Investor's Business Daily, April 24th, 2007
Entitlements: Journalists in Washington are supposed to be public watchdogs. But when it comes to the crisis facing Social Security, they act more like lapdogs for politicians determined to shirk their responsibility.
The Washington Post, New York Times and Associated Press all led off their stories on the latest Social Security and Medicare trustees' projections by pointing out that Social Security isn't expected to deplete its trust fund reserves until 2041. This supports the contention of Democratic politicians and the AARP that the day of reckoning is more than three decades away, so reform is not an urgent need,
But if you read the message from the two public Social Security and Medicare trustees, who were first appointed by President Clinton, you get an entirely different story -- one that happens to be true.
"While current trust fund reserves provide the authority to cover the first $2 trillion of this funding shortfall before being depleted, Treasury must still come up with this amount in future cash," wrote John Palmer, a Democrat, and Thomas Saving, a Republican.
This is not a matter of dispute. Social Security's trust fund balances "do not consist of real economic assets that can be drawn down in the future to fund benefits," stated Clinton's 2000 budget.
In theory, the trust fund balance represents the cash government has saved in years that the taxes paid into Social Security have exceeded the benefits paid out, which has happened in every year since 1983.
Starting in 1984 and running through 2006, the government collected an extra $935 billion in Social Security taxes. But even with those extra dollars, Washington still managed to spend its way to $3.5 trillion in deficits over that span. So in no real sense has Congress set aside funds to pay retirement benefits in coming years.
Yet, as the government spent those excess Social Security funds, it issued special bonds that were deposited in the trust fund. Rather than providing real resources to pay future benefits, the bonds merely show how much of a debt the government owes to Social Security -- a government agency. In effect, the bonds are IOUs that the government has been writing to itself.
Like the government debt held by the public, these IOUs collect interest -- $100 billion in 2006 alone. So by the end of last year, the trust fund had grown not just to $935 billion, but to $2 trillion. And this year, although the government will run another deficit, the trust fund will grow by another $188 billion.
All the trust fund provides is a "very false sense of security," says Comptroller General David Walker, another Clinton appointee.
When Social Security starts paying out more in benefits than it collects in taxes in 2017, it will have to start cashing in those IOUs. And the government, which will already be under enormous fiscal pressure due to the soaring costs of Medicare and Medicaid, will be able to make good on those IOUs only by raising taxes, borrowing money, or cutting benefits or other government programs.
By 2022, Social Security's yearly shortfall will exceed $100 billion; that will grow to $200 billion a year by 2027, $300 billion by 2032 and $350 billion by 2037. The total projected shortfall from 2017 through 2040 -- just before the trust fund runs out -- is $5.25 trillion. After that, the program's finances grow steadily worse.
Those who point 15 the existence of the trust fund to downplay the urgency of Social Security reform are simply choosing to ignore this $5.25 trillion reality at the expense of those who will be paying taxes, retiring and relying on government services in 2017 and beyond. Those poor suckers will be the ones to deal with higher taxes, diminished retirement benefits and a government whose growing debt load erodes its ability to fund basic services.
If Washington reporters are serious about serving the public interest, they should stop helping politicians who want to shirk their duty by papering over this huge problem with IOUs.
