Monday, July 26, 2010

Social Security shortfall?

Many commentators view with alarm the fact that the “Social Security Trust Fund will begin to face a long-term cash shortfall by 2016” as reported in the AARP Bulletin, July-August, 2010. The trust fund is simply an accounting device and is not a repository of saved funds. Government spends all the money it collects in every kind of tax for all kinds of purposes. Future expenditures for Social Security and any other purpose depend on Congressional appropriations, and not the balance in some made-up, so-called trust fund.
As Randall Wray puts it, "the trust funds cannot provide external funding for one of the governments own programs, because this is a case of the government 'owing itself.' At the same time, however, this means that it is logically impossible for any one of the government's programs to face a financial crisis on its own, because it is the overall budget that matters--not a single program's finances." Levy Economics Institute, Policy Note, 2005/2.
Instead of being scared by an artificial device, we could be debating modifying the regressivity of social security taxes. How much do citizens want to spend on social security and who should pay. This is the same question we should be debating about national defense and health care.

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