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« Social Security: 'We'll be greeted as liberators' | Main | Evan Bayh votes against Rice »

January 27, 2005


Bubba Ram Dos

In this speech, Clinton said the trust fund exhaustion date would be 2029. Today the Social Security trustees are saying the trust fund exhaustion date will be 2042. The 2042 date is based on assumed economic growth of 1.8%, well below the historic average. If there is a crisis, please explain why the exhaustion date has been pushed back 13 years in a seven-year period, with this new date being based on very pessimistic assumptions?

Frank Warner

First, ask yourself what the Social Security "trust fund exhaustion date" means.

For decades, Democrats and Republicans have been talking as if there is something in the "trust fund" to "exhaust." They've talked like that because they have been afraid to admit there is nothing in the trust fund, nothing to exhaust. They spent it all.

That's where you have your crisis. It's a crisis because there's nothing in the trust fund. It's a crisis because too many of our elected officials are too dishonest to admit there is nothing there.

So the date to watch isn't 2042 or 2052, depending on the theoretical exhaustion of the theoretical trust fund. The date to watch for is 2018 or 2020, when Social Security will be asked to start paying out more money than America is paying in.

If Social Security were a private pension fund, it would be required to have $11 trillion (That's 11 followed by 12 zeroes.) in the bank. Social Security has nothing in the bank.

Social Security's "trust fund" holds IOUs, called Treasury notes. Lots of politicians love to point out how the U.S. government has always paid back these IOUs, which is true. The problem is this: The U.S. government can easily borrow a few billion dollars here and there, even a few hundred billion in an emergency.

But $11,000,000,000,000 ($11 million million) is on a higher order of magnitude. It's on an order of magnitude defined as crisis.

And then there are a couple of other crises called Medicare and Medicaid.

And by the way, partial privatization of Social Security is not a solution. Taxes will have to be raised to save Social Security, private accounts or not.

Partial privatization has only one advantage. It would tie up the Social Security contributions in a way that would discourage Congress from spending the money as soon as it came in.

Tying up the money causes a problem in the transition from pay-as-you-go, because Social Security currently depends on none of the Social Security contributions being locked away or invested in the real world.

But odd as it may seem, the partial privatization actually could prevent another Social Security crisis.

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