Senator Thompson's plan provides for cuts in benefits that increase through time. Twenty years after it is implemented, benefits would be 20 percent below currently scheduled levels, after forty years benefits would be 35 percent lower, and after 60 years they would be 48 percent lower. While these cuts in benefits would be far more than enough to put the program in surplus over its seventy five year planning horizon, the Post still isn't happy. It complains "but he neglects to make clear that fully half of that solution would come from transferring general revenue funds to the Social Security system." Mr. Thompson probably "neglects" to make this point clear because it isn't true. We can see this with simple arithmetic. The SS shortfall is equal to 1.9 percent of projected payroll according to the SS trustees. The non-partisan Congressional Budget Office puts the shortfall somewhat lower. If we add this to the 12.4 percent payroll tax, this implies a shortfall that averages 13.3 percent of benefits (1.9 percent divided by 14.3 percent). The Thompson plan achieves this level of benefit reduction after 14 years, with the cuts growing further over the 75-year planning horizon. (Thompson's cuts apply to new beneficiaries, but I have ignored the $2 trillion accumulated surplus in the trust fund and the revenue from taxing SS benefits in this calculation.)
Where does the WaPo and Dean diverge on their math? Dean takes the current Trust Fund reserves and the surpluses that will continue BIG TIME over the next several years to be part of – well the Trust Fund. WaPo and Fred Thompson, however, would rather count those payroll “contributions” that we’ve paid for the last 25 years and will pay for the next decade plus as really employment taxes to fund things like the Iraq War, the Prescription Drug Benefit, and Bush’s tax cuts on capital income.
Let’s be real. Raising employment taxes to cut capital income taxes has been the GOP agenda for sometime and their means is accounting fraud with the Federal budget. Paul Krugman, Dean Baker, and I make this silly assumption that those Trust Fund surpluses are in some hypothetical “lock box” with a clear accounting for the dedicated payroll tax as Paul likes to call it. But the GOP is working with another accounting standard called the unified budget. It is sort of like when Dick Cheney asked some Andersen accounting partner to alter the books for Halliburton but forgot to tell his shareholders. Maybe silly old Fred Thompson just slipped up and let the world know about this accounting fraud.
Now if Senator Obama is smart enough not to be fooled with the GOP accounting fraud, let me be the first to applaud him. Maybe there are a few Republicans who as honest and Andrew Samwick about this issue, but again – let’s be real and recognize that the honest Republicans are not the ones in political leadership roles. Senator Obama appears to be willing to work with honest Republicans on this issue. But outside of Ron Paul – can you name me one Republican candidate who is being honest on this particular issue and does not wish to convert our past payroll contributions to employment taxes to bail out the General Fund fiasco? I certainly cannot.
As far as the long-run solvency of the Social Security system, I’m willing to wait until we have a Democrat in the White House as there is no urgency on this issue. Our gracious administrator correctly states that Clinton has not made any proposal. I sense he doesn’t trust her on this one and I have no reason to do so either. My only point – which I think she is taking – is that we should debate the Republican thieves on more urgent issues such as this insane war and the General Fund fiasco. Doing what is right on these issues can be political winners. The first order of business is getting a real President in the White House. Early 2009 will be soon enough to have the great Social Security debate.