Although I can hear the gaskets blowing in blogland already, I mean the question sincerely. I have been mulling over the comments on an earlier post noting the Wall Street Journal's Econoblog Kling-Sawicky debate on social security reform -- unfortunately the feature no longer seems to be available on the public site. In my comments I repeated what I think is a simple, and undisputed, observation. Under baseline assumptions, OASDI benefit payments will exceed dedicated payroll tax collections in 2018. At that point, the excess benefit payments, if honored, must be made out of general receipts.
This generated an immediate response from pgl (Angry Bear), Brad Setser, and spencer. Here's what Brad said, which was explictly endorsed by pgl, and I think consistent with what spencer had to say:
from 2018 to 2042, the transfers are payback for the fact that SS payroll taxes have exceeded SS benefits since the 80s reforms -- i.e. they represent past payroll tax surpluses plus interest. After 2042, those transfers could be continued but they would be simple "transfers", not payback for past payroll tax surpluses lent to the government.
It is fair to point out that general revenue transfers start in 2018, but i think it is important to also note that just represents the point where the system draws on its accumulated assets (past surpluses) to start making payments. I suspect Sawicky is making a distinction between giving the social security system its past surpluses back with interest, and simple one way transfers.
That seems like a good reading of Max's mindset. This is from one of Sawicky's early posts in a string of extended framing debate between him and Andrew Samwick.
Workers have paid and will pay enough into the Social Security Trust Fund to finance full benefits until 2042. The Federal government is obligated to redeem its debt to the Trust Fund with its own separate revenues, chiefly the income tax. The fact that G. Bush has gutted the income tax is his own damn fault, and somebody will have to reverse that decision if the debt to beneficiaries is to be honored…
The emphasis is added. Ok, let me first highlight the area of, I think, significant agreement. From my original comments regarding Arnold Kling's arguments in the WSJ feature:
By it's very nature, social security is a policy that operates directly on people's life-cycle decisions. Ideally, any reforms that are made would be in place before the generations primarily affected begin their effective economic lives.
In other words, I would not be inclined to support reforms that substantially alter the benefit payments represented by the accumulated trust fund. I think it bad policy to pull the rug out from under people who planned their affairs on the presumption that the government would play by a same set of rules. I think it is bad policy as an economist, because it a classic example of time inconsistency, and likely to lead to inferior outcomes, not matter what shape reform might take. I think it is a bad policy as a citizen because, well it just offends my sensibilities (and I'm no youngster, probably my pocketbook as well).
But that brings me right to my question. What's so special about social security? Don't these arguments apply to government policy in general? What is the difference between reducing my social security benefits and raising the tax rate I pay on my capital income? Take a dollar from my social security check, take a dollar from the interest income I earned from my personal saving. What the heck, please tell me, is the difference?
A common tact of the "obligated to redeem its debt" line is to draw an equivalence between the debt allocated to the trust fund and debt held by the public.