The deficit and Social Security

Written by Fred Musante
Tuesday, 09 February 2010 16:47

Lately, lots of people are talking about the federal budget deficit and the national debt. I can’t understand why nobody is talking about Social Security. There’s more of a connection than anyone has acknowledged.

The candidates for Congress and the Senate better pay attention because this will be on the test for the 2010 election, if I have anything to say about it.

First, let’s talk about the deficit. It’s huge, projected around $1.5 trillion (with a T) for the 2010-11 federal fiscal year that starts next Oct. 1.

So what is D.C. doing about it? Nothing that will make any difference. In fact, there might not be anything that can be done at this point without making things even worse. Historians blame FDR’s attempt to reel in the federal deficit in 1936 for worsening the Great Depression.

If you have been paying attention, you would have noticed that those hollering loudest against deficit spending haven’t named specific spending cuts. That would be unpopular. Who wants to be unpopular?

The Republicans in Congress recently announced a plan for dealing with the deficit: Freeze all discretionary spending except for defense and homeland security.

President Barack Obama jumped on the bandwagon last week and announced he would freeze all discretionary spending except for defense and homeland security. The Republicans in Congress promptly denounced it as inadequate and phony.

And it is inadequate and phony. When Republican Sen. Jim DeMint of South Carolina announced it, he said the spending freeze would save $75 billion a year for five years, $375 billion in all. Actually, it will save about $5 billion to $10 billion a year.

The Center for American Progress, a think tank, called it the work of “deficit peacocks,” as opposed to deficit hawks. They said deficit peacocks engage in showy displays of concern over the deficit but don’t actually do anything about it.

For the record, I was worried about the deficit back in the 1988 and 1992 election campaigns, but gave up in despair because neither party really cares about it.

President Bill Clinton briefly made headway against the deficit in his last two budgets, but President George W. Bush quickly reversed course with big tax cuts.

By the way, most of our current deficit problems are caused by loss of tax revenue from the recession, not by big government spending.

But how does this have to do with Social Security? It is no coincidence that both the deficit and Social Security problems started early in the Reagan administration.

Reagan inherited a $700 billion federal debt on Inauguration Day, 1981, and more than tripled it during his eight years in office.

Reagan promised his tax cuts would lower the deficit, a promise repeated for every big tax cut proposal ever since. It has never happened.

Social Security’s problem is that beginning around 2016, the amount paid to beneficiaries will exceed the amount paid in payroll taxes to provide those benefits.

In 1983, a blue ribbon panel appointed by Reagan and Congress and led by Alan Greenspan (before he became chairman of the Federal Reserve) proposed a fix for Social Security that was approved by Congress and signed by the President. It raised payroll taxes to collect a surplus and supposedly put the surplus in a trust fund to keep the program solvent until 2040.

Instead, the surplus was funneled into the federal treasury and used to offset part of the deficit. This constituted a huge transfer of wealth from the middle class to the richest Americans, who got most of the tax cuts since 1981.

We’re talking about real money, not just chump change. The annual Social Security surpluses have ranged from $150 billion to $200 billion a year. Average budget deficits during that decade were only slightly more than that. Without the Social Security money, the national debt would currently be trillions of dollars higher than it is.

So here’s the problem. For the last 30 years the middle class has been over-taxed for Social Security to pay for benefits promised for the next 30 years.

But instead of reserving that money as promised, the government gave it away to the wealthiest Americans in the form of tax cuts.

Doesn’t that mean that the wealthiest Americans now owe that money to future Social Security beneficiaries?

Call me a Socialist if you want to, but I am one of those future Social Security beneficiaries who were overtaxed for 30 years, and my answer to that question is yes, they do.

Don’t tell me somebody else made a mistake, and we can’t make the rich people pay for it. As far as I’m concerned, we only loaned them that money, interest-free and tax-free by the way, and soon we’ll need it back.

I want the candidates in the 2010 election to state which side they are on. As I said, it will be on the test.