January 28, 2005
How To Protect The Trust Fund
People often talk about the Social Security Trust Fund, how it's a tidal wave or a financial crisis when it runs out.
Social Security starts costing more than it gets in payroll taxes in about 2018, or 2028 if you count the interest the bonds have accrued. According to the CBO's middle scenario, the Trust Fund is exhausted around 2046.
I have a simple idea to help protect the Social Security's future viability.
Many Social Security beneficiaries pay income taxes on their checks. Those taxes, I believe, are counted as part of normal progressive tax revenue.
That revenue should instead be counted as part of Social Security's revenue. The taxes that people pay on Social Security checks should go back into Social Security.
This is assuming it doesn't already do that; I don't know for sure. And it probably wouldn't push any of those dates out to infinity. But it would push them out a ways, and make it more solvent in general. And, it has several other advantages:
- It isn't a benefit cut. It doesn't reduce the money that people get from social security.
- It isn't a change in means testing or retirement age.
- It wouldn't be a tax increase for anyone. Payroll taxes would remain the same.
- It scales. Meaning, as more and more retirees start receiving benefits, more and more taxes would be generated. So it would not only increases Social Security's revenue, it would also mute the affect of several retirees becoming beneficiaries at once.
- It just sounds good politically. If you owe taxes on your social security income, have it go back into social security to help other beneficiaries that need it more.
One possible protest is that it would take away from progressive tax revenue. However, the progressive tax system has been benefitting for years from the far greater sums of the Social Security surplus. This adjustment wouldn't even completely make up for it. And there's something to be said for refocusing the normal government on the need to make normal spending match up with normal tax revenue.
Update: Well, it appears that the tax revenue from social security checks already does go to the social security trust fund, at least mostly. So it turns out this is a non-starter. I got an interesting reply back from the CBO, though.
It increases the trust fund and creates general government debt in equal, offsetting amounts. Whoopee, we are now more fiscally responsible?
I thought you stopped smoking the trust fund herb. Its bad for you man, bad bad bad.
Posted by: Pepik at February 1, 2005 11:26 AMWhat it actually would have done is put pressure on the administration from saying, "Whoops, big budget deficits; let's cut Social Security!" to "Whoops, big budget deficits; let's balance the general budget."
But, I talked to the CBO and it turns out that the income tax from social security checks already (largely) go to social security. Some goes to medicare. So it's a non-starter.
But anyway, yeah. When the talk is about there being deficit crises, the problem is really the imbalance between our progressive tax and normal government spending. Social Security is pretty darn healthy in comparison. I think I just read that the "deficit date" has been revised from 2018 to 2020.