Yes, it’s an election issue. That just makes it more serious. Social Security’s legislated benefits are threatened both by Republicans, who clearly would prefer that voters depend more on private savings, and by a centrist establishment that has defined benefit cuts as a standard for fiscal responsibility. Democrats try to make threats to the program a campaign issue, while the parties trade charges that Social Security has or will be “raided”.
No one has been raiding the trust funds. That doesn’t mean there is no relationship between Social Security’s financing and the federal budget. To determine which party is most likely to make Social Security more secure, you need to look at both their proposals for the program and their overall budget policies. But that’s different from saying either has raided the trust funds.
The whole idea of a “raid” depends on the idea that there is something to be stolen. It intersects with the confusion around whether the Social Security trust funds exist in the first place. A new report by the Center for Budget and Policy Priorities does an excellent job of laying out the basic facts, but leaves one crucial issue to be considered.
The report is written by Paul Van de Water, who has served as both Assistant Deputy Commissioner for Policy at the Social Security Administration and Assistant Director for Budget Analysis at the Congressional Budget Office. As he explains, any claim that the federal government has been “raiding” the trust funds begs the question of what should be done with any surpluses. Surpluses could be used to buy federal debt, or to invest in stocks and bonds. Yes, by buying federal debt the federal government “owes the money to itself.” But that reduces future federal interest obligations that would have been owed to the public. As I explained in an earlier post, it’s like using extra income now to pay off your mortgage, so your living expenses will be lower during retirement. Nobody would call that “fake” retirement planning.
If the Social Security surplus were invested in bonds or stocks, that might seem more “real” to some people. But the income from the stocks or bonds would be largely balanced out by extra interest expense on the federal bonds sold to the public instead of credited to the trust funds. Social Security would also take on substantial market risk. I and others have endorsed modest diversification of the trust funds’ portfolios, but nobody should imagine that investing the funds in Treasury instruments is a bad decision.
Using the trust funds to reduce federal debt is not “raiding” them. So what’s the argument?
Beliefs About Budget Politics
The closest thing to a real argument goes something like this: Surpluses are supposed to reduce spending in one account (interest) to make spending in another (Social Security) more affordable in the future. Critics maintain, however, that because Social Security is in the unified federal budget account, its surpluses make the federal deficit seem smaller. Because the deficit seems smaller, politicians are less responsible about the rest of the budget. As the Milwaukee Journal Sentinel summarized the argument made by the Urban Institute’s Eugene Steuerle, the Social Security surplus “helped encourage bigger spending by the rest of the government.”
Such arguments have been made at least since the late 1980s. To make it now, however, rewrites and misinterprets history. It’s Ross Perot for elites. Perot accused politicians of not caring about the deficit after a decade in which they hardly fought about anything else. Budget hysteria and self-righteousness don’t lead to agreement on deficit reduction, but it’s definitely not that politicians didn’t think the deficit was too big.