April 10, 2015
I see that Bloomberg has apparently decided to give Megan McArdle infinite space to tell its readers that she doesn’t like the Social Security trust fund. Well, they have to fill their website with something.
Just to keep things short and simple, there are two ways to think about the trust fund. First, we can follow the law as written. Under the law, designated Social Security taxes and only designated Social Security taxes can be used to pay Social Security benefits. Money from the taxes that is unspent in the year collected is put in the trust fund for further use. The law is pretty clear on this. I have not heard even Antonin Scalia attempt to argue otherwise.
The other way to think about the trust fund is that it is an irrelevancy. At some time in the past the politicians in Washington thought it would be cute for us to pay for Social Security out of its designated tax and the trust fund, but hey, who cares? There is only one government, so it really doesn’t matter which pocket the money comes out of, so the trust fund is irrelevant to anything.
While there are good reasons for choosing one or the other of these views, both have the advantage of being consistent. Both also have the advantage of telling us that there is no necessary reason to worry about Social Security’s finances just now. In the first case, the projections show the fund will be able to pay full benefits through 2033 with no changes whatsoever. We could of course worry about Social Security’s finances sooner if we want, but some folks might think that problems like unemployment and stagnant wages are more pressing.
By the second view there is no reason to worry about Social Security’s finances because the premise is that it doesn’t have its own finances. Hey, there’s just one government, who cares which pocket the money comes out of? In this view it makes no more sense to worry about Social Security’s finances than it does to worry about the finances of the defense or state departments. It’s all part of the government.
There can only be an issue if we let people just make it up as they go along, effectively saying that Social Security has to be financed by its own taxes, but the program doesn’t get to use surpluses from prior years to pay current year’s benefits. There is not any obvious logic to this position, and it has no basis in current law, but its proponents are welcome to lobby their representatives in Congress to have the law re-written as they would like it. Until then, we need not worry about the status of the trust fund or the solvency of Social Security.
Note: The spelling of Antonin Scalia has been corrected, thanks Ken.
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