The President’s latest “jobs” proposal would extend and deepen cuts in the Social Security payroll tax. While as a conservative I generally prefer to see lower taxes, as a Social Security trustee I am deeply concerned that the troubling implications of this proposal have beenscarcely discussed. Instead the public debate has focused mostly on the efficacy (or lack thereof) of such temporary tax relief as a stimulus measure.
Before this legislation is seriously considered, there needs to be greater understanding that it would take a major step toward transforming Social Security from what it has long been -- an earned benefit, funded by separate worker payroll taxes -- into an income-tax based system more akin to welfare.
A former colleague of mine has astutely observed that sometimes the most consequential policy decisions happen simply because too few realize that they are being made. In 1983, for example, Social Security faced an immediate financing crisis, which legislation was said to resolve for decades to come. What the public wasn’t told, and which too few policy makers recognized at the time, was that the solution would produce enormous annual Social Security imbalances going forward – big surpluses in the near term, followed by even larger deficits in the long term. And so for decades after the 1983 reforms, mounting Social Security surpluses allowed elected officials to mask deficits elsewhere in the federal budget, without meaningfully amassing resources to pay for the looming costs of the Baby Boomers’ Social Security benefits. So here we sit in 2011, with Social Security still technically “solvent” but running an annual $150 billion deficit of tax income relative to costs, and holding $2.6 trillion of debt in its trust funds that the general government is hardly in position to redeem.