.O.U.s they know are worthless. They can't have it both ways. How much in phony I.O.U.s have they written in the last 4+ years anyway? Enough to get them thrown in the debters prisons they are trying to get built?
If it wasn't for the "accounting gimmick", payroll taxes would be lower, and the amount of money the US Government would have to borrow from other sources would be greater (at the same levels of taxes and spending).
From a left-wing point of view, there would be a benefit to just funding SS pay-as-you-go. But the Democrats agreed to give that up back in 1983. The outrageous part is that the Republicans are now reneging on the deal (really, they reneged with the BushII tax cuts).
You may be right that the deal that created the "trust fund" has increased the government's ability to pay for Social Security by decreasing total borrowing, but that's not at all the same thing as the "trust fund" increasing the government's ability to pay for Social Security. The same "deal" sans trust fund (i.e. just raising payroll taxes) would have exactly the same impact. All the work is being done by increased government revenues, not by the trust fund.
Because the "trust fund" doesn't increase the government's ability to pay for Social Security (compared to an alternative system in SS and the payroll tax are simply lumped in with the budget) your "deal" that the Republicans are allegedly breaking was a setup from the beginning. If they'd been serious about setting up a trust fund, they would have invested the SS surplus in the market.
In any case the assumption on which your analysis rests (that taxation and spending would have been the same whether or not payroll taxes had been jacked up) is almost certainly false.
One other mistake: it's not about social security. The government needs to figure out how to balance its revenues and expenses, outside of the payroll tax and social security payments. Cutting back on social security, as in Bush's plan, does not even begin to address the problem. Changes to social security will not influence whether or not the government has serious fiscal problems come 2009.
The deal is the trust fund. In other words, there was no way that payroll taxes were going up except as a "fix" for Social Security's "solvency." That implies not treating the government as a black box.
You say other taxes and spending changed because of the 1983 deal. You may be right, and that may go to the merits of the deal. But it doesn't prove that the deal didn't happen (that the trust fund "does not exist").
SS will be in the black for the next 15 years or so. If Americans alive then want to do something when payments exceed receipts...that's their problem.
1. Increased the size of the federal budget at near record rates
2. Cut personal and corporate taxes to 50 year lows
Why focus on SS?
I don't think people realize how large the tax cuts passed in 2003 were. Simply by repealing them we could cover the projected shortfalls in SS and Medicare and still have money left over.
And an honest accounting would show that the U.S. is spending almost 2/3 of the global total on defense spending, yet our military is being turned into something that will be totally ineffective against another conventional army.
We would be just as safe if the defense budget was cut in half.
The only reason Bush is pushing SS "reform" is to distract people from the real cause of defecits.
When did corparate taxes get cut? Last time I checked the top marginal rate was still around 35%.
Percentage of stock held by top 1% of households by income: 55%
Percentage of stock held by top 10% of households by income: 75%
Average income of bottom 5th of US households (2002 $) in 1979: $11,100
Average income of bottom 5th of US households (2002 $) in 2002: $11,100
Average income of middle 5th of US households (2002 $) in 1979: $37,300
Average income of middle 5th of US households (2002 $) in 2002: $44,100
Average income of top 1% of US households (2002 $) in 1979: $439,000
Average income of top 1% of US households (2002 $) in 2002: $781,000
Looks like the poor needed a little help in 2003, so Bush and congress passed a temporary tax break to help them out. After looting SS, making these tax breaks permanent is their next target. Here is what the Republican controlled House Ways and Means Committee Report on Jobs and Growth Reconciliation Tax Act of 2003, HR2 (issued May 16, 2003) said about it:
In tax year 2003, the capital-gains tax cut which only covers eight months of the year is worth $30,700 to millionaires, but only $42 to households with incomes between $40,000 and $50,000. Sixty-one percent of the benefits from the capital-gains dividend tax cut go to only 2% of households.
But: recall that we libertarians, being libertarians, think that even at 50-year lows, even after the Bush cuts, our taxes are still extortionately high, and it would be unconscionable to raise them even higher. So, suppose you're a fiscally responsible libertarian trying to come up with a proposal for rectifying the short- and long-term general budget imbalances without raising taxes. You've gotta cut something big, because the imbalance is big and will get bigger. What are the big things you can cut?
There is, as you say, defense. Defense cuts will go part of the way, but not nearly all of the way, esp. in the longer term. And non-defense "discretionary" spending is just too small a part of the budget to make much difference.
That leaves debt interest, Medicare, and Social Security-- each of which is a big piece of the budget, in the 10-20% range IIRC. Defaulting on the debt, while it may not be immoral, would definitely be unwise, at least for now. :-) Medicare ought to be phased out, but nobody seems to know how to do that; what with the awful new prescription drug benefit and all, it'll be all we can manage to rein in the *growth rate* of the accursed thing, never mind cutting it.
Only one thing left...
Don't you think that leveling the taxation playing field in terms of how corporations distribute earnings to their shareholders was a good thing? We haven't had a quarter of GDP growth below 3% since they passed. A rising tide lifts all boats my friend.
From the year before Reagan took office to the year before Bush passed his massive tax cuts for the rich, the lower 5th of American households had exactly zero growth in real income. That's almost 25 years. Dogma does not equal reality!
Nicholas, real libertairans focus on government spending. Smaller government is the whole point. While you can't get to a balanced budget by just cutting defense, it's a great place to start.
The point is that Cato has been a party to this dishonest crisis talk. If Cato just said, "we're libertarians and we hate all government programs, including Social Security", that would be honest, although doubtless politically ineffective.
My own perspective is that classes can, and do, make deals. Every stable economy in the world depends on such a deal. The fact that your ideology precludes these deals is a problem with your ideology, not with the deal.
And no, classes don't make any deals worth respecting, and to the extent the world's economies depend on them it's because those economies have been corrupted by the vicious evil of managerialist, paternalist welfare statism, whose proponents claim that it's perfectly OK to trample upon the inalienable liberties of individuals in order to "spread risks" incrementally better. The fact that you think rejecting such deals is a problem with my ideology indicates the essential evil of your ideology.
Anyway, it's not my ideology that precludes any such deal being legally binding here, but the Constitution and the common law. For the last time: do you understand the principle that a Congress cannot bind future Congresses, or not?
Anyway, I am not saying that deals between classes are typically enforced through law, but through politics. As a positive matter, classes do make deals (although they revise them). As a normative matter, those deals create reasonable expectations and aid in political stability, so they should presumptively be respected.