Social Security "Solvency" is IRRELEVANT !
Promoted by Brendan
On the issue of Social Security, both right and left are framing the debate and crafting their arguments in terms of a completely irrelevant fact: "solvency". Liberals/Democrats argue that Social Security will be solvent for a long time, so we shoudn't mess with it, either in terms of reducing projected spending (via reductions in benefits and/or eligibility) or raising dedicated revenues (e.g., raising the cap on income subject to Social Security FICA taxes). Conservatives/Republicans present an opposite conclusion regarding solvency and assert a need to change the system on that basis. And I just observe all this and pull my hair out that so much policy debate is based on such an absurd premise, that "solvency" has anything to do with these policy choices.
"Solvency" of Social Security is completely irrelevant to whether or not we should reduce its projected spending, increase its projected revenues via FICA taxes, both or neither. Our long-term fiscal imbalance (which very substantially threatens our future standard of living, the more so the longer we wait to mitigate it) is the gap between projected TOTAL expenses and TOTAL revenues, period. ANY reduction in ANY type of projected spending will reduce this imbalance, and ANY increase in ANY projected revenues will reduce this imbalance. Our policy choices -- how we choose to reduce this imbalance -- should be based on economics and on our values, but to consider "solvency" of a particular program a factor in our choice is nonsensical. "Solvency" merely reflects the fact that we currently have a particular level of projected revenues from a particular, dedicated tax going to that program. We carve out a portion of our revenues for that program, making it "solvent", but we can raise or lower the amount we devote to that program, as well as raise or lower the amount we spend on that program (once we get beyond the amount we are currently obligated to spend on it based on past taxes paid), so "solvency" is meaningless from the standpoint of our total budget and the imbalance of that budget.
Illustration #1: I plan to buy a large hamburger and a large smoothie at the Food Court at the mall. I think that the large hamburger will cost $7 and the large smoothie will cost $3. I put $7 in my left pocket to take out when I get to the hamburger stand and $3 in my right pocket for the smoothie. But I discover that a large hamburger is $8, a medium hamburger is $7, a large smoothie is $3, and a medium smoothie is $2. I can't afford the large hamburger and the large smoothie I wanted. I have to decide on moving down in size for either the hamburger or the smoothie. Now I ask you: Does it matter at all that I have $3 in my right pocket that can fully cover the cost of the smoothie as I planned -- i.e., that the smoothie is "solvent"?? Does that mean I should be less inclined to get the medium smoothie as opposed to the medium hamburger?? Of course not. The large smoothie is only "solvent" because I put the $3 dollars in that pocket. I could have put $2 in that pocket and $8 in the other, making the large hamburger "solvent", and I can take a dollar out of the smoothie pocket now and put it in the hamburger pocket, making the large hamburger "solvent" -- it's all one TOTAL amount of money to use for TOTAL expenses, right?
Illustration #2: Let's assume, arguendo, that you favor cutting Defense spending as part of the solution to our fiscal imbalance. Now let's assume that tomorrow a "Defense Tax" is put in effect, with revenues dedicated to the Defense budget, projected to fully provide for a continuation of the current level of spending, and let's assume that some other taxes that go into general funds are lowered such that all the changes end up revenue-neutral. Finally, let's assume that we can adjust the Defense Tax rate up or down as we wish, in accordance to any increases or decreases we choose to make in Defense spending. Now, all of a sudden, presto! -- Defense is "solvent". Would you now say "Well, it doesn't make sense to look at cutting Defense spending as part of the solution to our fiscal imbalance, because Defense is "solvent" ????? Hopefully you would NOT say that, because that would be nonsensical. And the same applies to SS (once we're past the amount we're already obligated to eventually spend on it due to past taxes paid).
The simple fact is that we could shift tax revenues that currently go to the Social Security "trust fund" (which add to the amount we are obligated to eventually spend on Social Security) to general funds instead (e.g., by reducing the Social Security FICA tax rate and increasing other tax rates in a revenue-neutral manner) and we could reduce Social Security benefits/eligibility and therefore projected spending accordingly. Revenues would remain unchanged and spending would be reduced, thus reducing our long-term fiscal imbalance. Or we could decide NOT to do that and to cut more projected spending elsewhere, raise taxes more than we otherwise would, or both. But our decision should be based on the same thing other economic policy choices should be based on: economics and our values. Not on the nonsensical notion that the "solvency" of a particular program, viewed in isolation, because of some current funding structure we've established with dedicated tax revenue, is somehow relevant.
Whew! Glad to get that off my chest.